Harvard Business School Professor Clayton Christensen consistently turns heads in higher education by predicting that 50% of colleges and universities will close or go bankrupt in the next decade. Christensen and I made a more measured prediction with more nuance in the New York Times in 2013: “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.”
Some higher education media have, in turn, used the predictions to lampoon the idea that disruptive innovation has a role to play in creating more affordable, accessible and convenient higher education options for people who would otherwise have no educational option.
But the truth of the matter is that disruptive innovation is only part of why Christensen originally made his prediction.
The prediction arose out of an observation that the business model of traditional colleges and universities was broken.
Many colleges and universities are increasingly unable to bring in enough revenue to cover their costs. Indeed, the average tuition discount rate was a whopping 49.9% for first-time, full-time freshmen in 2017–18, according to the National Association of College and University Business Officers. That means that students are paying roughly only half of what colleges and universities say they charge. A tuition discount rate above 35% puts a college in a danger zone, particularly when it is heavily dependent on tuition. Many institutions have discount rates far above that now.
What makes this even worse is that the natural pressure in higher education is for costs to increase—thanks to the lack of economies of scale and the complexity of higher education operations.