Hagi International University in Yamaguchi Prefecture filed for court protection from creditors in June 2005, owing ¥3.7 billion after the number of freshmen enrollments and students declined sharply.
"There was no other choice" than to initiate bankruptcy procedures, said Masanori Hatachi, 69, president of the institution now renamed Yamaguchi University of Human Welfare and Culture.
Hagi International, formerly a two-year college, had difficulty attracting enough students after it changed to a four-year university in 1999.
In its first year as a four-year school, only around 200 freshmen enrolled — far short of its annual quota of 300. After freshmen enrollment dropped to some 100 the following year, the school started to recruit students from China, only to learn, to its discredit, that many of those who came on student visas jumped ship to go after illegal jobs.
The enrollment number continued to decrease, and in April 2006 only three new students joined the university.
Hagi International's case is part of a situation that few developed countries have so far experienced. Japanese universities, especially in rural areas, are making desperate efforts to attract students amid the decline in the youth population brought on by the falling birthrate.
Some are going bust, while others are restructuring, or seeking mergers to survive.
Japan's 18-year-old population, which peaked at 2.05 million in fiscal 1992, dropped to only 1.37 million in fiscal 2005, and is projected to fall to 1.24 million in fiscal 2008. Meanwhile, a policy of deregulation since the 1990s has allowed more colleges and departments to start up, with the number of private universities rising from 379 in fiscal 1992 to 559 this year, a 147 percent increase.
Such a loss of students has resulted in serious cash flow woes for private universities, 70 percent of whose total revenues come from tuition fees.
Observers said Hagi International lacked attractive programs. Its remote location was also a major disadvantage as many local high school graduates leave the region for urban institutions.
Universities in Tokyo enjoy relatively high enrollment-to-quota ratios, at 117.65 percent, as do those in Osaka-Kyoto, at 112.03 percent. In other words, they enroll more students than the original places allocated.
But the ratio in the Chugoku region, which includes Yamaguchi Prefecture, is only 88.71 percent, according to a survey by the Promotion and Mutual Aid Corporation for Private Schools of Japan, an organization that monitors the management of private colleges and related issues.
In April, Hagi International made a fresh start under its new name and with financial support from Hiroshima Prefecture-based construction firm Shiomi Holdings Corp.
"In the aging Japanese society, demand for care for the elderly is growing," Hatachi, its president, said of the prospects for the school's welfare-focused programs. All the same, only 24 new students enrolled this year — far below the quota of 140.
Hagi International is one of three universities in Japan that went bust in recent years due to falls in the number of students enrolled.
In January 2003, Risshikan University in Hiroshima Prefecture became the first to fail since World War II. Tohwa University, a private engineering college in Fukuoka Prefecture, is scheduled to shut down at the end of fiscal 2009.
In response to these developments, the central government and university groups are mapping out guidelines under which they will regularly check the financial health of academic institutions and advise them or encourage mergers if necessary.
"It is a sick industry, because the youth population in Japan is declining," said Susumu Hiruma, a spokesman for the Promotion and Mutual Aid Corporation for Private Schools of Japan.
According to the organization, 221 of the 559 operators of private four-year universities in Japan saw their freshmen enrollment fall below their quotas for fiscal 2007, a situation roughly unchanged from the previous year. It also said 138 of the operators were in the red in 2005.
Hiruma pointed out that universities, if they want to keep up enrollment, need to offer programs that students want. "Their success depends on customer satisfaction," he said.
But Hiruma, who compiles data on college finances, also noted that "cost-cutting is everything," because Japan's declining population will inevitably erode the revenues of the nation's universities. An obvious "polarization of universities" between winners and losers has emerged, he added.
Makiko Yoshimura, a credit analyst at Standard & Poor's in Tokyo who covers college finance, said the "shakeout of four-year universities and colleges is unavoidable and more schools, especially in rural areas, may go under."
"Universities rich in cash can invest in teaching staff and facilities, while cash-strapped ones are forced to cut expenses, which erodes their academic research programs," she said.
Yoshimura pointed out that some universities are making efforts to diversify their income sources and raise funds, for example by renting part of their property in Tokyo and its neighborhoods where land prices have been picking up in recent years.
She also suggested that some universities may be able to hike tuition fees, while offering financial help for excellent students.
Other universities are merging to remain competitive.
Keio University, one of Japan's top institutions, and Kyoritsu University of Pharmacy have agreed to merge in 2008, which will result in Keio adding a new pharmacy department.
"Their marriage is a success," Standard & Poor's Yoshimura said. "Keio has had medical and nursing programs except for pharmacy — one of the areas with growing demand amid the graying of Japan's population. Now Keio has a rich portfolio in the health-care field."
However, Yoshimura warned that not all university mergers will be ideal ones like Keio and Kyoritsu's, as the number of such tieups increase.
"The key is brand values the universities have nurtured for a long time," she said, noting that talks for a merger that might end up in ruining the brand image of the institutions are doomed to end in failure.
Japanese universities also have to compete with overseas institutions as more Japanese look for academic opportunities outside the country.
Yuichiro Anzai, president of Keio University, expressed concern that Japanese universities may not be able to remain Asia's top institutions for much longer because of insufficient funding from corporations and the government.
"Japanese universities still stand at the top level in Asia in terms of academic research, educational quality and their cutting edge in medical fields. However, China and South Korea are catching up with help from the government and companies," he said.
In 2003, the most recent data available for an international comparison, Japan's public expenditures on education stood at a mere 0.5 percent of gross domestic product.
The figure is less than a half the average of 1.1 percent among members of the Organization for Economic Cooperation and Development. The ratio stands at 1.2 percent in the U.S., 1.1 percent in France and 0.6 percent in South Korea.
Last year, Keio set up an international public relations section to promote the research programs of the university in its bid to attract students and scholars from overseas.
Some say that universities should look at potential new demand at home.
"The Japanese educational market is very large and attractive," said Kirk R. Patterson, dean of the Japan campus of Temple University, adding that there are huge untapped educational needs among people like the so-called freeters and others hoping to upgrade their skills and move into new careers, as well as women who want to re-enter the labor market after raising children.
While Japanese universities have traditionally defined their markets as people in the 18-22 age bracket, they can start to consider corporations as new customers, because the companies need customized training programs to help their employees upgrade skills, Patterson said.
"Each university needs to have a clear sense of its mission and to clearly identify its comparative advantage and its market niche. Universities can no longer try to meet the needs of all students," he said.
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