One issue confronting America's colleges and universities is the reduction in federal funding

Higher education in the United States is navigating a period of intense pressure. One of the most publicized threats has been federal funding reductions targeting major institutions like Harvard, Columbia, and Northwestern. Research-focused universities rely heavily on government support to finance their studies and other initiatives. For instance, in the 2022-23 academic year, federal research funding accounted for roughly 40% of total revenue for Johns Hopkins University and MIT, second only to tuition income.

Since January 2025, federal grants totaling between $6.9 billion and $8.2 billion have been withdrawn under the Trump administration. While this financial squeeze has received widespread attention, universities are also under economic stress from other sources. Understanding these pressures is essential for prospective students and their families when weighing college options.

1. Nonprofit Status Doesnt Mean Financial Immunity

Most U.S. private colleges operate as nonprofit organizations, yet they still prioritize revenue. These schools answer to alumni, students, staff, donors, boards, and governmental bodies. Even without shareholders, they must generate income to cover significant fixed costs like faculty salaries and campus maintenance. As a result, many universities admit students who meet minimum academic criteria, especially if tuition revenue can fill empty seats. Expanding enrollment can boost revenue because the marginal cost of educating an additional student is relatively low.

However, adapting to changing student interests is difficult. A school cannot easily shift faculty roles to match demandfor example, a German language professor cannot simply teach a data science class. Unlike business executives, university leaders face career risks if they cut faculty positions, which limits their flexibility in responding to shifting enrollment patterns.

2. Student Recruitment Is Increasingly Competitive

College enrollment in the U.S. has dropped 8.4% since the peak of 21 million students in 2010. Schools now compete more aggressively for applicants, often using tuition discounts and financial aid to attract students. Elite institutions like Harvard advertise tuition near $60,000 per year, though the average net cost after financial aid was $17,900 in 2023-24. This strategy, known as price discrimination, allows schools to adjust fees based on each students ability to pay, similar to how airlines price tickets.

3. International Student Enrollment Is Declining

Universities have relied on international students, who often pay full tuition, to supplement revenue. Chinese and Indian students make up about half of all international attendees. Some universities, like Columbia, have seen international enrollment reach nearly 40% of the student body. Yet from 2024 to 2025, foreign student enrollment fell by 17% due to visa difficulties, policy changes, and rising competition from schools abroad. For example, Chinese student enrollment decreased from 317,299 in 2019 to 265,919 in 2024-25, straining U.S. universities financially.

4. The Perceived Value of a College Degree Is Uncertain

Recent changes to federal loan forgiveness programs have prompted questions about the return on investment of higher education. In 2024, only 22% of Americans believed a degree justified the cost if loans were required. Data from the University of Texas system shows that certain degrees, like drama, can result in negative financial returns, while engineering degrees provide substantial income benefits over time. This variation underscores the importance of evaluating the cost versus potential earnings of a program before enrolling.

Universities face pressure to modernize and align with workforce needs. Prospective students should examine graduate employment statistics and salary outcomes as carefully as they would when making any major financial investment. Greater transparency and responsiveness from colleges could help ensure higher education remains a worthwhile endeavor.

Author: Sophia Brooks