ROTC at colleges produce the largest source of military officers.
By Greg Salsbury, PhD
STARRS Board of Advisors
and John Kawauchi
Most Americans have an oddly distorted view of higher education. But that view has little to do with the financial reality facing most colleges and universities, hundreds of which are quietly sliding toward insolvency.
When asked what comes to mind about universities, a national survey of more than 30,000 respondents most often cited liberal bias, antisemitism, and political activism.
As one commentator put it, “graduates of a small cadre of elite universities disproportionately populate America’s leadership class and key institutions,” which helps explain why media narratives fixate on them.
Another writer noted that “less than 1% of U.S. college students have attended an Ivy League university, yet these schools dominate employers, media and parents’ wishes. But why do we never hear of the other 99%?”
This distortion matters. It gives the public a deeply unrealistic picture of higher education. Most colleges do not have billion‑dollar endowments, global prestige, or armies of activists marching on their quads. Their challenges are far more prosaic and far more urgent: rising costs, declining enrollment, shrinking budgets, and existential questions about survival.
Because so much public attention is fixed on the Ivy League and its peers, it often misses the paradoxes confronting the majority of institutions — paradoxes that go to the heart of cost, debt, and sustainability. Why do tuition prices keep rising even as online learning becomes cheaper? Why do schools raise prices faster than inflation?
Why, with the Bureau of Labor Statistics projecting 19 million annual job openings requiring a college education between now and 2033, are so many young people concluding that college isn’t worth it? And with $1.8 trillion in student loan debt — much of it held by students who borrowed five or six figures — we have to ask, are these loans helping or harming the very people they are meant to serve?
These questions all point to a deeper question: What is the actual financial health of America’s colleges and universities? And how does that health shape everything from marketing and recruiting to pricing, faculty quality, and academic offerings?
Most Americans, many legislators, and even many trustees do not have good answers. Opening the “black box” begins with understanding the financial realities of the sector — and how it arrived here.
The Surprising Financial Fragility Of Hundreds Of America’s Universities
There are 2,661 public and private four‑year colleges and universities in the United States, not counting trade schools or the nearly 1,500 community colleges.
Roughly 80 four‑year institutions have closed since 2020 — a small number compared to the hundreds now under severe financial strain. Three major credit agencies have issued negative outlooks for higher education in 2026, citing declining enrollment, new limits on federal loan programs, and obstacles for international students.
The most widely accepted measure of institutional financial health is the Composite Financial Index (CFI), developed by KPMG and education finance experts. It evaluates net operating performance, reserves, return on net assets, and viability.
A CFI of 3.0 or higher signals strength; 1.0 to 3.0 indicates caution; below 1.0 signals financial stress. A similar federal measure, the Financial Responsibility Composite Score (FRCS), is used for Title IV eligibility.
There is no single public source listing CFIs for all four‑year institutions. FRCS data are incomplete and vocational schools are mixed in.
To understand the landscape, one must aggregate accreditor reports, state dashboards, audited financial statements, IPEDS data, bond‑rating downgrades, enrollment trends, and tuition‑dependency ratios.
When this is done — a task well suited to AI — the picture is stark: hundreds of institutions appear to have CFIs below 1.0, including some with tens of thousands of students.
Most Americans have no idea what this means. A CFI below 1.0 signals that a school is struggling to cover its costs and may not be financially sustainable.
In household terms, it is like living paycheck to paycheck with rising bills and no savings. These institutions are highly tuition‑dependent and often forced to cut programs, freeze wages, lay off staff, defer maintenance, reduce student services, and raise tuition simply to stay afloat. They typically have little or no endowment, high debt, and almost no financial cushion.
What This Financial Stress Means For Students
The consequences for students are real and immediate. When resources are tight, institutions delay hiring, freeze salaries, or rely more heavily on adjunct instructors. Class sizes grow. Course offerings shrink. Faculty have less time for mentoring or research collaboration.
Low‑CFI schools struggle to attract top faculty, who understandably prefer more stable institutions. Academic programs may be consolidated or eliminated, reducing the breadth of study. Support services such as advising, tutoring, counseling, and career placement may be scaled back.
Facilities show signs of deferred maintenance — outdated labs, aging classrooms, underfunded libraries. Extracurriculars and campus life are pared down. Schools try to shield students from the worst effects, but financial fragility inevitably constrains the educational experience.
For families, college is one of the largest investments they will ever make, second only to buying a home. Yet the price keeps rising, and the debt required to finance it has soared.
