By 2030 over 50 Percent of Colleges will Collapse

by | Jul 5, 2013 | Business Trends

In 1791 when Mozart died, his 29-year-old wife, Constanze Weber, was forced to earn a living, so she began selling her late husband’s manuscripts and turned the former messy paper scraps lying around the house into a tidy income stream.

Lucky for her, she lived after Gutenberg’s printing revolution had begun in Europe allowing her to leverage the power of rapid reproducibility.

Over time, the music industry has figured out many different formats for reproducing music, moving from sheet music, to Edison’s cylinder phonograph, to vinyl records, to 8-track tapes, and eventually to downloadable digital recordings.

During those same 200+ years, colleges have done little to reproduce and distribute college courses, choosing instead to redo each college class, much like ancient monks reproducing the scrolls of history.

When demand for education increased, they simply built more colleges, thousands of them, in fact, all over the world. This is analogous to forcing people to go to concerts and other live venues to listen to music.

Over the coming decades, the amount of education we consume to stay competitive will increase exponentially.

However, the education we “buy” will increasingly be on “our terms” not on theirs. We will want education that is relative, timely, available on-demand, and fits within a specific need. And it will need to be far more affordable.

For these reasons and more, which I’ll explain below, we will begin to see the mass failure of traditional colleges. But out of this will come an entire new education era unlike anything we have ever seen.

Embracing the Digital Era

Over the past decade, the number of people reading printed newspapers, visiting retail stores, and using direct mail have fallen sharply.

At the same time, the amount of news consumed on a daily basis has risen sharply, the overall level of retail sales has continued to increase, and person-to-person communications through email, social media, texting, and other forms of digital communications has exploded around us.

Each industry has forged its own unique path into the digital age.

In the past few months the level of experimentation surrounding college education has shot up considerably, and many are getting considerable traction. A high level of experimentation is always a leading indicator of change even if we don’t have a clear view of what it will look like on the other side.

Key Metrics to Consider

Several driving forces are causing the world of higher ed to feel the ground shift beneath its feet. Consider the following metrics:

Rising Costs

  • In the U.S., student loans exceeded $1 trillion for the first time in 2013 with the average student loan soaring to $23,300. (Source: BBC)
  • In-state tuition and fees at California’s largest colleges jumped 130 percent on average during the last decade, or roughly five times faster than inflation. (Source: The Modesto Bee)

Demand for Online Courses

  • In less than 6 years, Apple’s iTunesU reached the 1 billion course download threshold. (Source: Apple)
  • In less than 1 year from its founding, Cousera passed the 3.2 million registered student mark. (Source: Inside Higher Ed)
  • Udemy now hosts over 8,000 courses for its base of 800,000+ students. Their top ten instructors have earned combined course revenues of more than $5 million. (Source: The Next Web)
The Seeds of Discontent
  • Last year 284,000 college graduates, including 37,000 advance degree holders in the U.S. were working minimum wage jobs in 2012. (Source: Wall Street Journal)
  • Out of 41.7 million working college graduates of 2010 in the U.S., 48%  worked jobs that didn’t require a bachelor’s degree. (Source: Huffington Post)
  • In China, a recent study projected that more than half of the 94 million Chinese earning college degrees between 2010 and 2020 will be working blue-collar jobs because of an oversupply of talent. (Source: International Business Times)
  • According to the Beijing Times, China’s college graduates on average make only 300 yuan, or roughly $44, more per month than the average Chinese migrant worker. (Source: Wall Street Journal)
Shifting Trends
  • In their paper “The Great Reversal in the Demand for Skill and Cognitive Tasks” researchers Paul Beaudry, David A. Green, and Benjamin M. Sand conclude that the year 2000 was a turning point where demand for cognitive tasks often associated with high educational skills began to decline. (Source: National Bureau of Economic Research)
  • 43% of Universities are planning to offer MOOCs by 2016, a 30% jump from the number of institutions currently offering them. (Source: USA Today)
According to Andrew Ng, founder of Coursera, “When one professor can teach 50,000 people, it alters the economics of education.”

Thomas Frey Futurist Speaker Student Loan Backlash

Student Loan Backlash

There’s a big difference between affordability and financeability. Until now, colleges have had a relatively easy time selling a student on getting an education today in exchange for some unknown monthly payment to be determined later.

Hundreds if not thousands of studies have been commissioned over the years to support the value of higher education, and students on the fence are quickly overwhelmed with evidence that they’re making the right decision.

In fact, the anti-education crowd is very small, and those questioning the cost of education have only become vocal during the past few years.

The “education industrial complex” is perhaps the most influential in the world, with everyone from Presidents and world leaders, to Nobel Laureates, to CEOs and business executives all unwavering in their support of colleges and their accomplishments.

Yet for the lowly student sitting at home with $100,000 in debt and the only job available to them is one that doesn’t require a college degree, the entire system begins to feel like a house of lies, with festering levels of anger working their way to the top.

Over the coming months this seething cauldron of discontent will begin to erupt in unusual ways.

