Considering a forecast that didn’t come to pass

Over the past decade various voices have predicted that American colleges and universities would face a wave of closures.  Clayton Christensen has been one of the most prominent, forecasting in 2013 with Michael Horn that “a host of struggling colleges and universities — the bottom 25 percent of every tier, we predict — will disappear or merge in the next 10 to 15 years.”

This week co-author Michael Horn revisited that prediction to see how it has fared.  tl;dr version: he thinks the idea remains sound, although the timeline may have been too short.

At the futures level, I approve of Michael’s reflection on this topic.  He’s doing something I and many other futurists practice, checking our previous work.  Seeing what we got right and where we erred is extremely useful for futuring.  We can correct and improve our analytical skills and information-gathering. 

Two personal notes before I proceed.  First, many of my audiences know I do this kind of thing in public.  Here’s an example of my getting something wrong and trying to figure out the miss.  Second, Michael Horn was a fine Future Trends Forum guest earlier this year.  Here’s the full recording:

On to the article.

To summarize: several times in the past Horn and Christensen have anticipated significant numbers of closures within American higher ed.  While closures and mergers have occurred since then, they haven’t done so in the much larger numbers H+C laid out.

The key problem facing colleges and universities isn’t disruption from outside or even internal forces, but the increasing stresses squeezing high ed’s business model.   As the author puts it, “the business model of traditional cerolleges and universities was broken.”  Horn lists rising costs, rising discount rates, budget deficits, and demographics, not to mention the competitive arms race (amenities, services, faculty).

So Horn maintains his diagnosis.  He just thinks the patient will enjoy a few more years of health.  “Our predictions may be off, but they are directionally correct.”  The die-off is still coming:

From 2004–2014, “Closures among four-year public and private not-for-profit colleges averaged five per year from 2004-14, while mergers averaged two to three,” according to Moody’s. Moody’s predicted in 2015 that that closure rate—out of 2,300 institutions—would triple by 2017, and the merger rate would double.

Assuming that were true, and say that the rate held steady for 15 years, that would take out roughly 13% of existing higher education institutions right there.

Horn goes on to argue that certain campuses are in greater danger than others.  It’s the small schools we must worry about:

Forty percent of colleges and universities have fewer than 1,000 students. According to a 2016 report by Parthenon-EY titled “Strength in numbers,” 77% of colleges and universities—or 738 institutions—with fewer than 1,000 students exhibited at least three risk factors, such as a high discount rate, being dependent on tuition for more than 85% of revenue, or having an endowment that covers less than a third of expenses, that placed its survival in question. If all 738 somehow failed, then the 25% failure prediction that Christensen and I made would be surpassed—by nearly 200 institutions.

According to Jeff Selingo, since 2010, these institutions have shed the most students—a decline of 5%—compared to colleges and universities with more than 10,000 students, which have grown slightly, on average. As Selingo points out, there is little to no margin for error in these colleges. Losing just a few students wreaks havoc on the budget and, over time, has significant repercussions.

I have to say that all of this makes sense to me.  That shouldn’t surprise my readers, clients, and audiences, who know I’ve been making and sharing many of these points for years.

I’m interested in a few points that surface during Horn’s discussion, as well as those that don’t.

1. Online learning (which we used to call “distance learning”) no longer plays the role of fierce disruptor in Horn’s vision.  It’s certainly there in the article (“enrollments in accredited colleges and universities have shrunk consistently since 2010, enrollment in online learning continues to rise“), but online learning looks more like part of the landscape rather than an invading barbarian.  No mention of MOOCs.
2.  There isn’t any mention of increasing governmental support, either from states or the federal government.  Generally speaking that matches my understanding, although I admit exceptions (oil-rich states, blue states that are rich and committed enough to manage to divert some monies to public higher ed).
3. International students don’t appear in the article.  American colleges and universities succeeded in growing that population over the past twenty years – at varying levels, depending on the institution, and not without challenges (for example), but overall numbers went up.  Until Trump and the current wave of school shootings, following which that curve bent downwards.  It’s possible that America will be able to rebuild this population and grow it even further, making up for domestic demographic shortfalls, once Trump leaves and his reputation fades.  This may take some time, however, and in that interim the number of shuttered campuses will rise.

Let me step back from the business analysis Michael does so well to look from different perspectives.  Beyond the question of economic sustainability lies a potential cultural shift. For the past three generations American culture has progressively ramped up its desire for people to get post-secondary schooling.  Larger and larger proportions of the population have gone to colleges and universities.  

We might break away from that tendency.  If enough people perceive the costs of college as too high, if they choose alternatives to higher ed, we may reverse course.  The new American idea might become that college is great for some people, but not for everyone.  This could unfold in several ways.  College is good for wealthy people, but not the working class.  University experience is great, but not for young, healthy folks who are good with their hands.  Or higher ed is a chancy risk.  

One more point to add: if online learning keeps up its rapid cycle of experimentation and improvement, aided by a robust population of instructional designers, that sector of higher ed could grow more rapidly.  Especially if digital learning’s reputation rises accordingly.

Combining these two last points – higher ed’s reputation for necessity changing, and online education’s reputation rising – could accelerate the Horn and Christensen scenario.

Thanks to Michael Horn for taking the time to revisit his forecasts.

(thanks to Michael Berman for the Twitter nudge)