To most Americans, higher education remains a “black box”: judged by brand, price, and 3rd party rankings rather than by underlying financial health. Gallup polls show that public confidence in the importance of higher education has collapsed by roughly 40 percentage points since 2010.
Understanding the sector’s financial underpinnings is essential — not only for policymakers but for families making life‑altering decisions.
How Higher Education Reached This Point: Four Seismic Shifts
The current crisis did not emerge overnight. Four major events and trends reshaped the landscape and pushed hundreds of institutions into financial jeopardy.
1) The Rise Of Community Colleges
Community colleges — originally “junior colleges” — expanded dramatically after the 1947 Truman Commission on Higher Education called for a national network of low‑cost, open‑access institutions. Combined with the GI Bill, this led to explosive growth: states added nearly one community college per week during the 1960s and 1970s.
These institutions offered lower cost, open‑door admissions, flexible schedules, and access for nontraditional, first‑generation, and working students. Enrollment more than tripled between 1960 and 1980.
More recently, community colleges have begun offering four‑year bachelor’s degrees, intensifying competition. Over 150 community colleges across 24 states now confer bachelor’s degrees directly, often in high‑demand fields like nursing, teaching, and IT. Many partner with state universities, allowing students to attend a local community college for four years and receive a diploma from a flagship institution — at a fraction of the cost.
Community colleges now account for 32–35% of all college enrollment, and their value proposition is increasingly compelling.
2) The Medicaid Squeeze On State Budgets
For public institutions, the most consequential budgetary shift has been the rise of mandatory Medicaid spending. In 1980, states devoted an average of 9% of their budgets to Medicaid and 6% to higher education. By 2025, those numbers flipped to 31% and 3%.
The Great Recession accelerated the trend. Between 2008 and 2010, many states slashed higher‑education funding by double digits. Overall funding fell by more than $6.6 billion between 2008 and 2018. Universities responded with layoffs and steep tuition hikes. The University of California raised tuition 30% in a single year. Michigan cut funding by 30%. Florida’s flagships raised tuition by double digits in consecutive years.
The recession ended, but the tuition hikes did not. Financially stressed institutions have raised tuition nearly every year since 2010, while more stable schools averaged increases every two to three years. Public universities have raised tuition nearly 30% over the past decade; elite privates continue to push 4% annual increases.
3) The Demographic Cliff
The number of college‑aged students is projected to fall 15% between now and 2037, with even steeper declines in the West. Enrollment peaked at 21 million in 2010 and has since fallen to 19 million, with further declines expected through 2035.
Most institutions built their campuses assuming a growing population of 18‑year‑olds. Instead, they now face a widening gap between supply (classroom seats and dorm beds) and demand. Residential campuses serving traditional‑age students are hit hardest.
4) The Online Revolution
Perhaps the most transformative force has been the democratization of knowledge. When people say that the cost of education has soared, they are not technically accurate. When considering education in the purest sense; it has actually plummeted.
The cost of attending IHEs or obtaining credentials from them has certainly soared, but the best leading-edge information from the most credible sources is now largely available for free online.
Online learning has become a mainstream alternative: 10–11 million students take at least one online course, and more than 5 million study exclusively online. Growth is projected to continue at a 14% CAGR through 2032.
Social media and smartphones have reshaped communication, marketing, and recruitment. But smaller institutions lack the staff, technology, and budgets to compete with well‑resourced universities or sophisticated online providers. Many hoped technology would level the playing field; instead, it widened the gap.
The Result: A Bifurcated Higher Education System
These four forces have produced a sector split into two diverging paths:
- Institutions competing on cost and convenience, often through online or hybrid models, transfer pathways, and local access.
- Institutions competing on selectivity and prestige, leveraging brand strength to maintain pricing power.
Many schools cannot play either role effectively. They lack the scale, brand, or financial resilience to compete on prestige and selectiveness — and lack the technology, flexibility, locations, and/or cost structure to compete on convenience. Hundreds now sit in the middle, financially fragile and struggling to define their place in a rapidly changing landscape.
Part II
In Part I, we examined the four seismic forces reshaping higher education and how, together with already fragile finances of many institutions, they have produced a profound bifurcation in the prospective student market. Two distinct categories of students — and two corresponding types of institutions — now dominate the landscape. This divide is entrenched. Hundreds of institutions now find themselves boxed out of both.
