AI in Higher Education: Overcoming Challenges and Building the 'Competent Institution'
Artificial intelligence and the efficiency gains that come with it have the potential to change the current trajectory of many institutions at risk. But the key is to start now.
- By Hernan Londono
- 01/27/25
Four years have passed since I wrote my first article about the fragility of the higher education system. At the time I wrote Avoiding the Edge of the Cliff, the lens through which I saw the realities affecting higher education was a bit different. The perceptions and observations that informed my writing then came from multiple decades of experiencing the system from within. Fast forward four years, now my lens is wider. For the past four plus years (almost feels like 10 years instead), through multiple strategy roles with two of the largest global technology companies, I have accrued interactions and provided strategic advice to dozens, perhaps hundreds of leaders from institutions of all sizes, denominations, missions, and operating modalities. This includes presidents, provosts, governing boards, cabinet leaders, CXOs of all types, academic and administrative staff, and more. I can say with some level of precision that many of the perceptions outlined in that first article appear to be accurate. At least the current reality seems to provide some degree of validation for what I wrote at that time. The fact that I may have been right is of course not entirely positive, especially considering that even through a narrow lens I was able to capture challenges with such fidelity. An unscientific deduction I can make from that phenomenon is that such challenging realities were already acute enough then to be easily perceived without much difficulty.
Current Realities
In my opinion, there are perhaps two metrics which together function as fairly precise indicators to gauge how challenging a business segment is. Such metrics are the number of organizations leaving the segment (as in closing), and the rate at which they exit. According to the 2024 Higher Ed Dive article "A Look at Trends in College Consolidation Since 2016," over 100 colleges have closed or merged over just the past eight years. This is a staggering number in eight years. However, when one looks at just the past four years, it is easy to spot a recent acceleration of the closure phenomenon. As stated in BestColleges' "Tracking College Closures and Mergers," "At least 72 public or nonprofit colleges have closed, merged, or announced closures or mergers since March 2020." Surely an argument can be made that the recent pandemic had a significant influence on this acceleration. To that I say yes, absolutely the truth. I however think that this is a textbook case of correlation versus causation. The preconditions for these closures to take place were set in motion long ago; the pandemic did not cause the closures, it just accelerated them. It is worth mentioning that these closures are seen more significantly in private, for-profit institutions. Though not exclusively.
In terms of current pressures, I don't think much has changed since my first article. Maybe what has changed is that this new lens that I am now using to glean my observations through has offered me the chance to sharpen my focus. Things appear to be clearer. Enough has been written about the enrollment cliff, so I won't belabor that point, but I will highlight perhaps one thing. What's now known with more clarity is how the cliff's effects will be felt differently in various regions of the United States. This is important because some institutions will have to react faster and more decisively than others. Couple this decline in enrollment, predicted to be precipitous in some cases, with what Moody describes as a "hidden liability" in its August 2024 higher education segment rating ("Pent-up Capital Needs: The Hidden Liability with a Hefty Price Tag"). This is approximately $950B in deferred maintenance costs. This figure applies to the higher education segment as a whole. As if this wasn't enough, as stated by the 2024 Commonfund Higher Education Price Index report, the cost of operations for the higher education sector as measured by the Higher Education Price Index (HEPI) continues to grow at a rate that outpaces the inflation rate for all other goods, as measured by the Consumer Price Index (CPI). This, by the way, has been a consistent trend since the year 2000, and surely for eight out of the past 10 years. One significant outcome of HEPI outpacing CPI is the growing perception by consumers of the decline of the value provided by a higher education degree. It is a return on investment calculation people are now more consistently making about everything they consume, education not excluded. One more element to add context to the financial picture of the segment is based on NACUBO's 2023 Tuition Discount Study. The study points to two important things. The first one is that tuition discounting in private schools has reached an all-time high at 53.9%. This is the average; many institutions go beyond this average just to be able to compete. The second one is that the growth in discounts seems to be an important contributing factor in a significant decline in revenue of 5.4%. Taking all these lingering pressures into account, the credit rating agency Fitch summarizes higher education outlook very simply as "deteriorating" for 2025 (Deteriorating Outlook to Intensify for U.S. Colleges in 2025). This is a natural consequence of institutions' inability to find efficiencies to offset the negative effect of raising operating costs, versus declining revenues. I'd argue, this is an unsustainable trajectory. Enough said.