The Coming Storm: How America’s Baby Bust Is Reshaping College Campuses

Remember when your parents talked about the baby boom? Well, we’re living through the opposite—and it’s about to hit America’s colleges like a freight train.

Here’s the simple math that’s keeping college presidents up at night: The U.S. fertility rate peaked at 2.12 births per woman in 2007, right before the Great Recession. Today? It’s down to 1.6, well below the 2.1 needed just to keep the population stable. Those babies who weren’t born 17-18 years ago? They’re the college freshmen who won’t be showing up on campus this fall.

The Cliff Is Here

Higher education experts have been warning about the “demographic cliff” for years, but 2025 marks the year it truly arrives. The high school class graduating this spring represents the last cohort before a sustained decline in the college-age population begins. Some projections suggest a 15% drop in traditional college-age students between 2025 and 2029, with certain states facing even steeper declines—Illinois could see 32%, California 29%, and New York 27%.

The irony? While everyone’s been bracing for impact, overall college enrollment actually ticked up 1% in fall 2025, reaching 19.4 million students. But that masks a more complicated reality. Community colleges saw strong 3% growth, driven largely by dual-enrollment high schoolers and adults seeking short-term credentials. Meanwhile, private four-year institutions saw enrollment decline, breaking a historical pattern where public and private four-year schools typically move in tandem.

The Casualty List

The closure announcements tell the real story. At least 16 nonprofit institutions shut their doors in 2025—matching the previous year’s grim tally. Since 2020, over 84 public or nonprofit colleges have either closed, merged, or announced they’re doing so.

Some of these closures hit hard. Northland College in Wisconsin, operating since 1892, held its final commencement in 2025 after failing to raise $12 million to stay afloat. Wells College in New York, Limestone University in South Carolina, and Eastern Nazarene College in Massachusetts all succumbed to the same brutal combination: declining enrollment, rising costs, and depleted endowments.

Pennsylvania got hit particularly hard—Penn State alone announced the closure of seven regional campuses, affecting over 500 staff members. In states like Vermont, with fewer than a million residents, at least five colleges have failed in the past few years.

The pattern is consistent and predictable: Small, private, tuition-dependent institutions without robust endowments face an impossible squeeze. When each incoming class shrinks even slightly, the financial pressure becomes relentless. Many of these schools tried everything—selling assets, taking out loans, cutting programs and staff—but the math just wouldn’t work anymore.

What’s Coming Next

The Federal Reserve Bank of Philadelphia developed a sobering predictive model in late 2024. In a worst-case scenario with an abrupt enrollment drop, they project up to 80 colleges could close in the next five years, impacting over 100,000 students and 20,000 staff. Even in a more gradual decline scenario, an average of nearly 5 colleges would close annually.

Credit rating agencies have issued unfavorable outlooks for higher education in 2026, and experts like Richard Vedder, an economics professor at Ohio University, see this as a long-term trend rather than a temporary blip. The prestigious schools—your Harvards and Stanfords—will be fine, enjoying a “flight to quality” with five applicants for every admission spot. But regional institutions without strong reputations or healthy endowments are fighting for survival.

The Credit Rating Crisis: Wall Street’s Verdict on Campus Finance

If college closures are the symptoms, credit ratings are the diagnosis—and the prognosis isn’t pretty. The three major credit rating agencies—Moody’s, S&P Global Ratings, and Fitch Ratings—serve as Wall Street’s report card for colleges, and 2025 has seen a wave of downgrades that would make any CFO wince.

Think of credit ratings like academic grades, but instead of measuring student performance, they measure an institution’s ability to pay back borrowed money. Ratings range from AAA (pristine, virtually no default risk) down through AA, A, BBB, and then into “junk bond” territory below investment grade—BB, B, CCC, and ultimately D for default. Once you drop below BBB, institutional investors like pension funds often can’t touch your bonds, making borrowing exponentially more expensive.

The Rating Agencies Sound the Alarm

All three major agencies delivered grim news heading into 2025 and 2026:

Fitch Ratings issued a “deteriorating” outlook for higher education for two consecutive years. The agency expects “uneven enrollment dynamics, rising competitive pressures and continuing margin pressures” to challenge institutions across the sector. Emily Wadhwani, Fitch’s senior director, warned that these challenges “will continue to chip away at more vulnerable higher education institutions” even if inflation eases and interest rates come down.

