Julia R. Cartwright is a senior research fellow in law and economics at the American Institute for Economic Research.
For decades, most American colleges got rich by becoming interchangeable. Same majors, same climbing walls, same mission statements promising to prepare “leaders for a changing world.” Economists call this Hotelling’s law: When rivals compete for the same customer base, they converge toward the middle, like two ice cream vendors drifting to the center of a crowded beach to sell the most cones
This strategy worked as long as the beach kept filling up, but it isn’t filling up anymore. As enrollment shrinks and many students skip the beach entirely, schools are fighting harder over a market that’s walking away. For the institutions without an elite brand or state subsidy, survival now means doing what higher education spent years unlearning: being different.
The demographic diagnosis is sobering. High school graduates peaked in 2025 at 3.9 million and are expected to fall 13 percent through 2041, mostly because of declines in U.S. births. Meanwhile, American families are becoming increasingly skeptical of the value of higher education. The share of Americans who call a college education “very important” has collapsed from 75 percent to 35 percent in 15 years, and nearly half now say a degree matters less for landing a well-paying job than it did two decades ago. The financial math has soured most of all: Just 22 percent believe college is worth the cost if it requires student loans, and 29 percent say it isn’t worth it at all.
The well-documented problem of grade inflation exacerbates the challenges to higher education; college transcripts have stopped telling employers which students are actually good and which just got an easy A. One of the only signals left is the institution’s name on the diploma, which is why demand is stampeding toward a handful of elite brands. In 2024, applications boomed at “Ivy Plus” schools, which include the eight Ivies and a handful of others, but less prestigious colleges closed at a rate of one every few weeks.
Why did everyone become the same in the first place? Because for half a century, sameness was the winning strategy. Hotelling showed in 1929 why those ice cream vendors on the beach end up side by side and the only two gas stations in town are on neighboring corners — each maximizes customers by inching toward the other. When college enrollment exploded from sometime after the GI Bill through 2010, and federally guaranteed loans meant every customer arrived prefinanced, the schools faced the same incentive. The smart business move was to stand where everyone else stood and fight over the largest part of a growing market.
So that is what colleges and universities did. Women’s colleges went coed, dropping from 281 in the 1960s to about 30 today, with just four men’s colleges left. Founding religious identities were gradually shed; Harvard, Yale and the University of Southern California, for example, began as religious institutions but have explicitly or effectively become secular. Curriculums, dorms and brochures converged so much that a 2015 Gallup survey of more than 500 institutions — public and private, religious and secular, large and small — found that their mission, purpose and brand were strikingly similar.
But Hotelling’s logic assumes that the customers have similar preferences and that they are locked into the market. Shrink the customer base, tighten the loan spigot, add political pressure on federal funding, and the math changes. A college standing in the middle now competes for an increasingly skeptical customer who weighs it against Harvard’s prestige and State U’s price.
This is a fight the average private college loses on both fronts. As the higher-education market contracts and degrees become commoditized, survival will favor institutions that follow the logic of monopolistic competition by differentiating themselves so sharply that they occupy a niche with no direct competitor at all.
The evidence that this works is piling up. Sweet Briar College, a women’s college, nearly closed in 2015; but once it recommitted to its identity as a women’s leadership institution, enrollment rose 60 percent in six years. Babson owns entrepreneurship; Northeastern owns co-ops; unapologetically religious schools like Hillsdale and Grand Canyon University are growing while generic regional privates wither.
The demand for distinctive education is measurable wherever families pay voluntarily, with no loan subsidy pushing them. Classical K-12 schools — those emphasizing Great Books, Latin, rhetoric, character formation — now enroll roughly 680,000 students across more than 1,500 institutions, with projections of 1.4 million students by 2035. Parents are writing tuition checks for exactly the education most colleges abandoned as outdated.
Public universities are responding to the same demand. State legislatures have committed hundreds of millions of dollars to new schools of classical and civic education: $100 million at the University of Texas, five new centers across Ohio, and similar institutes at the University of Florida, Arizona State and Tennessee — reviving the great-books and civic curriculum that most of higher education spent decades shedding.
This is what economists call revealed preference — customers showing you what they want by their actions — and it points the way out for struggling colleges and universities. The average American college cannot out-Princeton Princeton, and it shouldn’t try. The beach has emptied, and the ice cream stands clustered in the middle are folding one by one. The ones that will survive are the ones that move out — that pick a spot, plant a flag and offer something nobody else on the beach is selling.
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