The Business Model of Colleges Is Broken. It’s About to Get Worse

When J. Michael Haynie, chancellor of Syracuse University, announced last month that the university would miss its enrollment target and run a deficit for the first time in years, he was unusually candid for a college president. 

“Enrollment volatility is widespread, unpredictable and the ‘new normal’ for even strong, well-resourced universities,” he wrote.

To be sure, the enrollment math for colleges was always going to be negative this year. The high school graduating class of 2026 is the first in a long line of smaller ones that will last through the end of the next decade. This is known as the “enrollment cliff,” and it is the result of a birthrate that fell during the Great Recession and never recovered. 

While college leaders saw the demographic decline coming for more than a decade, what they didn’t expect was the financial uncertainty imposed on higher education by the second Trump administration. Since last year, the White House has eliminated thousands of research grants to colleges and universities, proposed deep cuts in remaining research funding, and tightened access to student visas, leading enrollment of new foreign students at American universities to drop by more than a third—the largest annual decrease outside of the COVID pandemic. President Donald Trump’s policies have blown a hole in university budgets, forcing schools to cut spending and quickly look for new revenue everywhere. 

Now, colleges and universities are bracing for the most consequential rewrite of federal higher-education policy in a generation. On July 1, provisions of the One Big Beautiful Bill Act took effect, which, among other things, will put new limits on student loans. Graduate students, who have helped fuel overall college enrollment in recent years, will no longer be able to borrow up to the full cost of attendance. Instead, loans will be capped at $20,500 per year for most students, and $100,000 for the entire degree. Only students in a handful of disciplines designated by the government as “professional,” including law and some medical fields, will be able to borrow $50,000 a year, up to a limit of $200,000. Parent borrowing for their undergraduates will also be restricted to $20,000 per student per year, with a lifetime limit of $65,000.

Taken together, these changes are breaking the business model that built the modern higher education system. Colleges can respond to the current crisis the way they often have in the past: trim around the edges, delay maintenance, add new majors, and hope the next admissions cycle is better. Or they can accept that the old financial model is no longer reliable.

The first step is to stop treating enrollment as a recruitment problem instead of a product one. Not only is the pool of traditional-age students shrinking, but the pipeline to college is also leaking: the share of high school graduates enrolling immediately in college has already slipped from a high of 70% in 2016 to about 62% in 2022. 

To be sure, not all teenagers want what higher education offers—but they also know they need some sort of education after high school. Workers with an advanced degree consistently outearn those without one and are more likely to be employed. 

Many students who skip college or drop out do so because of financial difficulties and because they fail to see the relevance of what they are being taught. So rather than force-feed all students the same undergraduate experience, colleges need to stop assuming that students will eventually discover the relevance of college on their own. Work-connected learning must become a core part of the curriculum through co-ops, meaningful campus jobs, and applied projects with employers tied to real problems. That does not mean turning college into narrow job training. It means creating sharper alignment around what college includes. Two-year programs, certificates, and applied credentials aren’t alternatives to college; they’re essential components of it.

Second, colleges need to rebuild their academic portfolios around the demands of today’s job market, the flexibility modern students want, and the employment outcomes their graduates are getting. For too long, colleges have measured academic strength by what they add: new majors, new centers, new buildings, new graduate programs. The next era will require the harder discipline of subtraction. 

Third, higher education has to take adult learners seriously. Some 43 million Americans have some college credit but no degree, and when they return, more than a third re-enroll at their most recent institution—which means a sizable share of that market is a college’s own former students. Millions more with college degrees need new skills in a labor market being reshaped by artificial intelligence, automation, and changing employer expectations. Yet most colleges are still geared towards full-time, residential students between the ages of 18 and 22. That market is not entirely disappearing, but it is not going to fix higher education’s broken business model.

The adult learner market will not come to campus on higher education’s terms. Colleges will have to reach them where they are. This is where online learning matters. During the pandemic, many assumed that students would flee online courses as soon as campuses reopened. Instead, online education has become normalized. A quarter of students now are enrolled exclusively in online programs.