Failing College : The Indicator from Planet Money Colleges are seeing fewer and fewer students apply every year. To try and stay solvent and attract students, they're trying all kinds of things, from lazy rivers to M&A.

Failing College

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There is a mystery going on in the world of higher education. And it is this. The number of students applying to colleges has been dropping for years. Demand for college is going down. So you might imagine that colleges would be handling this by, you know, cutting prices to try and attract this shrinking pool of students. But they haven't been. In fact, tuition prices have been going up. This is THE INDICATOR. I'm Stacey Vanek Smith.


And I'm Sally Herships. Today on the show, we talk about why at a time when enrollment is going down tuition is going up.


HERSHIPS: The fact that enrollment is dropping is not something schools want you to know. Jon Marcus is higher-education editor at The Hechinger Report.

JON MARCUS: Colleges and universities love to send out news releases talking about how they've received record numbers of applications. But you have to listen very, very carefully to those words because what they're not saying is that they've received record numbers of applicants. There aren't record numbers of applicants. There are not enough applicants in fact. But what each individual applicant is doing is sending out more applications per student.

HERSHIPS: Jon says this is happening for many reasons. The Common Application means you only have to fill out one, and you can send it to lots of different schools.

VANEK SMITH: And then some schools are now waiving admissions fees based on income. So the application numbers sound really good.

HERSHIPS: But the reality is far bleaker.

VANEK SMITH: Far bleaker.

HERSHIPS: Far, far bleaker. If you are a school right now, odds are you are facing a double threat.

VANEK SMITH: Right because - first - there is just a dip in the birthrate in this country. There are fewer people being born. And second - because the economy is improving, there is an increase in the number of older students who are choosing to go into the workforce instead of going to school.

HERSHIPS: And Jon says schools are ill-prepared for this difficult new reality.

MARCUS: This is a 200-year-old model that has never really had to cut its costs. And one of the reasons for that is that if your kid gets into a school that she has always wanted to go to, you're going to do anything you can to pay for it.

HERSHIPS: Higher education can be like a luxury product. We will pay crazy exorbitant prices for brand names, just like in fashion - right? - like the Guccis, the Pradas, the Harvard, the Yales.

VANEK SMITH: Right. Yeah, I see that. I see that.

HERSHIPS: The Birkin bags of this world, they are fine. It is the second-tier brands.

VANEK SMITH: Your Gaps, your H&Ms.

HERSHIPS: Totally. The less popular public schools, community colleges, they are feeling the enrollment pinch. And they have not yet figured out how to cut costs.

MARCUS: You know, I've asked colleges and universities, what are you doing to reduce your cost of doing business? And I've gotten answers like, we changed all the light bulbs to energy efficient light bulbs. Or we are looking at increasing the size of classes. Well, then you're charging a huge amount of money to students for now taking even bigger classes. So how does that actually benefit anybody?

VANEK SMITH: And so to fight this trend of fewer students, universities and colleges, they are fighting back. And they are trying a few different solutions.

HERSHIPS: Solution number one - bling out your campus.

VANEK SMITH: Bedazzle the campus. I love it.

HERSHIPS: Get the glitter guns. Louisiana State University is kind of the poster child for this. It built a lazy river, in case you haven't heard.

VANEK SMITH: It is amazing.

HERSHIPS: It is amazing. It is a 536-foot lighted leisure pool in the shape of the letters LSU.

VANEK SMITH: Well, Sally, I can do you one better. The University of Akron also has a lazy river, and it has a 56-foot rock climbing wall and a leisure pool and a spa.

MARCUS: I toured a public university with a president who very proudly pointed to a new dorm that was designed to attract out-of-state students because public universities really want out-of-state students who pay higher tuition. And in particular, he was trying to attract out-of-state students who might otherwise have gone to private nonprofit colleges and universities, which have in many cases just spectacular facilities and beautiful new dorms and, you know, gas fireplaces in the dorms and those kinds of things. So everyone is sort of competing. There's an arms race for facilities.

VANEK SMITH: But there is a big problem with this solution. It's expensive.