Eight Reasons Why Over 50% of Colleges will Fail by 2030

So what happens when the legacy power of an institution meets a rapidly changing business environment driven by emerging technology? Some will survive but many will not.

For this reason I’ve decided to focus in on eight core issues for colleges that will drive a wedge between business-as-usual and the unstoppable forces of change.

  1. Overhead costs too high – Even if the buildings are paid for and all money-losing athletic programs are dropped, the costs associated with maintaining a college campus are very high. Everything from utilities, to insurance, to phone systems, to security, to maintenance and repair are all expenses that online courses do not have. Some of the less visible expenses involve the bonds and financing instruments used to cover new construction, campus projects, and revenue inconsistencies. The cost of money itself will be a huge factor.
  2. Substandard classes and teachers – Many of the exact same classes are taught in thousands of classroom simultaneously every semester. The law of averages tells us that 49.9% of these will be below average. Yet any college that is able to electronically pipe in a top 1% teacher will suddenly have a better class than 99% of all other colleges.
  3. Increasingly visible rating systems – Online rating systems will begin to torpedo tens of thousands of classes and teachers over the coming years. Bad ratings of one teacher and one class will directly affect the overall rating of the institution.
  4. Inconvenience of time and place – Yes, classrooms help focus our attention and the world runs on deadlines. But our willingness to flex schedules to meet someone else’s time and place requirements is shrinking. Especially when we have a more convenient option.
  5. Pricing competition – Students today have many options for taking free courses without credits vs. expensive classes with credits and very little in between. That, however, is about to change. Colleges focused primarily on course delivery will be facing an increasingly price sensitive consumer base.
  6. Credentialing system competition – Much like a doctor’s ability to write prescriptions, a college’s ability to grant credits has given them an unusual competitive advantage, something every startup entrepreneur is searching for. However, traditional systems for granting credits only work as long as people still have faith in the system. This “faith in the system” is about to be eroded with competing systems. Companies like Coursera, Udacity, and iTunesU are well positioned to start offering an entirely new credentialing system.
  7. Relationships formed in colleges will be replaced with other relationship-building systems – Social structures are changing and the value of relationships built in college, while often quite valuable, are equally often overrated. Just as a dating relationship today is far more likely to begin online, business and social relationships in the future will also happen in far different ways.
  8. Sudden realization that “the emperor has no clothes!” – Education, much like our money supply, is a system built on trust. We are trusting colleges to instill valuable knowledge in our students, and in doing so, create a more valuable workforce and society. But when those who find no tangible value begin to openly proclaim, “the emperor has no clothes!” colleges will find themselves in a hard-to-defend downward spiral.

Ironically, we are entering into a period where the demand for education will rise substantially. Yet traditional colleges are such a mismatch for what future consumers will want that dropping enrollments will cause many to fail.

At the same time many new opportunities will begin to surface, and future-learning centers will make use of former college facilities. Some may even resurrect the former institution under an entirely new business model.

Declining Enrollment Scenario

With several new alternative education options arising, many colleges will begin to experience a decline in their enrollment. When revenues run short, the first instinct will be to arrange short term financing. This coupled with long term bonds and other obligation will create a growing mountain of debt.

As less expensive schools with extensive online capabilities begin to “steal” students, several colleges will engage in a pricing war to “keep their numbers up.” Many will spend heavily on marketing to change their image and boost enrollment. Others will spend heavily on lobbyists in hopes of gaining more support from government.

Some will experience declining revenues, others declining enrollment. Most, however, will experience both.

How many colleges that experience a 10% decline in enrollment/revenue per year, will still be around after 5 years?

In the business world, declining metrics like this are referred to as a “death spiral.” How long will it take before dramatic changes are made? At what point will layoffs begin, assets be sold, or mergers be considered?

For state-supported institutions, at what point will an emergency session of the state legislature be called? If 3-5 state-supported colleges are all experiencing enrollment/revenue declines at the same time, at what point will the state decide to “walk away” from what they perceive to be a never-ending money pit?

How many colleges or universities will have the ability to reinvent themselves as this is occurring?

Final Thoughts

Imagine coming across a job opening that requires a specific certification you currently don’t have. You match up well will all of the other job requirements but you’re only missing this one certification.

A few clicks later you find out the certification can happen online with 20 hours of training. So you spend your weekend getting certified.

Yes, there’s a big difference between having a cursory understanding of a topic and working level proficiency. But for many of us our future careers will hinge on situations like the scenario I just described.

As a society we’ve grown complacent, thinking smart people in colleges are doing a good job preparing our kids for the future. Yet higher ed has become a lumbering giant, slow to adapt and increasingly out of sync with the needs of business and society.

The same top-down institutional systems that have preserved colleges for centuries are now becoming their greatest enemy.

Much as failed golf courses, big box retailers, and shopping centers end up in the laps of local communities, failed colleges will also become local problems for city governments to deal with.

Pedestrian campuses that worked well during peak enrollment have a way of becoming white elephants for whatever comes next.

Over the coming weeks I’ll be focusing on “what’s next” for colleges and universities. With the right transitioning effort, the downside may not be as dismal as what I’m predicting.

At the same time I’d love to hear your thoughts.

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