The National Observer: Universities Confront New Challenges

Challenges Facing the Higher-Education Sector

The higher-education sector has encountered numerous challenges this year, with shifting legislation, cuts to federal grants, and long-standing demographic issues affecting its future. These factors have created a complex landscape for institutions across the country. The Business Journals’ national news team has compiled a series of stories highlighting these challenges and their potential impact on the broader economy.

One significant concern is the risk of understaffing within the U.S. Department of Education. Larry Ladd, a specialist with the Association of Governing Boards of Universities and Colleges and former director of budget and financial planning at Harvard University, noted that this could affect the agency’s ability to manage federal financial-aid programs. In March, the Trump administration announced plans to lay off over 1,300 employees, which has raised concerns about the department’s capacity to handle its responsibilities.

Another pressing issue is the reduction in federal research funding. The National Institutes of Health reported approximately $16.14 billion in funding through July 29 this year, a decrease from $22.87 billion during the same period in 2024. This represents a 29.4% drop, along with $2.12 billion in existing grant funding that has already been terminated. Reduced NIH funding could lead to cuts in research and higher education, with potential ripple effects on startup and innovation ecosystems across the nation.

John King Jr., chancellor of the State University of New York system, emphasized the severity of the situation, stating that losing NIH funding would be a disaster for the country, health, and higher education. The impact of such cuts extends beyond academic institutions, affecting the broader economy and innovation sectors.

In addition to these acute issues, the higher-education sector continues to face enrollment stagnation due to changing demographics and a more transactional perspective from prospective students. This year may be the last in which the size of the high-school graduating class exceeds its predecessor, with a projected decline starting in 2026. This shift poses challenges for universities, which have traditionally been key drivers of local economic development and sources of jobs.

Universities play a crucial role in supporting local economies by fostering new businesses and providing employment opportunities. However, this role is now under threat as communities adjust to post-pandemic trends, including remote work and reduced foot traffic. Patrice Williams-Lindo, a workforce futurist and CEO of Career Nomad, highlighted the potential consequences of universities pulling back, noting that local economies, vulnerable workers, and future talent pipelines would bear the brunt of these changes.

Quantifying the economic contributions of universities can be challenging, but studies suggest a positive correlation between the number of universities and regional GDP growth. A 2019 study found that a 10% increase in universities per capita was associated with a 0.4% higher future GDP. Additionally, a 2012 Census Bureau paper indicated that each university patent could create around 15 jobs over 20 years.

Campus sales have become more common as some institutions consolidate or close underperforming satellite campuses. Bard College, for example, is selling a 275-acre campus in Great Barrington, Massachusetts, and relocating operations to its primary location in New York. Taun Toay, senior vice president and chief financial officer at Bard College, explained that the Simon's Rock campus struggles to meet enrollment targets, seeking students before they enter college.

These real estate transactions can present unique opportunities for cities and towns, particularly those with high demand for housing or mixed-use development. However, not all deals are straightforward. If the land is zoned exclusively for educational use or located in a low-density area, selling a campus can be difficult, and the returns may not meet expectations. David Carlos, head of the nonprofit, education and government practice at Jones Lang LaSalle Inc., noted that smaller institutions may require more drastic changes to address their financial challenges.

Figma's IPO and the Tech Sector

Figma's successful public market debut may encourage other tech companies to pursue initial public offerings (IPOs). Figma shares initially soared to more than triple their IPO price before experiencing a decline. Lise Buyer, founder of consulting firm Class V Group, noted that a warm reception for Figma could inspire others to follow suit. After several years of unfavorable market conditions, there has been a surge in high-profile IPOs, including Chime, Omada Health, and Hinge Health.

Buyer anticipates continued activity in the second half of the year, with the market likely to pick up more significantly by mid-2026. She observed that momentum has been building, transforming what was once a one-off event into a trend. Investors are eager for new listings, with many waiting for others to take the first step.

However, economic uncertainty, particularly due to fluctuating tariffs, has slowed IPO activity that some had anticipated increasing in 2025. New listings have declined annually since 2021, and unless there is a significant rush to go public in the second half of the year, 2025 could see the lowest activity since 2017.

AI Pricing and the Future of Technology

When ride-sharing service Uber launched in 2010, it quickly gained popularity with its user-friendly app and low prices. Over time, as the company expanded, it shifted toward profitability, raising prices. This pattern may soon apply to the artificial-intelligence sector, which is approaching a similar turning point.

The rapid growth of generative AI has led to widespread access to free or low-cost AI services. However, many companies offering these services operate at a loss and are planning to raise prices. OpenAI, for instance, is considering increasing its subscription rate from $20 to $44 per month. Similarly, Anthropic introduced rate limits for its AI coding tool, Claude Code, after raising prices in 2024. Perplexity also announced a new $200 per month "Max" tier.

Aaron Whittaker, vice president of demand generation and marketing at digital-marketing agency Thrive, noted that AI companies are currently focused on customer acquisition, similar to early Uber. While the current model of free or low-cost services is unsustainable, it has been supported by venture capital subsidies. Whittaker predicts that the pricing inflection point will occur in the next 18 to 24 months as investor patience for growth over profit wanes.

Small-business owners should prepare for higher prices when using AI tools, which could become challenging as AI becomes more integrated into their operations. The transition from free to paid services may result in sticker shock, requiring businesses to adapt to new cost structures.