Universities are economic engines. Will they survive?

Victor Hwang’s immigrant parents started a small business to help pay for his shot at an elite university that changed the course of his life. Brian Brackeen dropped out of a state school to start a tech career that led him to launch one of the country’s few Black-led venture capital firms.

Both represent how American higher education has changed over the last 50 years. Each can tell us something about where this country’s colleges and universities might go in the future. 

No question it’s a moment of peril.

For centuries, universities have intended to do two things: create new scholarship, and train students in it. In the American style, this meant colleges and universities have been powerful economic engines, most notably through breakthrough invention. 

The world’s first supercomputer and the mRNA research that powered the historically-fast deployment of the COVID-19 vaccine happened at the University of Pennsylvania. Johns Hopkins University researchers isolated the first human embryonic stem cells and landed the first spacecraft on an asteroid. Modern robotics and artificial intelligence were pioneered at Carnegie Mellon University. Examples like this come from across the country.

Big breakthroughs are historic. More practically though, higher education commanded social currency in the United States by driving economic mobility for individuals. 

After the Second World War, elite universities established a merit-based admissions system. For a time, standardized tests gave kids from different backgrounds a better shot at prestigious schools. As the American economy changed, the so-called college wage premium grew. 

By 2012, a college-degree holder could expect nearly double the earnings of a peer with only a high school diploma. 

The relatively big generation of millennials stormed college campuses throughout that decade — reshaping cities along the way.

The peak had already passed. College enrollment in the United States hit its zenith in 2010 and has declined since. Worse still, 2018 marked a reversal: For the first time on record, the unemployment rate for recent college graduates (those aged 22-27) was higher than the national average, and it has accelerated since the pandemic. Whether that’s because of encroaching artificial intelligence or an over-supply of degree holders is for another story. Slowing economic mobility is attributed in part to this declining wage premium. Rather than reducing income inequality, higher education reinforces it, as rich families have gotten better at getting their kids into elite schools.

Colleges and universities face a polycrisis

The point is that existential threats are growing for US higher education.

Alongside the so-called enrollment cliff, due in part to continuing demographic changes, American research universities are losing status abroad, and entangled in a political battle domestically. Where do we go from here? 

Hwang, founder of entrepreneurship advocacy group Right to Start, told me during a recent Technical.ly Builders Live podcast recording that universities are overdue for an overhaul, from their century-old curricula to how they handle innovation and research.

“The way our current university curricula are designed, they were created over a hundred years ago,” Hwang said. “If I were running a university now, I would shift the focus toward how you apply knowledge to actually make stuff happen in the world — make people into builders, makers and doers.”

Brackeen, a managing partner at Cincinnati-based venture firm Lightship Capital, agrees institutions must adapt. He advocates making higher education more flexible and accessible, reshaping the very structure of how universities deliver learning.

“This idea that you all have to start as one class and finish in a specific amount of time — why does it matter?” Brackeen said. “Decoupling line-by-line matriculation would allow more people to participate.”

American higher education is at a crossroads

These shifts are not merely hypothetical. The data shows that American higher education is at a crossroads.

Controversially, the Trump administration has withheld federal funding from a growing list of universities on cultural issues. University of Virginia’s president resigned amid the pressure. The administration’s anti-immigrant rhetoric is suppressing international students, long prized by college admissions for high tuition fees. Already cash-strapped community colleges are enacting budget cuts.

Close to 100 colleges and universities are expected to close in the coming years, according to a Federal Reserve Bank analysis. Dozens have already shut down, of the close to 6,000 that exist.

No question some consolidation and closures are an inevitable response to a changing landscape. Even higher ed insiders have acknowledged that colleges and universities let a liberal bias grow, leaving the trade politically vulnerable. Meanwhile, higher ed has suffered “administrative bloat,” in which an arms race of services has propelled spiraling professional staff that do not contribute to core learning.

So higher ed has problems, yes, but its importance is unrivaled. 

