Why colleges are going out of business

Higher education is in crisis. Last week, Hampshire College — a private liberal arts school in Amherst, Massachusetts — announced it will shut down after the fall 2026 semester.

Founded in 1965 to “reimagine liberal arts education,” Hampshire counts documentary filmmaker Ken Burns and actors Lupita Nyong’o and Liev Schreiber among its most notable alumni.

But Hampshire is just the latest casualty in a broader trend. There are roughly 4,000 colleges in the United States. According to Jon Marcus, senior higher education reporter at the Hechinger Report, a nonprofit publication covering education, around 100 have closed since the Covid-19 pandemic, and many more are at risk over the next decade. 

For now, large public universities and well-endowed private schools like Harvard and Yale remain relatively stable. But smaller regional colleges are increasingly at risk. That shift could leave students with fewer options for higher education, and,, for some, close the door on higher education entirely. 

To understand why colleges are closing and what it means for the future of higher education in the United States, Today, Explained co-host Sean Rameswaram spoke with Marcus, who explained the story of Hampshire College and some of the financial, demographic, and cultural elements afflicting colleges.

Below is an excerpt of the conversation, edited for length and clarity. There’s much more in the full podcast, so listen to Today, Explained wherever you get podcasts, including Apple Podcasts, Pandora, and Spotify. 

Last week it was announced that the private liberal arts college Hampshire College would close after its fall semester. Tell us the story of what happened to Hampshire.

Like a lot of small colleges, Hampshire had a lot of problems hidden just below the surface. In Hampshire’s case, they weren’t that well-hidden. It had been having problems for more than six years, since before the pandemic, but was being kept afloat by its very loyal alumni, who include some people that have been extremely successful, largely in the arts.

Its endowment was very small. Its enrollment continued to decline. It had fewer than 800 students left at the end. It had $21 million in debt. 

Debt is a really important and largely misunderstood component of this. When people think of debt and college, they think of student loan debt, but there’s also institutional debt, and it is really piling up. Colleges and universities have borrowed significant amounts of money and, so, servicing that debt becomes a big drain on their operating budgets. To attract students, colleges do something else that isn’t widely known: They discount the tuition. Almost no one pays the list price you see on the website.

At Hampshire, specifically, or everywhere?

At colleges in general. The discount rate at colleges and universities is more than 50 percent. So, if you were a private business, and you gave back 50 percent of your revenue, you’d be out of business. And that’s what’s happening to a lot of these small colleges. 

At Hampshire, they were giving back more than 75 percent of their revenue in the form of discounts just to continue to get people to come there and fill seats.

It sounds like this is happening far more often than we know — that four-year colleges and universities are going out of business.

About a hundred colleges have closed since the pandemic. Many of them only made it this far because they got federal aid during the pandemic to keep them open. Had they not, they would’ve probably closed sooner. And there’s a new estimate that shows that 442 private nonprofit colleges and universities — that’s one quarter of the total — are at risk. About 120 of them are at severe risk of closing.

What are the other causes for college closures? 

We are running out of students. The number of 18-year-olds is way down. People stop having children during financial downturns. And if you do the math, the great recession was in 2008. So, in 2026 is when that hits us. 

Eighteen years later, we’re running out of 18-year-olds, and that will begin to have an impact on college enrollment in the fall. The last big class was the one that enrolled in this most recent fall. The next fall is when the demographic cliff begins to hit.

And it’s just math. We have too many colleges, and we have too few traditional-age college students. Of the ones we still have, a smaller proportion of graduates from high school are choosing to go to college. 

We hit a peak in 2016 of 70 percent of high school graduates going to college. That’s now down to just a little bit better than 60 percent. That is a big, big drop in a very short time. And that has to do with the cost of higher education and the growing skepticism about the return on the investment. So, that’s really taking a toll.

There is the demographic cliff and cost. There’s also a culture war around our colleges and universities currently being waged by [the Trump] administration. Does that have something to do with it?

That is not helping. Under this current presidential administration, we are seeing a lot of other impacts on higher ed[ucation] obscuring the reality of what’s going on. The sustainability of higher education has been the focus that we’ve all understandably had on this firehose of funding cuts and lawsuits and attacks on DEI [Diversity, Equity, and Inclusion].

In the end, though, the kinds of colleges that we’re talking about that are at risk of closing, this doesn’t affect them, because they don’t do federally funded research. The one policy under this administration that is hurting some of these small colleges is the crackdown on international students. 

Some of these small colleges have recruited international students, because they’re profitable. They pay the full tuition. And so, we’ve seen now a 36 percent decline last year in the number of visas issued for new international students. That’s a giant hit. 

Essentially, it’s just a perfect storm of all of these things happening at the same time to colleges that are already overextended, overly indebted, and don’t have enough students.

What happens to a student who goes to one of these schools when they find out their school is closing?

Nothing good happens to those students. There is research that shows that half of those students transfer, half of them don’t. Half of them end their pursuit of a degree. Of the half that transfer, half of them never graduate. 

The reasons for that include the cost and the fact that the successor college often doesn’t take all of their credits or won’t accept their transfer credits toward the major. And, in many cases, students have left these small colleges that have closed; gone to another college; and then, it closed.

This is becoming a cycle. And one really fascinating thing that I started hearing a few years ago from a student tour guide at a small college was that parents were beginning to ask a question he never heard. And it wasn’t, “How’s the food?” It was, “Will this college still be here in four years?” So, people are beginning to pay attention.

To some degree, you’re speaking about market forces. There’s not enough students, the costs are too high, so the market’s correcting and these schools are closing. But what do we lose when we lose these smaller regional liberal arts colleges?

The first and most important thing is: Not everyone needs to go to college, but somebody needs to go to college. And college-going in the United States is down. In economic rival countries globally, college-going is way up. So, we’re losing the competitive edge that we’ve always had by having a well-educated, innovative, and entrepreneurial population. That’s the big picture. 

The small picture is more immediate. As you might assume, a college that closes is a problem for its community, because you lose jobs. Housing values go down when you lose a major employer. 

But here’s the one that surprised me that I never really thought about: A lot of these colleges are in remote, isolated places, often rural, and they draw young people to these communities. After they graduate, they stay, and they create businesses, or they work in jobs. And a lot of the colleges that have closed, they’re in places where the population is aging. All of these colleges that have closed are another kind of ending of the pipeline that was bringing in young people to a place where they were needed to diversify the economy.

For someone out there who’s like, “Hampshire College, never heard of her, doesn’t affect me,” what they might be missing is that if enough of these schools close, you’re going to see a bit of a death spiral, a doom loop, in smaller American cities.

Yes; I would say more small towns than cities. But even in some cities where colleges close, again, it’s a lot of payroll. There’s a lot of employees. There’s the add-on spending of the students who buy pizza or rent apartments. But ,to your point, the immediate reaction I’ve noticed on social media and elsewhere is, “Good, let ’em close.”

There’s a real antipathy toward colleges among some people in the public who feel that they are elitist, that they are woke, that they’re overly liberal, that they’re indoctrinating young people. 

Whether that’s true or not, that’s the public perception, and I don’t think colleges have done a very good job at counteracting that narrative. But they’re also really important. We need them. We need them in some form to continue to educate young people for jobs that require those skills.