Five predictions about US higher education in 2040

As the first two decades of the new millennium come to a close, many industries are in the midst of transformation. My colleague, Larry Shulman and I recently analyzed the data and marketplace of the U.S. post-secondary education. Below we offer five not-so-crazy predictions about how the US market for four-year bachelor’s degrees will likely look quite different in 2040.

Prediction #1: 50% of US college degrees will be awarded to students who have spent three years or less on a college campus. One of the less talked-about trends in higher education is the growing number of college-level courses that teenagers are completing before they leave high school. Available data suggests that student Advanced Placement (“AP”) tests and enrollments in college-level on-line courses have been expanding at 5-10% per year over the last decade.

Already, in 2010, when I stepped down as dean of New York University’s Stern Undergraduate College of Business, 25% of our entering classes were graduating after only 3 or 3-1/2 years thanks to these outside credits, which most viewed as a self-funded version of financial aid. If the price of college tuition continues to rise, even if only modestly, and other factors continue to change as we discuss below, it’s easy to imagine three-year bachelor’s degrees becoming not only common, but the norm.

Prediction 2: Up to 500 private colleges and universities offering 4-year degrees will close. Students spending less time on college campuses means fewer tuition dollars per student. Combined with slowing enrollment growth and increasing pricing pressure, these trends could trigger a 30-40% contraction among private non-profits over the next 20 years.

According to data from the National Center for Education Statistics (NCES), 1580 private non-profit colleges and universities currently operate in the US, accounting for 56% of providers and 29% of US bachelor’s degrees conferred each year. Particularly at risk among these schools, as we look forward, are the 45% that currently operate with total enrollments of less 1000 students and another 30% operating with fewer than 2500 students. It is estimated that as many as 20 private colleges closed their doors in the past year. If that trend stays flat, much less grows, over the next 20 years, that could easily spell the end for 400-500 schools.

Prediction #3: The for-profit market for college education will continue to rebound and account for 20% or more of college credits (not degrees) provided each year. The production of college credits will continue to be decoupled from the production of college degrees – it’s already happening with AP credits and on-line courses. We can envision a future where the highest-margin, for-profit providers won’t necessarily sell degrees -- they’ll sell credits.

Imagine a new generation of firms offering quality virtual education in key content areas—core courses in the social sciences, for example, or history—while others hyper-specialize in experiential learning programs like for-credit gap years and semesters abroad. By focusing on key segments, these firms could increase the quality of offerings while at the same time reducing costs. Because they will focus on credits, not degrees, they won’t require the same infrastructure and other overhead typical of four-year colleges and universities.

To a certain extent, this rationalization process is already underway. According to NCES data, for-profit degree providers currently register about one million students, accounting for 7% of US enrollments each year. With the recent downturn among for-profit educators (following a 15-year growth spurt – between 1995 and 2010 enrollments grew 20% annually, from 100,000 to 1.6 M), private equity firms have been buying up struggling firms. As examples, long-time providers DeVry University and the University of Phoenix are now part of private equity portfolios. We anticipate that many of these economically motivated owners will recognize the market opportunity in credits, if they have not already, and it will become their core business.

Prediction #4: College admissions at highly ranked schools will become both more transparent and even more in-demand. These school will respond by altering their offerings. As private schools close, the gap between elites and non-elites in the college marketplace will only grow wider. Competition will grow more intense, and so will the pressure for high-endowment schools to keep prices down and make admissions policies more transparent.

While high-demand schools won’t face the same pressure to accept outside credits, the boards and faculty at many of these schools will explicitly move to a three-year campus residency standard to create more slots for students. By increasing the use of global study at schools like NYU and Dartmouth’s off-campus “D-Plan” as part of their college experiences, many schools have already substantially increased the number of students they admit. As this happens, the elite schools will continue to pull enrollments from the next tier, further contributing to the downward pressure on tuition revenues within that sector.

Prediction #5: Hundreds of former college campuses will be bought by companies operating for-profit education, senior living facilities, etc. -- whether it be private equity owners, Chinese investors or other financially oriented sponsors. As private colleges close, investors will buy up assets of value. In March 2018 Bloomberg reported that Chinese companies have already purchased at least four campuses in New England. One could envision all types of investors purchasing the most attractive campuses to offer short-term residential study experiences for foreign college students, summer camps for older adults (e.g., Chautauqua-like events), retirement communities, you name it.

What to do? The restructuring of the US higher education system is in motion -- whether it’s the steady increase in the number of college-credits being earned by high school students, the growing role of for-profit providers in providing these credits, or coming consolidations, particularly among smaller schools in the private non-profit sector. 

Our advice for parents preparing to send your children to college: first, maximize your economic flexibility. Make use of all opportunities available for your students to earn college credits while in high school or through a gap year experience between high school and college.

Second, when looking at private colleges, ask about their policies for granting college credit for prior coursework and early graduation options. You want schools that have the foresight to make graduation residency requirements flexible. Also consider the structural characteristics of any private schools that your child may apply to. If our prediction is right and hundreds of private schools do close, those that survive will have larger average enrollments, say of 2000 students or more; larger per student endowments, of at least $50,000 per student; and be proximal to a major metropolitan area, because cities are great settings for adjunct teaching talent and employment options for dual-career faculty couples.

For faculty and board members at schools that don’t meet these criteria, it will be important to consider opportunities for gaining scale and sharing costs through potential mergers, roll-ups and other consortia options. The point is to be realistic about the coming headwinds so that we preserve existing endowments and maximize the legacy of our alma maters. The US system will only maintain its global preeminence if we can assure the best possible array and quality of educational options for future students. That has to be our shared goal.

This post was co-authored with Larry Shulman, Senior Partner Emeritus at the Boston Consulting Group, and originally appeared on Forbes -- you can see it here.