The Federal Reserve Bank’s “anchor institutions” initiative has quantified the economic impact of “eds and meds,” or the preponderance of universities and health systems at the center of local economies. Weak regions rely on them, and strong regions are powered by them.

Meanwhile, the international reputation of American research universities — long an undisputed advantage — is under pressure. According to Nature’s latest global university rankings, only two US institutions remain in the top 10 (Harvard and MIT), while Chinese universities dominate. This marks a profound shift from two decades ago, when American institutions filled most top slots.

Victor Hwang points to outdated federal immigration policies and a lack of strategic thinking about global competitiveness as partly responsible for this decline.

“We trained up the best minds in the world and sent them back home again,” Hwang said. “We haven’t fundamentally redesigned our scientific-industrial complex since World War II. We need to intentionally focus on innovation and entrepreneurial activity.”

Whether the Trump administration’s attacks allow that to happen, or not, remains unclear. One analysis is tracking more than $3.5 billion of federal funding to colleges and universities that is in question. 

What can be done about it?

Amid the gloom, signs of change are emerging, particularly from regions and institutions experiencing a renaissance.

One key point from the Fed research is that colleges and universities ought not be seen as solely coastal phenomena. According to a Technical.ly analysis of federal data, every US state has at least one university that is among the 200 largest R&D spenders in the country, and most rank in the top 150 (South Dakota State University is a laggard).

Each contributes meaningful inventions to our lives, and effective graduates to our communities. That story is lost on a growing number of Americans. University communication strategies matter.

Elite schools like Harvard and Yale, with endowments in the tens of billions, attract particular criticism: that they’re hedge funds with mascots hoarding resources rather than investing in broader economic growth. Competing for lower acceptance rates is an unjust — and politically tenuous — strategy for nonprofit institutions, Brackeen notes.

Brackeen advocates for redistributing some of these financial resources across the higher education system, particularly to historically underfunded institutions.

“I would love to see the larger universities democratize their access to financial resources,” Brackeen said. “Their immense war chests could provide critical support to smaller state institutions and HBCUs.”

One analysis in the United Kingdom, which itself faces a high cost higher education system, advocated for a two-tier system: national institutions that should be evaluated on selective admissions and scientific breakthroughs, and local ones that should be evaluated on producing more in-demand graduates at ever lower costs. 

A “lifelong-learning entitlement” is being piloted there, reflecting that though there may be fewer younger people now, a growing share of the population is older. Continuing education, for career changing, upskilling and fulfillment, are obvious priorities. The “university retirement community” seems like a bet on that future.

As for international standing, American leaders must recognize that national security is tied to scientific leadership. The EDA Tech Hubs and National Science Foundation Regional Engines programs are model pilots: federally-funded science based at research universities that requires a focus on commercialization and ecosystem building. As an influential Chinese political theorist wrote: “”If you want to overwhelm the Americans, surpass them in science and technology.”

The Midwest, notably, is experimenting with other solutions. Ohio, for instance, implemented the “Ohio IP Promise,” which streamlined intellectual property rules across all state universities to accelerate innovation.

Marshall University in West Virginia, under former Intuit CEO Brad Smith, now mandates design thinking as part of its freshman experience — a practical move to foster problem-solving and resilience in first-generation college students.

These examples may offer a blueprint for broader reforms. Look back at two national invention leaders. Hwang got his shot at Harvard, graduating in 1993, before attending law school, which transformed the network and ambition of a child of immigrants. He’s devoted much of his career to entrepreneurship, or bringing invention to market. For his part, Brackeen played out a college-dropout tech trope of the 2000s, but has not strayed too far from universities — whose endowments have become heavily entwined with venture capital. As ideas get harder to find, few breakthroughs are far from higher education.

“There is not a vibrant ecosystem in our country that is not situated in some form or way to a university. They’re vital,” Brackeen said. “But they need to get off the sidelines and actively invest in communities again.”