Fitch’s analysis showed that private nonprofit colleges hit their lowest operating margins in over a decade. The median adjusted operating margin fell to -2.0% in fiscal 2024 for the 56 private nonprofits in Fitch’s portfolio. Even the three institutions with AAA ratings—Harvard, Princeton, and Yale among them—saw their margins drop from double-digit highs during the pandemic to 8.4%.

S&P Global Ratings took what it calls a “bifurcated” view: positive for large, selective institutions with broad reach and ample resources, but negative for “highly regional, less-selective institutions that lack financial flexibility.” Translation: the rich get richer while struggling schools face what S&P analysts called “enrollment declines, leading to strained operations and, often, liquidity issues.”

Moody’s Ratings initially predicted stability for 2025 before abruptly reversing course in March and downgrading the entire sector outlook to negative. The culprit? Federal policy changes under the Trump administration that have created what Moody’s called “an increasingly difficult and shifting operating environment.” By November 2025, Moody’s extended the negative outlook through 2026, forecasting that the share of private colleges with negative earnings margins will balloon from 7.2% in 2024 to 16% by 2026.

The Federal Policy Earthquake

What changed Moody’s mind so dramatically? A perfect storm of federal actions:

• Proposed caps on National Institutes of Health research funding reimbursements that could cost major research universities over $100 million annually
• Mass layoffs at the Department of Education (cutting the workforce roughly in half in March 2025), threatening disruption to federal student aid processing
• Aggressive enforcement actions against diversity, equity, and inclusion programs, with 50 colleges under investigation and facing potential loss of federal funding
• Potential expansion of the endowment tax from 1.4% to as high as 10% or more, which would devastate wealthy private universities
• Visa restrictions threatening international student enrollment, a critical revenue source

Columbia University alone saw $400 million in federal grants and contracts canceled. Northwestern had to negotiate a $75 million settlement over three years to restore roughly $790 million in federal research funding.

Colleges in the Danger Zone

While credit agencies don’t publish comprehensive “worst of the worst” lists, investigative reporting and bond market analysis reveal dozens of institutions teetering on the edge. Here are colleges identified as having junk bond ratings (below investment grade) or severe financial distress:

Confirmed Junk Bond Status:

• Rider University (NJ) – Downgraded to junk by Moody’s, faces litigation over Westminster Choir College sale
• Wittenberg University (OH) – Rated B1 by Moody’s, announced major retrenchment in 2024 including 20% faculty layoffs
• Eastern Nazarene College (MA) – Closed 2025; had $22 million in debt against just $4 million in financial resources
• University of Findlay (OH) – Rated one notch below investment grade; $28.5 million debt vs. $17 million in resources
• Clarke College (IA) – $12.3 million debt exceeds total financial resources
• Life University (GA) – Rated B (lowest among active institutions), primarily a chiropractic school
• Northeastern Illinois University – Downgraded to B1 during Illinois budget crisis
• Eastern Illinois University – Junk status during state funding crisis
• Governors State University (IL) – Junk status
• Albright College (PA) – Previously identified as distressed, reported small surplus in 2025 after selling real estate

Recent Closures (2024-2025) Indicating Financial Collapse:

• Northland College (WI)
• Limestone University (SC)
• Wells College (NY)
• Fontbonne University (MO)
• St. Andrews University (NC)
• Bacone College (OK) – Chapter 7 bankruptcy liquidation
• Jamestown Business College (NY)
• Paier College of Art (CT)
• Union Institute & University (OH) – Chapter 7 bankruptcy
• Trinity Christian College (IL) – Announced closure for 2025-26

Colleges with “D” Grades (Severe Financial Vulnerability):

According to Forbes’ 2024-2025 financial health analysis, which grades private colleges from A+ to F, dozens of institutions received D grades indicating serious risk of closure, merger, or drastic restructuring. While Forbes doesn’t publish the complete D-grade list publicly, higher education analysts have identified these patterns:

High-Risk Categories:

• Small liberal arts colleges in the Northeast and Midwest with enrollment under 1,000
• Regional universities heavily dependent on tuition revenue (90%+ of budget)
• Institutions with debt exceeding total financial resources
• Schools showing 5-10 consecutive years of enrollment decline
• Colleges with tuition discount rates exceeding 55%

Colleges Highly Dependent on International Students (At Risk from Visa Restrictions):

• Hult International Business School (Boston)
• St. Francis College (Brooklyn)
• Multiple institutions relying on Chinese graduate students in STEM programs

Operating Margins Tell the Story

The numbers are stark: private nonprofit colleges are seeing their median adjusted operating margins shrink year after year. What does this mean in plain English? They’re spending more than they’re taking in, burning through reserves to keep the lights on.