The Great Bifurcation And Pivot
The bifurcation of the prospective student market today falls into two broad categories which we might label the “Elites,” and the “Pragmatics.”
Elites: Traditionally, these students are the core of the college‑going population. Elites tend to be younger, academically strong, and financially supported by their families. They arrive with high GPAs, strong test scores, and extensive advanced coursework. Demographically, they are more likely to be single and non‑URM (Under Represented Minority); economically, they are dependent on family support and relatively insensitive to price. Their primary decision driver is institutional prestige.
Pragmatics: Pragmatics are often older, more likely to be first‑generation, URM, married, and parents. Academically, they are mid‑ or low‑performing and less likely to have taken advanced coursework. Economically, they are poorer, employed (often full‑time workers), and highly price‑sensitive. Their decision drivers are proximity, cost, convenience, and the perceived financial payoff of the credential. By the 2010s, this group overtook Elites as the majority.
Across both groups, one factor stands out as universally influential: proximity. Half of all students enroll within 17 miles of home, and nearly 70% remain within 50 miles. For Pragmatics, proximity is essential due to work and family obligations; for Elites, distance introduces cost and logistical barriers.
Due largely to demographic shifts, the proportion of Elites is shrinking rapidly; but the corresponding supply of Institutes of Higher Education (IHE) built to serve them has not contracted. The intensified competition for this market has disproportionately impacted public and private IHEs that are typically smaller, non-selective, struggling financially, expensive, more rural, and lesser known.
The responses of these schools have included increased discounting; refinancing or increasing debt; loosening admissions standards; expanding recruiting efforts; increasing high school visits and partnerships; more campus visits for families; and expanded data analytics to identify more likely “fits.” They have developed more robust advising and career planning resources, expanded curricular offerings, and dipped deeper into their waitlists.
All of these efforts have had limited success — chiefly because none of them address the top concerns of either Elites or Pragmatics. The relative prestige of the given school remains low, turning off most Elites; its costs, although discounted, remain multiples of lower‑cost options, eliminating nearly all Pragmatics; and their locations remain outside the preferred 17–50 mile radius for all candidates.
The most prestigious schools — Ivies and a few others — have been largely insulated, protected by entrenched brands and massive endowments. A central strategy for struggling institutions has been heavy promotion of the “college premium” — the claim that graduates earn substantially more than non‑graduates. They cite figures showing that full-time workers with bachelor’s degrees earn significantly more per year and over a lifetime than high-school graduates or those with an associate’s degree.
For both educators and paying families, it is tempting to treat these correlations as causal. Yet substantial evidence shows the premium is far smaller than advertised. Even so, countless college websites continue to market it aggressively, some even branding it as their own institution’s “premium.” What they rarely mention is that the premium may be much smaller or nonexistent for certain majors and that it applies only to graduates.
For the new market of underprepared, economically fragile students, the college‑premium narrative is insufficient — and often misleading. IHEs needed another economic incentive and a moral argument.
The Great Pivot
As the proportional supply of traditional, well‑prepared students shrank, hundreds of IHEs pivoted toward a new candidate altogether — the poor, the academically underprepared, and under represented minorities (URMs). LinkedIn reports that as more prospective students applied to the most selective schools, those schools became even more exclusive, while struggling schools loosened admissions standards to fill empty seats and beds. They escalated scholarships, discounting, and grants to attract this poorer contingent.
Struggling schools often wrapped their outreach messaging in DEI priorities, positioning their efforts as righteously student‑centered. They admitted far more students who were historically underrepresented — higher‑risk students who were typically poor, first‑generation, academically underprepared, and non‑white and non‑Asian minorities.
In fact, the data show that between 2004 and 2024, even as overall enrollment fell, the number of schools accepting 70% or more of applicants increased from 58% to 64%, with enrollment at these schools rising 36%, from 767,000 to 1,043,000.c
In fact, the data show that between 2004 and 2024, even as overall enrollment fell, the number of schools accepting 70% or more of applicants increased from 58% to 64%, with enrollment at these schools rising 36%, from 767,000 to 1,043,000.
In “College Preparedness Over The Years,” Petrilli and Finn observe:
No wonder that, around 2005, the country felt an acute sense of crisis about so many students arriving on campus unready for college‑level work. Barely a majority of freshmen were ‘college‑prepared,’ versus two‑thirds of students a dozen years earlier.
