In this solo YouTube presentation, Michael Horn examines the controversial prediction—originally made with Clay Christensen—that up to half of U.S. colleges could close or go bankrupt within a decade, later refined to a 25% failure rate over 15‑30 years. Horn explains that the forecast stems not from disruptive innovation alone but from a confluence of structural pressures: escalating operating costs, high tuition discount rates (≈49% of sticker price), and diminishing revenue as families can no longer afford tuition. Moody’s data show a quarter of private colleges running deficits, while public institutions have seen expenses outpace revenue. A demographic cliff is looming, with the pool of 18‑year‑olds projected to drop sharply after 2026, intensifying competition for a shrinking student base. Simultaneously, disruptive alternatives—online programs, bootcamps, and other low‑cost credentials—are gaining market share, adding further strain. Horn delineates the various forms of institutional failure (closures, bankruptcies, debt restructurings, mergers, acquisitions) and breaks down the higher‑education landscape by segment: for‑profit colleges (already experiencing hundreds of closures), four‑year public and private non‑profits (historically 5 closures per year, now projected to triple), and especially small rural colleges (<1,000 students) which comprise 40% of institutions and face the steepest enrollment declines. He also highlights the growing concentration of endowments among elite schools, which can subsidize tuition and attract donors, leaving smaller schools financially vulnerable. Citing sources such as Education Dive, Parthenon‑EY, and Moody’s, Horn argues that a 25% failure rate is plausible and may even be conservative, with the full impact likely unfolding over a 20‑30‑year horizon rather than a single decade.
Chapters
Clay Christiansen has turned a lot of heads over the years by saying that 50% of colleges will close or go bankrupt. Often, he says in the next 10 years, 15 years. Recently he even said nine years. He and I made a more measured prediction in 2013 in the New York Times, where we said that 25%, in essence, of higher education institutions would close over the next 15 years or so. And the question obviously is, is this prediction true? And so I wrote about it in Forbes today under the title of will half of all colleges really close in the next decade? And I thought I'd break it down here on YouTube, just talk about it as well, because a lot of people have said your predictions are totally crazy. They're really far off the mark. Disruptive innovation is not going to wreak havoc like this in higher education. Higher education institutions are durable. They have stood for centuries in many cases, and they're immune from disruptive innovation. And so they're going to be just fine. Fundamentally though, the prediction didn't actually arise out of this notion that disruptive innovation itself was going to kill some colleges first. The initial prediction arose out of the observation that just fundamentally the business model for a lot of colleges was fundamentally breaking at the seams. The costs were just going up and up and up, as there just are not economies of scale in higher education institutions. The arms race was driving institutions to drive up costs and just fundamental sustaining innovations to the model were driving up costs. And even as those costs were increasing, the ability to continue to bring in more and more revenue was just at a breaking point, because a lot of families can't afford these tuitions. And so you're seeing tremendous discount rates, 49% according to the national association of College and Business Officers, which means in essence, that if you say you charge $2, you're actually only bringing in $1 in actuality of revenue. And so fundamentally, these discount rates with these escalating costs have just put a real pressure on these higher ed institutions. And the business models are breaking. And according to Moody's, which only looks at really the 500 or so healthiest institutions, a quarter of private colleges are running deficits, and public colleges, their expenses have outpaced revenue over the last several years. Now, on top of that, you have a demographic storm coming to bear, which is to say that particularly starting in 2026, the pool of 18 year olds are just going to fall off a cliff, particularly in certain regions, as Nathan Graw has written about. And that's a recipe for disaster for a couple reasons. One, in the competition to attract students. Of course, colleges and universities are actually going to continue their arms race to say, hey, look, we're the place to come. Put more and more amenities in more and more departments, more and more programs that will be attractive to people maybe looking to get a job out of college or whatnot. And that's going to actually continue to drive up costs in the face of the fact that they're having these revenue challenges. And. And on the other hand, some universities just won't be able to keep up in that arms race and they'll experience enrollment declines. But the problem is there's so many fixed costs in colleges and universities that it's going to be hard for them to downsize easily, and that's going to further strain the business model. So you've got these huge business model challenges coming to bear on higher ed, this big demographic cliff coming to bear. That's already started, quite frankly. And against this turbulent backdrop. Backdrop, we have seen that there are disruptive innovations, the first ones since the advent of the printing press, powered by online learning, that have emerged in the landscape. And they're definitely going to put some pressure on traditional colleges and universities as well. I don't think that'll be the bulk of the reason a lot of institutions fail, but it's certainly part of the story. As Ryan Craig details in his new book, A