MARCUS: You see colleges borrowing a lot of money to do this. And now 9 percent of colleges' operating budgets on average go to servicing debt. We talk a lot about student debt in higher education, but institutional debt is - continues to rise. And it's dangerous - to dangerous levels.

HERSHIPS: At some schools. But this still puts a whole new spin on college debt. Students are taking out loans to pay to go to schools which are also taking on debt.

VANEK SMITH: And this is where solution number two comes in. Jon says some schools are lowering prices, which is the logical response, right? That's what you'd expect. But they are not actually lowering their sticker prices, their posted tuition prices. However, what they are doing is giving more discounts and financial aid than ever kind of under the table.

HERSHIPS: A study just came out from the National Association of College and University Business Officers which says schools are giving back more than 50 percent of their revenue from tuition in discounts and financial aid to those savvy families just to fill seats.

VANEK SMITH: Butts in seats.

HERSHIPS: Butts in seats. But there is a problem with this solution.

MARCUS: That's not financially sustainable. So on the one hand, more discounts and financial aid are being offered to families that are savvy enough to know to ask to get them. But what colleges and universities aren't doing at the same time is lowering their own cost of doing business.

HERSHIPS: Schools are losing money. Adding the services they think they need to attract more students is costing more than it's worth. And a lot of cases, it's just too late.

MARCUS: A number of colleges and universities have closed, many of them small, nonprofit, very-tuition dependent colleges, meaning they don't have very large endowments to fall back on. Very famously, Sweet Briar, Antioch - both of those were saved or at least have so far been saved by contributions from alumni.

VANEK SMITH: Solution number three - colleges are getting corporate. They are actually getting into the mergers and acquisitions game.

HERSHIPS: The University of Georgia merged 14 of its schools into seven. But the process of a merger can take between one and three years. And as we know from the corporate world, the process is fraught.

VANEK SMITH: Hostile takeovers. Yes.

HERSHIPS: Hostile takeovers. Yes. And how do you fire tenured faculty? It's a very complicated process. And it is not a popular solution in the academic world.

VANEK SMITH: In a desperate attempt to stay solvent in all of this, colleges are raising tuitions, which of course will probably just drive some potential students away and make the whole problem worse.

HERSHIPS: So what is the impact? We're going to have less students - we're going to have less students graduating from college. What is the impact of this going to be on the economy?

MARCUS: A lot of people sort of see this as a market correction. So we have too many colleges. There are 2,000 colleges and universities in the United States. And they have begun to go away. I've been to one in particular where it looked like the - you know, the dining hall was still set up for lunch. This college closed so abruptly.

VANEK SMITH: Schools are for the most part nonprofits. They don't pay taxes. So if a school closes, the community's not going to lose money in that way. But schools also provide a lot of jobs. They buy a lot of stuff. And they attract a lot of people to them, a lot of students who go around spending their money.

MARCUS: Neighbors might complain about those students. They support a lot of pizza places and bars. And this town where the college closed had lost a huge amount of value out of real estate because of - there were all these off-campus apartments that now were vacant, and there was no one left to rent them to.

HERSHIPS: There's also a broader impact on the economy. Colleges and universities produce innovation and employees.

MARCUS: And that brings us to the bigger problem, is that if students continue to not go to colleges or universities or adults continue to not seek advanced degrees, we're going to have problems filling jobs that require college education. And that's most jobs these days.

HERSHIPS: You know what I think we need, Stacey?


HERSHIPS: A school for schools.

VANEK SMITH: Oh, I like that.


VANEK SMITH: I like that a lot. Just, like, the economics of being a university.

HERSHIPS: Totally.

VANEK SMITH: Like the lazy river - I could've told them that. I mean, I've never seen it, but it doesn't seem like a viable long-term economic plan.



HERSHIPS: But maybe the tiger habitat. LSU has a tiger habitat, too.

VANEK SMITH: LSU has a tiger habitat?

HERSHIPS: It does.

VANEK SMITH: Never mind. They're going to be fine.


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