What to Make of the Wave of College Closures

Since I began studying higher education, college closures have gone from rare to common. How common are they? Why did this change happen? Is it good or bad?

How Many Colleges are Closing?

The first noteworthy point is that we don’t have a good handle on how many college closures there have been. Part of the issue is disagreement over what counts as a closure. If a small branch campus closes, does that count? What about when one college merges with another? Some databases exclude for-profits, while others include them. As a result, we are left with radically different numbers depending on the source used. Higher Ed Dive maintains the most up-to-date running count of closures, reporting around 145 closures from 2016 to the present. The Hechinger Report used to track closures but stopped a couple of years ago; it reported 213 closures from 2016 to 2024. Meanwhile, the Department of Education’s Digest of Education Statistics reports that 236 colleges closed in 2018–19 alone. The bottom line is that the number of college closures depends on the data source used, but all sources indicate a substantial number of closures in recent years.

What’s Driving the Closures?

There are two leading theories on what’s driving college closures.

The first is disruptive innovation. Under disruptive innovation, large, successful incumbents rest on their laurels and avoid niche, unprofitable markets. But innovative and agile startups, unencumbered by legacy costs and thinking, can often find profit in those niche markets and grow and innovate, and eventually their products pose a threat to the original incumbents. The classic example is how IBM neglected the personal computer to focus on the market for mainframe computers, where they were dominant, but saw their market share erode as personal computers became more capable and prevalent.

In the higher education context, the leading proponents of this view are Clayton Christensen, who predicted that half of colleges would close, and his protégé Michael Horn, who, with Christensen, predicted that “the bottom 25% of every tier, we predict, will disappear or merge in the next 10 to 15 years.” Their critics argue that this will not happen, but Christensen and Horn are more correct than their critics give them credit for.

Focusing specifically on the prediction, in 2013, when they made it, there were 4,724 degree-granting institutions. From 2013–14 to 2022–23, 726 have closed. That amounts to about 15 percent, with another six years of closures still to count. If closures over the next six years match the average rate since their prediction, then about 24.6 percent of colleges will have closed.

However, most of these closures are not what we would typically think of as closures. For example, only four public colleges have closed since their prediction, and the vast majority of closures have been among for-profit institutions. On the other hand, this fails to give Christensen and Horn enough credit. When they made their prediction, college closures were pretty rare, with around 15 closures per year in the decade prior. They predicted more, and lo and behold, the closure rate almost quintupled to over 70 per year since their prediction.

But while their predication is on track, I am a bit skeptical of the underlying mechanism. In the disruptive innovation story, it is new and innovative firms that emerge to displace the incumbents. But I don’t see new and innovative colleges driving the story here. There has been some innovation, notably the online models employed by Southern New Hampshire University and similar colleges, and modifications to traditional colleges, such as at Arizona State University. But these are slight changes to the traditional model rather than an entirely new and disruptive model.

The main alternative explanation for the surge in college closures is a shrinking pool of students. Undergraduate student enrollment peaked in 2010 at just over 18 million students. Next year, it is projected to be 16.7 million. With fewer students, many marginally viable colleges can become unviable.

Are the Closures Good or Bad?

College closures have both good and bad aspects. On the negative side are the effects on students and employees of the closed colleges. Many students’ educational plans are derailed entirely when their college closes, and even those who can transfer to a different college face the usual personal and academic difficulties of transferring. Employees at closed colleges also suffer.

But closures are generally positive for society as a whole. These colleges aren’t failing randomly, but because their costs are exceeding their revenue. Joseph Schumpeter coined the term creative destruction to describe how the closure of unprofitable firms frees up labor, physical capital, and financial capital for more productive uses. Creative destruction is the price we pay for progress. In the college context, when a struggling college closes, that means the college’s buildings are available for other uses, the old staff find other jobs, and students attend colleges that are more likely to set them up for success. The transition is painful, and those costs are borne almost entirely by the existing staff and student population. But once those costs are endured, the new normal is both more valuable and more sustainable for future students and staff. Read (“Vedder’s Case for Creative Destruction.”)

Efforts to ease the transition, particularly facilitating transfers from closing colleges to remaining colleges, are welcome. But indiscriminate efforts to save closing colleges would just delay the inevitable and would prevent students, staff, and capital from being used in better ways.