Why your college could go bankrupt

As the higher education system in the U.S. faces rising costs and reduced state funding, many are asking, What will colleges of the future look like?

According to a recent cover story in The American Interest, some won't look like anything at all, because they'll cease to exist. Author Nathan Harden estimates that in 50 years, half of the approximately 4,500 colleges and universities in the U.S. will go belly-up.

How could this happen? Through technology, he argues. Virtual classrooms, lectures through streaming videos, online exams — we've already seen these innovations crop up at major academic institutions, but they'll only proliferate on a much larger scale and disrupt the higher education system as we know it.

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Harvard and MIT already have the online education venture edX, while Stanford has Coursera and has formed agreements with Penn, Princeton, UC Berkeley, and the University of Michigan to manage their online education programs. Harden also predicts that as online education becomes more widespread, a college-level education will soon be free (or cost just a minimal amount) for everyone in the world, and that the bachelor's degree will become irrelevant.

"If a faster, cheaper way of sharing information emerges, history shows us that it will quickly supplant what came before," he argues. "We may lose the gothic arches, the bespectacled lecturers, dusty books lining the walls of labyrinthine libraries, but nostalgia won't stop the unsentimental beast of progress from wreaking havoc on old ways of doing things."

Prestigious institutions, he says, will be in the best position to adapt, while for-profit colleges and low-level public and non-profits will be the first to disappear. "Universities of all ranks below the very top will engage each other in an all-out war of survival. In this war, big-budget universities carrying large transactional costs stand to lose the most. Smaller, more nimble institutions with sound leadership will do best," he writes.

While Harden takes the extreme outlook, signs of the traditional university's bumpy future are already apparent. Moody's Investors Service recently gave a negative outlook to all U.S. universities, citing "mounting fiscal pressure on all key university revenue sources," as a number of states continue to cut higher education budgets, endowments fall, and enrollment numbers and tuition dollars dwindle. Long-term debt at not-for-profit universities has been growing at 12 percent a year, according to consulting firm Bain & Company and private-equity firm Sterling Partners. For-profit colleges, booming businesses only a few years ago, have seen their enrollments fall 7 percent from 2011 to 2012 (compared to a 1.8 percent decline for all higher education institutions), despite efforts to offer generous tuition discounts.

Other colleges have gone into survival mode — some are deferring billions of dollars of maintenance needs, cutting staff, and combining resources with other nearby schools. Minnesota's St. Olaf College and Carleton College, for example, have begun discussing combining libraries, technology infrastructure, human resources and payroll — and possibly even their academic programs.

While many students and parents worry that an online education won't offer the same quality or formative experience as a brick-and-mortar school, Harden cites research at Carnegie Mellon's Open Learning Initiative and Ithaka S+R, an academic research and consulting service, which looked at machine-guided learning combined with traditional classroom instruction. They found that students who receive computer instruction do equally well on tests as traditional students, but can learn material much faster.

Other experts have come out recently on the traditional university's doom: Billionaire investor Mark Cuban compared the current higher education system in the U.S. to the newspaper industry. Harvard Business School professor Clayton Christensen also predicts "wholesale bankruptcies" among standard universities over the next decade due to online technologies.

As Harden puts it, "Why would someone pay tens of thousands of dollars to attend Nowhere State University when he or she can attend an online version of MIT or Harvard practically for free?"

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