American colleges and universities are navigating a period of significant financial difficulty. While recent federal funding cuts have captured headlines, a combination of declining student enrollment, shifting international demographics, and growing public skepticism about the value of a degree is creating a more complex and sustained challenge for the higher education sector.
Key Takeaways
- Overall student enrollment in U.S. colleges has dropped by 8.4% since its peak in 2010.
- International student numbers, a key source of revenue, fell by 17% between the fall of 2024 and 2025.
- Public confidence is waning, with only 22% of Americans in 2024 believing a college degree is worth the cost if it requires taking on debt.
- The financial return on a degree varies dramatically by field of study, prompting calls for greater transparency from universities.
A Perfect Storm of Financial Challenges
The financial health of many U.S. higher education institutions is under pressure from multiple directions. Recent attention has focused on the Trump administration's termination of federal grants, which amounted to between $6.9 billion and $8.2 billion since January 2025. This has a direct impact on major research universities that depend heavily on government support.
For example, during the 2022-23 academic year, federal research money accounted for 40% of total revenue for prominent institutions like Johns Hopkins University and the Massachusetts Institute of Technology, second only to tuition fees. These cuts directly threaten research capabilities and other essential university functions.
However, this political pressure is just one piece of a much larger economic puzzle. Universities are simultaneously grappling with fundamental shifts in student demand and public perception, forcing them to reconsider long-standing operational models.
The University as a Business
While most American private colleges are designated as nonprofits, they operate with business-like principles. They have significant fixed costs, such as faculty salaries and building maintenance, that must be covered by revenue, primarily from tuition. When enrollment drops, there are fewer students to cover these costs, creating immediate financial strain.
The Shrinking Pool of Students
Perhaps the most significant long-term threat to universities is a declining student population, both domestically and internationally. This forces institutions to compete more aggressively for a smaller number of applicants.
Domestic Enrollment Declines
College enrollment in the United States peaked in 2010 at 21 million students. By 2024, that number had fallen by 8.4%. With fewer high school graduates choosing to pursue higher education immediately, many colleges find themselves with empty seats in classrooms and dormitories.
To fill these spots, schools increasingly engage in what economists call price discrimination. They offer significant discounts from their advertised tuition rates through scholarships and financial aid. While an elite school like Harvard University lists its annual tuition at roughly $60,000, the average net price a student actually paid in 2023-24 was $17,900. This strategy is common across the sector as schools adjust pricing based on a family's ability or willingness to pay.
The International Student Dilemma
For years, international students—who typically pay full tuition—were a reliable source of revenue to offset domestic enrollment challenges. However, this revenue stream is becoming less certain. Foreign student enrollment saw a sharp 17% decline from the fall of 2024 to 2025.
Students from China and India each make up approximately one-quarter of all international students in the United States. The number of Chinese students has fallen from 317,299 in 2019 to 265,919 in the 2024-25 school year.
This drop is attributed to several factors, including stricter U.S. visa policies, heightened geopolitical tensions, and increased competition from universities in Canada, Australia, and the United Kingdom. Institutions that had become particularly reliant on this demographic, such as Columbia University where international students approach 40% of the student body, are now more financially exposed.
Rethinking the Value of a College Degree
Compounding the enrollment issue is a growing public debate over whether a college degree is a worthwhile investment. With changes to federal loan forgiveness programs and rising tuition costs, families are asking more critical questions about the return on investment (ROI).
A 2024 survey revealed that just 22% of Americans believe a college degree is worth the cost if a student must borrow money to obtain it. This skepticism is supported by data showing a wide disparity in graduate earnings depending on the field of study.
"If more people treated buying a college degree with the same care they use to buy their first home – an equivalent investment – colleges and universities would feel pressure to become more transparent for students and parents," noted a report from academic researchers on the topic.
The University of Texas system has started providing public data on graduate earnings, which illustrates this gap starkly. A graduate with a degree in drama from the University of Texas at Arlington earns an average salary of $14,933 one year after graduation. This results in a negative ROI of over $300,000 after ten years when factoring in the cost of the degree.
In contrast, a graduate from the same university with a civil engineering degree earns an average of $67,920 one year after graduation, leading to a positive ROI of $1.15 million over the same period. This data highlights the critical need for prospective students to research career outcomes tied to specific programs.
The Path Forward for Higher Education
The convergence of these financial, demographic, and social pressures presents a formidable challenge for American higher education. Unlike businesses that can quickly pivot or downsize, universities face unique constraints. Academic departments cannot be easily repurposed; a tenured professor in a low-demand field like foreign languages cannot simply be reassigned to teach a high-demand subject like data science.
Furthermore, university leaders who make difficult decisions, such as eliminating faculty positions or entire programs, often face significant backlash from faculty, alumni, and students, which can be detrimental to their careers.
As these pressures mount, prospective students and their families hold more bargaining power than they may realize. By demanding greater transparency on graduate employment rates, average salaries by major, and the true net cost of attendance, they can force institutions to adapt and better align their offerings with the demands of the modern workplace. The future of many colleges may depend on their ability to answer one simple question: Is the education you provide worth the price?
