Managing the Demand Cliff

While leaders in higher education have been consumed for years with discussions about the looming threat of the demographic cliff, the demand cliff has already arrived.

By now we all know about the demographic cliff: the number of traditional college-aged students will peak in 2025 and then decline dramatically for several years. What is less well-known is that the percentage of 18- to 24-year-olds choosing to attend college reached its peak years ago and continues to decline. We refer to this phenomenon as the demand cliff. While the demographic cliff is primarily the result of declining birth rates following the 2008 recession and is therefore not something policy makers and institutions can directly influence, the demand cliff can be addressed through policy and the actions of colleges and universities working individually and collaboratively.

It’s time for higher education institutions to focus on the battle they can win rather than the one they can’t.

Looked at economically, the concept of demand draws our attention to the attitudes and behaviors of prospective students, how they understand the value of an educational experience or credential, and what influences their willingness to pay a given price to enroll. These factors vary substantially at the national, local and individual level. While student demand at selective private institutions and state flagship universities remains high, smaller private colleges, regional publics and community colleges have experienced sharp enrollment declines that predate the pandemic and have persisted since.

In this environment, developing effective enrollment strategies requires paying close attention to the nuanced factors defining demand. And climbing out of the valley at the bottom of the demand cliff will require demonstrating a return on investment on educational programs, increasing efforts to reach adult learners, creating innovative partnerships in new areas and investing in academic offerings that are most aligned with demand.

A Problem Hiding in Plain Sight

While the pandemic had a substantial, negative impact on college enrollment, the declines due to the demand cliff began before COVID-19 and continue today. The National Center for Education Statistics tracks the immediate college enrollment rate: the number of high school graduates who enroll in a two- or four-year institution by October of the year they completed high school. Between 2016 and 2021 (the most recent year available), that rate declined from 70 percent to 62 percent.

What caused such a dramatic decline? There are, of course, many factors driving the decline in demand for higher education, but most notable are changing attitudes toward education. Recent surveys show that the American public is increasingly skeptical about the value of higher education, and this trend is seen most strongly in younger Americans. A recent survey from NORC shows only one-third of Americans aged 18 to 29 think a college education is “worth it” if a student needs loans to attend. According to Gallup, only 36 percent of Americans have “a great deal” or “quite a lot” of confidence in higher education—down from 57 percent in 2015—and 22 percent have “very little” confidence. Add to this a heated national debate about student debt and loan forgiveness, alongside rising minimum wages, and it’s really little wonder college enrollment has declined.

Navigating the Future

While American higher education has experienced cycles of growth and stagnation since its rapid expansion following World War II, these recent declines in college-going rates and concurrent shifting attitudes toward higher education are unprecedented. Precisely because this challenge is unprecedented, business as usual won’t suffice—methodical and long-term strategic planning exercises are important but must be supplemented with agile planning and decisive action.

Framing the question as one of demand induces us to clarify what exactly the benefit of higher education is as a good/service—that is, its return on investment. For many students, this can be conveniently summarized as good employment opportunities and a sound career trajectory following graduation. New tools are being made available to the public to make more transparent the ROI delivered by individual institutions (for example, Georgetown University’s Center on Education and the Workforce ranks colleges by ROI). Students and their families can easily see which institutions may be worth the cost of attendance over the long term based on the earnings and indebtedness of previous graduates. So even if certain community members at your institution resist the ROI framing of the value of higher education, be forewarned that students and families increasingly do not.

Institutions must also position their academic offerings and delivery models to support student populations beyond the traditional 18- to 24-year-old demographic. More students opting out of college immediately following high school will likely create workforce development needs for employers and increased demand among adult learners looking to return to school. Some institutions have already begun to address this by offering or developing alternative options, including microcredentials and three-year bachelor’s degrees. Institutions have also been innovating in the competitive graduate education space and yielding strong results.

Adapting your program offerings to meet the needs of diverse populations can be an effective strategy for long-term sustainability, though doing so may take several years to build momentum. As such, the remaining lever to increase enrollment in the near term is through pricing strategy. That is, given the level of demand this year, what is the net price that the market will support? We’ve seen institutions explore this question through econometric analysis and peer benchmarking, which is an important exercise in self-knowledge for all institutions. And in the current market of declining demand, many institutions may discover they need to increase their aid budget and discount rates substantially to reach enrollment targets. But while pricing strategy is an effective tool, in itself it won’t address the root causes of declining demand.

Finally, the fact that institutions need to act now to address the demand cliff doesn’t absolve federal, state and local agencies of their roles in supporting increased college attendance. Free tuition and geography-based promise programs, when designed appropriately, can contribute to making college more affordable for more families and help reverse the declining public sentiment about higher education. And perhaps the opportunity will return for a renewed public discussion around investment in higher education: as Phillip B. Levine has argued, a commitment to doubling the Pell Grant is an effective way to make college affordable for those in most need and boost college-going rates.

Should colleges and universities still be paying attention to the coming demographic cliff? Absolutely. But demographics are just one factor influencing a rapid decline in enrollment, and one largely beyond our control. Instead of fixating on the demographic cliff, institutions must frame the challenge as one of demand and then face that challenge head-on. Addressing the demand cliff is essential to ensuring institutional longevity. But more than that, by finding solutions to increase demand for higher education, we will realize the promise of higher education for a growing number of students and continue to ensure the economic prosperity of the nation.