Below is a complimentary Demography Unplugged research note written by Hedgeye Demography analyst Neil Howe. Click here to learn more and subscribe.

Cash-Strapped Colleges Court Reluctant Students - hedgeye student debt

  • Colleges whose prices have gone higher and higher are now struggling to deal with a pullback in demand. Some are cutting tuition in half to offer potential applicants a more attractive sticker price. (The New York Times
    • NH: Colleges faced with continually falling enrollment are beset by multiple challenges. For one, there are fewer potential students to recruit. Continually declining birthrates have translated into slowing growth in the number of high school graduates over the past decade. Beginning in the mid-2020s, due largely to the "birth dearth" during the Great Recession, the absolute number of graduates is expected to peak in 2025 at 3.9M and then fall successively every year through 2037 to 3.5M--the same number of graduates in the class of 2014. 
    • And of these young people, fewer of them want to go to college. The share of young adults who think a college education is “very important" has steeply declined over time. The parents of these college-aged kids--now largely Gen Xers--are increasingly less able to afford the sticker prices and more insistent on knowing what they're paying for. Wages for non-college employees have also risen sharply in recent months (see "Teen Workers: Jobs Aplenty, But for How Long?"), making jobs a more appealing prospect. 
    • Lastly, schools can no longer rely on international students to help boost revenues, because their numbers are falling, too. (See “International Student Enrollment Shifts Towards India.”) International students make up a disproportionate share of tuition revenue because they are the students who were most likely to pay full freight. 
    • Enter new strategies to try and raise enrollment or revenue. Some schools are merging with other universities. Since 2018, there have been 95 college mergers, compared with 78 total over the prior 18 years. Others are offering admission to students who never even applied based on criteria like their GPA or academic interests. Like hopeful suitors, they dangle generous scholarships and promise students a simplified admissions process.
    • Another strategy is to cut the list price of tuition. For example, Colby-Sawyer College--a small school in New Hampshire--has slashed its tuition from around $46K to $17.5K. While this might seem radical, it is more a marketing move than anything else. Thanks to financial aid, few students ever pay the list price for college. $17.5K is a much more accurate representation of what most students actually paid already.
    • When list prices started climbing 20 years ago, they were intended to evoke the “Chivas Regal effect”: the idea that price is linked to quality. Boomer parents saw the high price tags as a sign of prestige. But for Xer parents and their kids, they’re a turnoff. Instead for attracting applications, they’re having the opposite effect.
    • A fourth strategy is to push boundaries on finding new sources of revenue, even at the risk of controversy. At least eight universities, including the University of Colorado Boulder and Louisiana State University, have partnered with sportsbooks like Caesars Entertainment (CZR) to bring online gambling to campus in exchange for a cut of the fees. The money goes to athletic departments, which are still recovering from their losses in revenue during the pandemic.
    • These deals have raised eyebrows among critics who point out that college students are at an age when they’re uniquely vulnerable to gambling addiction. With the legalization of online betting in many states, therapists and addiction experts are indeed reporting an increase in problem gambling among young men.
    • But as long as schools are faced with dwindling funds, they are going to be looking for ways to make up the difference. More of these partnerships are surely on the way--along with even more marketing plans that they haven’t tried yet. While advertising spending by colleges has historically been dominated by for-profit universities, spending by these schools has flattened as spending by nonprofit universities has surged
    • Ultimately, Xer parents may object less to these types of fundraising gambits than Boomers would have. They might not love what colleges are doing to try to raise revenues, but they're less attached to the idea that such strategies should be off-limits.

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Neil Howe is a renowned authority on generations and social change in America. An acclaimed bestselling author and speaker, he is the nation's leading thinker on today's generations—who they are, what motivates them, and how they will shape America's future.

A historian, economist, and demographer, Howe is also a recognized authority on global aging, long-term fiscal policy, and migration. He is a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C., where he helps direct the CSIS Global Aging Initiative.

Howe has written over a dozen books on generations, demographic change, and fiscal policy, many of them with William Strauss. Howe and Strauss' first book, Generations is a history of America told as a sequence of generational biographies. Vice President Al Gore called it "the most stimulating book on American history that I have ever read" and sent a copy to every member of Congress. Newt Gingrich called it "an intellectual tour de force." Of their book, The Fourth Turning, The Boston Globe wrote, "If Howe and Strauss are right, they will take their place among the great American prophets."

Howe and Strauss originally coined the term "Millennial Generation" in 1991, and wrote the pioneering book on this generation, Millennials Rising. His work has been featured frequently in the media, including USA Today, CNN, the New York Times, and CBS' 60 Minutes.

Previously, with Peter G. Peterson, Howe co-authored On Borrowed Time, a pioneering call for budgetary reform and The Graying of the Great Powers with Richard Jackson.

Howe received his B.A. at U.C. Berkeley and later earned graduate degrees in economics and history from Yale University.