The headwinds facing higher ed have turned into a powerful gale.
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The higher education sector is increasingly squeezed by economic and political pressures affecting even the nation’s wealthiest institutions, according to a new report from consulting giant EAB.
The report, out today, argues that higher education is in “a new era of scrutiny and conditional legitimacy.” EAB finds the sector battered by social, political and market headwinds as it simultaneously navigates a more adversarial relationship with the federal government, a bifurcated enrollment picture, public doubts about return on investment, a rapidly changing athletics landscape and the effects of artificial intelligence on job prospects for recent graduates.
Here’s a look at some takeaways from EAB’s Higher Ed State of the Sector report.
A Changing Social Contract
The report notes that scrutiny on the sector is sharpening, which is driven by both the Trump administration and state lawmakers who have ratcheted up pressure on institutional autonomy by pressing universities to restrict certain speech and halt diversity, equity and inclusion efforts.
The authors argue that autonomy is no longer assumed and colleges must justify to the public their need for independence.
“In the past, it was largely assumed we were given autonomy. It was assumed that we were going to deliver value, do good for the public,” Brooke Thayer, EAB’s senior director of research, told Inside Higher Ed. “Now it’s increasingly conditional and tied to—can you actually prove it? Can you show me the ROI? Can you show me the impact and economic value and alignment with the priorities of federal policymakers, state policymakers and the broader public as well?”
Thayer and her co-authors note that in President Donald Trump’s second term, many historical assumptions about higher education no longer ring true. They point to restrictions on speech and DEI, loan caps, an increased focus on ROI, an expansion of the endowment tax, and cuts to research as evidence that higher education’s social contract has been rewritten in just the first year of Trump 2.0.
“There’s one word that stuck out over this last year and it’s ‘Trump,’” said Colin Koproske, managing director in EAB’s research division. But, he added, the federal government’s shifting priorities are compounded by demographic pressures and the AI effect on job placement. Altogether, those headwinds amount to a powerful gale.
‘Synchronized Compression’
While the report notes that the business model of higher education has been under strain for decades, authors argue, “Today’s challenges are substantively different.” They find “every major revenue stream and expense category is under pressure at the same time” across the sector.
Institutions are facing what EAB calls “synchronized compression,” which means leaders have “fewer cushions to absorb shocks” due to simultaneous pressure on revenues and expenses.
The report notes a high and largely fixed cost structure, heavy on labor costs, weighed down by deferred maintenance needs and subject to political headwinds, particularly for public institutions, where lawmakers may be keen to cut education to balance state budgets.
“I think most schools are gonna have to make bigger changes than we have in the past and move a lot faster,” Thayer said. “A lot of that comes down to the reality that we have to manage our cost base, which is highly fixed and labor intensive. It’s tough to make a real change in the model and is going to require some of those bigger discussions and restructuring conversations around—do we have the right people, processes, investments in place and are there ways we actually can more sustainably build a model for the future with more cost flexibility in it?”
But the report notes that even deep-pocketed institutions are subject to budget constraints, pointing out that wealthy universities also cut jobs and programs amid recent fiscal pressures.
Need to Rethink Curricula
The EAB report argues that higher education must confront concerns about market relevance as artificial intelligence reshapes the student body, the labor market and society at a broad level.
The first factor is generational. The report argues that students arrive on campus less prepared “academically, socially and professionally.” But new graduates are also facing a contracting labor market, with entry-level jobs harder to obtain. Finally, EAB argues that artificial intelligence is “rewriting the foundations of work itself” as corporations make major bets on the technology.
Thayer and Koproske argue that the effect of AI on early career outcomes—where many companies are tapping the technology to do the work of junior employees—means universities will have to rethink what they teach and how they teach it, with more of an emphasis on experiential learning. They also call on colleges to build more partnerships with employers to help students land internships and co-op placements in order to get a leg up on their careers.
“There’s a bridge from a traditional four-year undergraduate education to the workforce that has to be built up to a much greater degree,” Koproske said.
A ‘Winning Platform’
Despite the concerns raised in the report, it isn’t all doom and gloom. EAB does offer a “winning platform” for institutions despite the many challenges confronting the higher education sector.
The report highlights three areas where colleges should focus to improve public support.
First up is “power jobs,” or the notion, as described in the report, that colleges provide “the fastest, most reliable route to jobs that sustain families and keep America competitive.” Second, the report highlights the importance of fostering civic pluralism, or making campuses a national model for debate and civic literacy in a time of polarization. Finally, colleges should focus on advancing national resilience, by taking center stage in areas such as defense, health and infrastructure by focusing research on areas of public interest and minting partnerships, according to the report.
“Underlying all of those is this theme of transparency and making sure we’re measuring, we’re proving the outcomes, we’re being clear about the impact that we’re having. But those are three activities that cut across the party lines and are valuable in the eyes of the public,” Thayer said.
A webinar discussing the findings in the report is scheduled for Wednesday at 3 p.m. Eastern.