For institutions rated AA and below, net tuition revenue grew just 1.2% to 3.8% in fiscal 2024—nowhere near enough to offset rising costs. Labor and wage expenses remain elevated even as pandemic-era inflation moderates. Capital needs are piling up too, with Moody’s estimating that institutions it covers have roughly $950 billion in deferred maintenance—classrooms, labs, dorms, and infrastructure that desperately needs updating but there’s no money to fix.

Meanwhile, tuition discount rates hit a record 56.2% for first-year students at private nonprofits in 2022-23 and have only climbed since. Translation: colleges are giving away more than half their sticker price just to fill seats.

The Junk Bond Trap

Once a college’s bonds get downgraded to junk status, it creates a vicious cycle. Higher interest rates on future borrowing mean more money spent on debt service instead of academics. Institutional investors like pension funds—which are often prohibited from buying speculative-grade bonds—disappear from the buyer pool. The college’s reputation takes a hit, making recruitment even harder.

As Joshua Stern, a higher education credit analyst at Standard & Poor’s, put it bluntly: “It is more typical than not that they don’t come back to investment grade. The erosion of resources is difficult to restore.”

Only one college has defaulted on its bonds in recent years before 2020—Bradford College in Massachusetts, which closed in 2000. But that record is unlikely to hold. Multiple institutions that closed in 2024-2025 left bondholders in limbo, and bankruptcy filings like those of Bacone College and Union Institute point to an uglier future for municipal bond investors who thought college debt was safe.

The Demographic Reality

Why did this happen? The Great Recession of 2007-2009 saw birth rates plummet faster than any other two-year period in recent history, dropping 23% between 2007 and 2022. People stopped having babies during the financial crisis, and even after the economy recovered, birth rates kept falling. Young adults cited financial pressures, climate concerns, career priorities, and changing social norms.

The Congressional Budget Office now projects the U.S. fertility rate will hover around 1.6 births per woman through 2055—far below replacement level. Without immigration, America’s population would actually start shrinking by 2030. Over half of Americans now say fewer people choosing to have children will negatively impact the country, yet most still believe the government shouldn’t actively encourage larger families.

It’s Not All Doom and Gloom

Here’s the silver lining: For students, this is increasingly a buyer’s market. Colleges are admitting a larger proportion of applicants than they did 20 years ago. Tuition discount rates at nonprofit schools hit a record 51% in 2022. Schools desperate for enrollment are offering better financial aid packages and becoming more flexible.

The institutions that are adapting are focusing on non-traditional students—the 40 million Americans with some college credits but no degree, adult learners returning for career advancement, and students seeking short-term credentials and certificates rather than four-year degrees. Online programs, night classes, and accelerated degrees are becoming the norm, not the exception.

Some schools are getting creative with mergers rather than closures. Seven mergers were announced in 2025, down from 12 in 2024, but they’re creating larger, more financially stable institutions that can weather demographic storms.

The Bottom Line

The demographic cliff isn’t coming—it’s here. The baby bust of the Great Recession era is now hitting campus enrollment offices with full force, and it’s going to be this way for years. States in the Northeast, Midwest, and parts of the West will feel it hardest.

Credit rating agencies are essentially issuing report cards that many colleges are failing. When Wall Street downgrades your bonds to junk status, when operating margins go negative, when you’re giving away more than half your tuition just to fill seats—these aren’t temporary setbacks. They’re existential threats.

For students and families, this creates opportunities for better deals and more personalized attention. For colleges, particularly small private ones living semester-to-semester on tuition revenue, the next few years will be existential. Some will close. Some will merge. And some will reinvent themselves by serving new populations in new ways.

The American higher education landscape of 2030 is going to look very different from what we see today. Whether that’s a crisis or an opportunity depends largely on where you’re sitting—in an admissions office desperately trying to fill seats, in a CFO’s office watching credit ratings plummet and bond spreads widen, or in a guidance counselor’s office with a stack of acceptance letters and scholarship offers to choose from.

One thing is certain: the days of every college surviving on autopilot are over. The demographic math is unforgiving, the credit markets are unforgiving, and Darwin’s law is coming to higher education with a vengeance.