Creative Destruction in American Higher Education: Schumpeter in Action

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Jane L. Johnson
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Joseph Schumpeter (1883–1960), an Austrian political economist who emigrated to the United States in 1932 to become a professor at Harvard University, is known for his theories on business cycles and entrepreneurship.

He is perhaps best known for advancing the concept of “creative destruction,” which he defined as the natural process of business firms failing at some point, freeing up resources (land, labor, and capital) that can then become more productive in some other use under different management who can bring innovation to manufacturing processes.

Creative Destruction in US Higher Education

Today, Schumpeter’s creative destruction occurs in real time among start-up firms in many industries, especially technology. The phenomenon is not confined to technology, however, but applies widely to many other areas of the economy, including the higher education community. Closures, mergers, and takeovers occur regularly throughout segments of higher education: public and private, profit and nonprofit, large and small, urban and rural.

Every few weeks can bring news of an announcement of closure of another struggling collegiate institution, or occasionally a merger into another institution as a survival strategy. Most of these institutions are not household names and are often unknown beyond their immediate geographical areas.

Inside Higher Ed has published a list of institutions that closed during 2023, or announced 2024 closures in 2023:

• Presentation College, Catholic, in South Dakota
• Finlandia University, Lutheran, in Michigan
• Iowa Wesleyan University, United Methodist, in Iowa
• Medaille University, nondenominational, in New York
• Cardinal Stritch University, Catholic, in Wisconsin
• Cabrini University, Catholic, in Pennsylvania
• Alliance University, Christian, in New York
• The King’s College, Christian, in New York
• Hodges University, nondenominational, in Florida
• Alderson Broaddus University, nondenominational, in West Virginia
• Cox College, nondenominational, in Missouri
• Lincoln Christian University, Church of Christ, in Illinois
• University of Wisconsin-Platteville Richland, public, in Wisconsin
• Magdalen College, Catholic, in New Hampshire
• The College of Saint Rose, Catholic, in New York
• Holy Names University, Catholic, in California
• The University of Antelope Valley, for-profit, in California, due to alleged financial mismanagement

Nearly all of these closed institutions cited one or more of the following conditions prior to closure: financial exigencies or mismanagement, inability to attract sufficient loans or gifts to remain open, declining enrollments, failure to expand online, and accreditation problems.

The article also includes a list of schools that consolidated into larger, more-successful ones. Examples include:

• Notre Dame University of Maryland, a private Catholic institution seeking to add new graduate-level health programs, acquired Maryland University of Integrative Health, a private graduate school.
• Multnomah University in Oregon transitioned to become a satellite campus for Jessup University in California.
• Hilbert College, a four-year nonprofit Catholic college in New York, purchased Valley College, a for-profit school with four sites in Ohio and West Virginia, an acquisition that may be the first of a for-profit college by a nonprofit religious institution.
• St. Augustine College and Lewis University, both Catholic institutions in the Chicago area, merged to form a much-larger combined institution.
• Salus University in Pennsylvania merged with the much-larger Drexel University, a combination of institutions that have complementary programs.
• In another instance several years ago, Mills College in Oakland, California—founded in 1852 as the first women’s college west of the Rockies—in 2022 officially became Mills College at Northeastern University, a western campus of the much-larger university in Boston, which now claims to be a new, one-of-a-kind bicoastal university with a range of both undergraduate and graduate degrees. This merger/takeover may ultimately become one of the more outstanding examples of what has become a major transition in the higher education industry.

Creative Destructive Is Not Necessarily Bad News

Schumpeter’s creative destruction paradigm can explain that collegiate closures and mergers can promote innovation as resources migrate from failed institutions to more-productive applications elsewhere in higher education or in other industries. It is in this sense that the disappearance of some schools can be considered in a positive light. In fact, some astute observers believe that these closures should not be discouraged or mourned but should positively be allowed and approved. There is a strong argument to support this position.

One could argue that the US is home to plenty of collegiate institutions. The National Center for Educational Statistics data show 5,916 institutions in 2021, down 16 percent from ten years earlier. The total 5,916 institutions consisted of 1,892 publicly funded, 1,754 private nonprofit, and 2,270 private for-profit institutions. Among the 5,916 total, 3,931 were degree-granting institutions, and 1,985 were non-degree-granting.

Meanwhile, new institutions and branch campuses are being established, such as the University of Austin, a nonconventional school in Texas that was recently founded by administrators and faculty who decided to leave their positions at established institutions to participate in a nontraditional educational experiment. One can anticipate more such experimentation as the higher education industry evolves.

US Higher Education Will Continue to Churn and Evolve

The American higher education industry has seen stable growth since the first university, Harvard, was founded in 1636, with increasingly greater numbers of new institutions created every decade of US history. The US higher education industry is one of the most highly developed in the world, with a wide variety of institutions ranging from community colleges to the most-advanced research universities, as well as specialized for-profit vocational schools and historically black colleges and universities, to suit the needs of diverse students. The private four-year liberal arts college model is considered unique in the world, found nowhere else. Many of these colleges were founded by religious groups during the mid-nineteenth century, often in small towns or rural areas throughout the country.

Numerous factors will account for the continuing evolution of US higher education. Population demographics are seeing fewer births and lower fertility rates, challenging collegiate institutions to design their offerings with flexibility. Population centers are changing as Americans have tended to migrate from “blue” states to “red” states for reasons of employment opportunities, lifestyle, weather, smaller less-intrusive government, and lower taxes.

The entire US higher education industry is subsidized by the federal government via student financial aid, particularly federal student loans. As I have commented previously, these student loans have allowed institutions to raise tuition to heights never before seen, with some elite institutions set to begin charging $100,000 for tuition, room, and board during the 2024–25 school year. Even those lower-profile institutions that have struggled financially may nonetheless have been able to delay closure or merger because of the federal student aid subsidies available to their students—and consequently to the institutions themselves as they were enabled to increase their tuition levels commensurately. Given political pressure now to “forgive” student debt by transferring it to taxpayers, it is clear that the loan program now requires major reform or repeal. However, without any impetus for such changes, the future of the loan program is a lurking presence on the horizon.

The perceived net benefits from investment in a college education are probably falling over time due to higher attendance costs, and students are more concerned than ever to gain job skills that prepare them for adult lives. At the same time, many institutions appear to have shifted from their traditional responsibility of educating youth to one of indoctrinating students for activism. Also, there remain unresolved lines of demarcation between campus free speech and “hate speech” that may result in disruptive anti-intellectual student violence.

Among these shifting perceptions and preferences in American higher education, immigration—both legal and illegal—is a wild card, bringing to the US great numbers of young residents with potentially higher fertility rates and different educational and training needs than native citizens. How the country, and the higher education industry, will respond to these new challenges remains unclear. Changing technology, particularly artificial intelligence, may promise a positive role in helping students master college-level material, although this has yet to be demonstrated.

Lastly, very recent major campus disruptions complicate any predictions of how this evolution of US higher education will ultimately resolve, especially since the protests result from US foreign policy toward allies and enemies. While the student protests are directed at campus administrators and faculty as well as foreign policy, do the movements themselves have staying power? Do the protests have a well-defined mission and leadership to last over summer break into future school years? Or will the protests result merely in anarchy similar to the summer riots of 2020 inspired by Black Lives Matter, or perhaps the demonstrations surrounding the Democratic Party convention in Chicago this summer?

Although one may not know with certainty what trajectory American higher education may take in the years ahead, Schumpeter’s creative destruction allows one to speculate that the US higher education industry’s appearance and function will look quite different in the decades ahead.