Supply and Demand and the Demographic Cliff
Last month, Inside HigherEd and Hanover Research released their survey of over 400 college and university presidents, and the results were confusing. The study showed that eight out of 10 presidents agree (and three of the eight strongly agree) that their institutions will be financially stable in the next decade. However, the report acknowledges that higher education will be faced with significant challenges, including higher costs, possible consolidation, higher labor costs, faculty retention, diversity issues and the impact of inflation, among other factors. Presidents also appear to continue to question the quality of online courses versus face-to-face delivery or hybrid courses.
With presidents being optimistic, it is unclear as to what factors provide them with the confidence that their institutions will remain financially stable over the next 10 years. For starters, the demographic cliff, as coined by economist and Professor Nathan Grawe of Carleton College, is a major headwind for higher education, as it is anticipated that the number of 18-22 year-olds will be significantly lower over the next two decades. Some have estimated that there will be a shortfall of between 400,000 and 1,000,000 students annually. In fact, the National Student Clearinghouse has shown that the number of students attending college has declined by nearly three million over the past decade. While graduate enrollment has remained steady at roughly three million, undergraduate enrollment declined from 18.1 million in 2010 to 15.1 million in 2022. This decrease occurred despite favorable or flat demographic trends for 18–22-year-olds and increasing high school graduation rates.
So, why are presidents optimistic? They are not sold on online education, despite more degrees and courses coming online. This is currently a post-pandemic observation that is not grounded in fact, but rather their impression, based on conversations from representatives from many institutions and reviews of program websites, that supply is increasing. We believe that the pandemic created a natural opportunity to move courses developed during the pandemic for existing students to compete for new students in the future. We believe that supply for online courses is increasing and has been doing so over the past decade.
With supply most likely increasing and demand decreasing, at least among 18-to-22 year-olds, how will financial stability improve? It can come from only a few places:
- Greater operational efficiency. Colleges and universities will need to improve operations. At UPCEA, we’ve been approached by a number of institutions to identify opportunities for strategic centralization to support online programs, improve processes and create more student-centricity.
- Maintaining or generating more enrollments from existing students. In retail economics, it is often difficult to generate significantly more purchases from an organization’s existing customer base without major shifts in strategy. Amazon over the course of two decades built its base over time going from the early days of textbooks online to moving content to Kindle, to selling music and then toys, to creating web hosting/server services and offering video streaming, and then creating storefronts and delivery services. Higher education has improved retention and thus improved some revenue streams. Online degrees have also created greater flexibility for existing students while attracting new ones. Beyond these major investments and the build out of brick-and-mortar facilities, institutions have not created enough in my opinion to command so much confidence from presidents.
- Attracting new students to existing products. Millennials have moved through our system, and our market, at least for the 18-to-22 year-old, is no longer growing. It can be argued that online education is really the same product, but offered through a different channel and thus attracts new students. The problem here is that supply has grown and unless our quality, our marketing, or the way we serve the student are clearly better, many institutions will be at a disadvantage, especially given that most have not even considered reducing prices.
- Creating new products for new or previously lost markets. Higher education has been resistant to this. College and university systems have been built around a degree model. UPCEA is partnering with the American Association of Collegiate Registrars and Admission Officers (AACRAO) to address system and process issues around challenges created by new educational models. It is likely, if we do nothing else and travel on the same trajectory, that undergraduate enrollments will decline further…even below 14 million enrollments. Creating new products such as microcredentials or unbundling the degree into certificates has the potential to reach other audiences, such as the 40.4 million designated as “Some College, No Credential.” Potential students will be more likely to invest in higher education if they can earn credentials on their way to the 120-credit degree. The fear of not reaching 120-credits and even coming as close as a credit short and not receiving any official credential for knowledge attainment is likely to be a deterrent in the future. Another overlooked market is the 90 million+ adults in the U.S. who have a college degree. Microcredentials or graduate certificates could appeal to them and thus contribute to the financial stability that presidents espouse.
The money isn’t going to magically fall out of the sky with 18-to-22-year-olds returning to colleges and universities because their personal, professional or economic sabbaticals are over. Higher education will need to do something very dramatic to increase participation, confidence, and perceived return on investment (of both time and money). I was recently asked what the perfect college or university of the future might look like, and I said it could still offer bachelor’s or master’s degrees, as well as others, but what they will need is greater flexibility and stackability and the acknowledgement of learning along the way. I also said that grades might not be as important, and earning a competency or badge which could be applied to a degree later might matter more. I also said that when a potential student engages a college or university either through its website, in-person or on a call, they would be addressed on their terms, and that we design our communication and engagements around them and not us. We would also bring employers to the table, given the dramatically changing economy. Expert faculty only see one side of learning. Employers see the other and the two parties need to work more closely together to map out valued content. Both parties also need to be there working with accrediting agencies to define and assess quality of programs and professions. Not all programs will have the same levels of learning and quality, but neither will similar jobs within the same sector or industry.
Drastic times call for drastic measures and higher education is on the cusp. While I am not an economist and not factoring in inflation and tuition increases, I’ve estimated that with a three million enrollment decline, losing $30,000+ in tuition and fees equates to at least $90 billion no longer in the higher education sector. This further equates to an average of $22.5 million less to each institution, acknowledging that there are small and large schools and the impact would be relative to the size of the institution. Losing another 400,000 students could amount to another $12 billion shortfall or an average decline of $3 million for each school.
In addition to lost revenue, I fear that institutions could spiral downward due to further abandonment by potential students and that employers and the private sector will fill the void. While highly dystopian and not likely, the possibility does exist, especially given the rapid rate of change to an automated economy. It is my hope that higher education will create more flexible and stackable education in the form of online certificates and microcredentials that ultimately fits into a degree and I think we will. Much of what I’ve read tells me that despite presidents not being fully onboard in many cases, that the work in the trenches is happening. I want higher education to succeed. I want to be wrong. I want my friends, peers, co-workers, clients and friends to tell me that higher education pivoted and survived and is thriving. I so want to be wrong.
Supply in a post-pandemic world can continue to grow. Demand has to as well. We can reverse the effects of the demographic cliff by adding net new learners. In the past, success was defined by 15 to 18 million undergraduate and three million graduate learners. With a future demographic cliff number of 14 million undergraduates and three million graduates, we can add another six to eight million certificate seekers (operating a half the pace) to reverse the effects. We can scale the cliff and have demand exceed supply by creating more noncredit education and awarding badges. We need to do this if higher education is to thrive.
Jim Fong, UPCEA’s Chief Research Officer, has extensive background in marketing at Penn State, as well as experience in private industry. Jim brings a rich understanding of the dynamics driving today’s higher education leaders, providing research-driven strategy and positioning. Jim often presents at UPCEA conferences, sharing vital information with attendees.
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