Strategy Notes: the demographic crisis.
Everyone’s heard of the demographic crisis. It’s not looming; it’s already started.
Public k-12 school enrollment peaked in 2019 at 51 million and is projected to decline by over 4 million students nationwide by the end of the decade. And U.S. fertility rates hit another all-time low, so the crisis will likely accelerate into the next decade.
The last time schools faced a demographic crisis — the 1970s — districts downsized in buildings and personnel. Teachers’ unions grew in power to protect these jobs, and tax-payers responded by limiting the reach of school districts into their pockets (e.g. California’s Prop 13). With taxpayers rebelling against increasing taxes to compensate for declining school enrollment, teachers’ unions turned to the federal government. And that’s how the Department of Education was born (officially on May 4, 1980).
The current crisis in k-12 leads to a crisis in college enrollment. Any college with long-term financial obligations (bonds, pensions, tenured faculty) that are dependent on enrollment growth projections will face enormous financial difficulties. But these ‘demographic crises’ are not uniform — or even a crisis — across all states. It could be argued that the Department of Education was created to bail out California schools (not an entirely erroneous argument). Similarly, whatever bailouts attempt to save colleges will be targeted to specific states and university systems.
Most colleges enroll most students “locally” — often students who graduated high school within 50 miles of the college. More regional colleges tend to pull most of their students from within 100 miles. Whether this crosses state lines often depends on whether the school is private or public. Public schools, with significant differences between in-state and out-of-state tuition, usually pull mostly from in-state.
The first conclusion is that the demographic crisis will likely hit high-exit states much harder than other states, while a few states won’t feel the pain at all. The states that are projected to decline the most in student population from now until 2030 are Hawaii, California, New Mexico, New York, West Virginia, Mississippi, Louisiana, Oregon, Connecticut, New Jersey, Michigan, and Maryland. All of those states are projected to lose between 8% (Maryland) and 16% (Hawaii, California) of their k-12 student population. Those numbers may not seem high, but consider that for California, that’s a decline of almost a million high school graduates over that period of time.
Amazingly, that projected decline is on top of a fairly significant decline that’s already occurred. From 2017 to 2022, Hawaii, California, New York, West Virginia, Mississippi, and Illinois all lost between 6%-8% of their k-12 student populations.
Conversely, several states’ k-12 populations are projected to grow (Idaho, Utah, Florida, among others). From 2017–2022, sixteen states had increasing k-12 populations.
So the ‘crisis’ is a state problem for most public colleges, and a local problem for many of them because the population declines occur disproportionately across large states. SUNY Potsdam (far upstate, near Canada, where undergrad enrollment has declined almost 50% in the last few decades) is likely to have more of a crisis than SUNY Stony Brook (on Long Island).
From a strategy perspective, step one is to map a college’s current student demographics against NCES projections to understand the degree of the crisis (if any) for an institution. If a college is facing a demographic crisis, then the college must realize that it can no longer benefit from an accident of geography or — for public colleges — the luxury of low price. Many public colleges can no longer survive on being the low-cost provider for students within 50 miles.
The solutions for public schools is likely strong brand development and focus, which also means cutting off-brand programs. The college will need to be a destination for students >100 miles away. Of course, this also means you’ll likely need to invest in housing (which, usually is good because it’s cash-flow positive, but it’s also a greater commitment). Operationally and financially this is very difficult, so some will seek a political solution (usually that means federal funding). States may demur from such solutions because there will be cases in which private colleges are actually the low-cost provider (that’s occurring in a few places today), and that could catalyze a movement for college vouchers, in which state funding follows the student, not the institution.
The most vulnerable programs are likely education schools/departments and high-availability programs. Education schools/departments will have fewer students precisely because there’s decreasing k-12 demand for their graduates. High-availability programs — programs that are offered at many/most public colleges — won’t be a draw across large states or state lines. Expanding the college’s geography internationally is also an option, though that depends on the idiosyncrasy of student-visa approval rates (currently down for many colleges).
Innovation in curricula and standards, substantially supported by technology, will be required, which will require increased flexibility from accreditors (that, I fear, will be a major hindrance to true innovation). The traditional time-based bachelors degree will become relegated to a mid-twentieth century curiosity for a few colleges. And traditional liberal arts colleges will become more valuable in their scarcity.
Absent substantial public subsidies, states are facing an education rust-belt unless they can engage in innovation that is more often taught than practiced in higher education.
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On operational analysis, see https://nathan-a-allen.medium.com/the-crisis-in-higher-education-harvard-and-operational-analysis-7d7ffe251472