They go on to postulate that this helps explain the paradox of why, despite levels of college matriculation being up, rates of college completion have declined. Remedial course work has exploded: today, half of all college students and 70% of community college students take some form of remediation, with many requiring 2–4 remedial courses.
Many colleges nonetheless stepped up marketing and recruiting dramatically. They found they could lower costs through digital marketing. The Common App, for example, now handles over 10 million applications annually. This means expanded access, especially for first‑generation, low‑income, and URM students. Thanks to the Common App platform, applications per student has grown dramatically.
Test‑optional policies, expanded during COVID, boosted applications from lesser‑prepared students. Some 75-80% of IHEs adopted this policy and most have kept it. Struggling IHEs implemented new admissions policies: instant decisions, guaranteed admissions, and offering admission to high‑school seniors who had not yet even applied.
But recruiting alone could not solve the financial problem. With the cost of a bachelor’s degree soaring into the low‑ to mid‑six figures, and the target market hovering around poverty level, IHEs needed a financing mechanism. Pell grants, that today provide up to $7,395 per year, soared in usage from 3.8 million in 1990, to a peak of 9.4 million in 2011. But even these were not sufficient to bridge the growing financial gap.
The solution became the modern American student loan system.
The Student Loan Engine
Today’s U.S. student loan system began in 1958 with the National Defense Education Act and expanded in 1965 with the federal guarantee program. For decades it served a relatively small share of students; but from the 1990s through 2010s, usage exploded. Between 2000 and 2020, total student debt more than quadrupled from $387 billion to $1.8 trillion. The average loan balance now exceeds $30k, and only 38% of borrowers are current.
Not only did the number of borrowers skyrocket, but the amount borrowed did as well. By 2017, some 8 million people took out new student loans — double the number who did so in 1995. The average amount borrowed increased 27% during that time, with the number of people owing $50k or more increasing seven-fold to over 5 million.
Borrowing grew fastest at riskier institutions — those where students are more likely to borrow heavily, drop out, default, or earn too little to repay. URMs, particularly Black and Hispanic/Latino students, were disproportionately affected. Pell‑eligible students — a proxy for low income, first‑generation status, and URM — are heavily concentrated in lower‑earning, non‑STEM, non‑Business majors.
Conclusion
Although college can be valuable for some students, the divergence in outcomes has become stark. Well‑prepared students often thrive, while many underprepared students end up worse off — sometimes far worse — than if they had never enrolled. The consequences are broad: delayed homeownership, marriage, and childbearing; reduced retirement savings; and widening racial wealth gaps.
At the top, elite institutions — buoyed by brand power, selectivity, and massive endowments — continue to thrive. At the pragmatic end, large public systems, community colleges, and scalable online providers attract cost‑sensitive students who prioritize proximity, affordability, and flexibility.
But in the middle sit hundreds of institutions that cannot win either group. They are too expensive and geographically inconvenient for Pragmatics, and insufficiently prestigious for Elites. Their pivot toward underprepared, economically fragile students has kept enrollment and corresponding state reimbursement afloat but has also exposed those students to heightened academic and financial risk.
Completion rates remain low. Remediation remains high. Borrowing remains heavy and the college premium — widely advertised as universal — is increasingly questionable and uneven, masking enormous variance in outcomes. For many underprepared students, the combination of low completion probability, high borrowing, and weak labor‑market returns has inverted the traditional value proposition. Instead of college being a pathway to upward mobility, it has become a source of long‑term financial strain.
Higher education is no longer a single market. It is a bifurcated system in which a shrinking pool of Elites and a large pool of Pragmatics dominate demand, while hundreds of institutions find themselves unable to attract either group. Their survival strategy — the Great Pivot — has reshaped the sector, expanded access, and simultaneously exposed millions of underprepared students to financial and academic risks that the traditional college‑premium narrative obscures. The implications are profound: for students, for institutions, for society, and for the future of higher education itself.
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Greg Salsbury, Ph.D., serves on the Board of Advisors for STARRS.US., and is the former president of Western Colorado University. He earned his Ph.D. from the University of Southern California, an M.A. from the University of Illinois, and an M.A. from the Annenberg School for Communication and Journalism at USC.
John Kawauchi, MBA, is a former VP of Enrollment Management and Marketing of Western Colorado University and Lake Superior State University, after spending most of his career in Retirement Planning and Product Marketing in the Financial Services industry. He earned his MBA from the University of Chicago and a BS from Cornell University.
Part I first published on The Daily Wire
Part 2 first published on The Daily Wire
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