New you, these faster and cheaper programs, the definition of disruptive innovation, are already putting some stresses on the traditional college model in his mind. And you just look at the rise of online learning, which has gone up and up and up even as traditional enrollment. Enrollment in traditional colleges and universities has gone down over the last several years. Even in a good economy, when a lot of students aren't coming back, this evidence of the online learning growing, unaccredited programs like boot camps and the like growing, online providers growing. You just see these stresses occurring as people are looking for different options. And so that's certainly part of of the picture. Now the big question is, okay, so you have this brewing storm. What's going to happen? And I think you're going to see a lot of failure rate. Now, I put some nuance in this. I don't think all institutions will necessarily close. When we think of a failure rate, we're thinking of everything from closures to bankruptcies where they maybe can restructure debt, to mergers and acquisitions as well. And so not all universities that fail will disappear. So diving deeper into the prediction, the first thing to understand obviously is what's the size of the college and university population today. And the reality is there's a lot of different ways to define it. There's 7,000 or so Title 4 eligible institutions. That number's gone down in the last year. There's over 4,000 degree granting accredited colleges and universities. If you just want to look at the four year, not for profit private and public colleges, that's roughly 2,300. So you get the idea. But the reality is the failure rate is actually growing in all of the segments. For profits have certainly been hit really hard in the last several years. We think that they're going to continue to get hit hard for a variety of reasons. One, several of them did some really follow the incentives of Title 4 funding just to enroll students and didn't worry about the value to students on the other end and created a whole host of challenges from regulatory to value with employers and students. And a lot of for profit colleges are heavily dependent on revenue. Their costs have increased. And so a lot of these institutions we think will continue to go out of business. There have been several hundred that have already gone out of business in just the last couple of years alone. Even in the last week, over 100 campuses are closing that are for profit. So that's going to accelerate. And then closures. Among four year public and private not for profit colleges, they were averaging roughly 5 a year from 2004-14, and mergers were roughly 2 to 3. And Moody's has actually said that that is going to triple starting in 2017 and the merger rate would double. And if you just held that true over the next 15 years, then roughly 13% of existing higher education institutions right there would experience failure. 13% right there. But given all these headwinds that are actually only going to get worse, especially once 2026 hits and disruptive innovation is going to continue to grow at that point and a lot of these business model challenges are going to get even worse. There's a number of reasons to think that that number may be conservative. And it's, you know, already we're seeing colleges in specific areas have titanic enrollment drops and, and already the number of colleges closing is picking up quite a bit. So According to Education Dive, 20 private nonprofit colleges closed just from 2016 to 2018. We're seeing a lot of mergers in public universities and a lot of strains in states like Connecticut, Louisiana, Pennsylvania, where you could see further consolidation in the coming years. And the number of mergers and acquisitions from 2010 to 2017 already doubled the previous decade. And we think it's just about to accelerate. So you're actually going to see even more. And we haven't talked about the biggest vulnerability yet in all this, which is small institutions, small colleges with under 1000 students enrolled, particularly located in rural areas. And the reality is 40%, 40% of colleges are small, fewer than 1,000 students. And. And if you look at this, a lot of them are located in the Northeast and Midwest, where there's gonna be precipitous population declines. And so these institutions already have really high tuition discounts, and they're gonna be really stressed. And I think a lot of them are gonna go out of business. Something we didn't talk about in the article is that the pressure of places like Harvard University and institutions with big endowments, they're really just fine. These top maybe call it 200. Or by those institutions actually making college essentially free for certainly the lower class, but also the middle class in many cases, puts even more strain on these other institutions. And the reality is fewer and fewer people are giving to their alma maters, which is eroding one source of support of donations for these institutions. Instead, we're seeing bigger gifts, but go to the already rich institutions. The rich are getting richer, smaller, poor getting weaker, and you could see a lot of these institutions collapse in the years ahead. Parthenon, Ernst Young projected that at least 700 could fail in the years ahead, and we're seeing them already decline in population quite a bit. So there's a lot of reasons to think that 25%, that prediction that Clay and I made, could be about on the mark. And there's a lot of reasons to think even that could be conservative, and it could be even more now. The time horizon, I suspect, is going to be longer than what we forecast. Probably more like 20, 30, 2031, something like that, where you see this full sense of today's colleges and universities. At least a quarter of them won't be around anymore. That's going to be a significant impact, and we'll see where it all goes. Thanks for listening.
