(FORTUNE Magazine) – YOU WOULDN'T GUESS it by looking at the monstrous tuition bills, but when parents drop off their kids on campus this month, they'll be driving through the gates of Shrinking U. Even the most prestigious colleges -- Princeton, Stanford, Columbia, Cornell, and Johns Hopkins among them -- have been struggling to balance their budgets. Princeton used to dispatch janitors twice a week to clean the bathrooms in dormitory suites. Now students scrub their own toilets (or don't, as the case may be). Other cutbacks are more serious. In the face of swelling costs and diminishing enrollments, many universities are reducing staff, scaling back on student services, and shutting down academic departments. Bryn Mawr has halved the number of Ph.D. programs it offers to 13. Two casualties: Spanish and anthropology. Columbia is abandoning its linguistics, geography, and library science programs. Washington University in St. Louis has closed its dental school and is planning to eliminate its sociology department. Dartmouth recently cut 55 staffers; the University of Massachusetts at Amherst, 289. Stanford, aiming to slice 6% out of its operating budget, has laid off 130 employees so far. Parents, watching their bank balances diminish with each semester's payment, have every right to wonder why colleges are suddenly so hard up. Indeed, tuition increased an average 9.3% a year during the Eighties, twice the rise in the consumer price index. As the stock market boomed and alumni and corporations made record-breaking donations, endowments rose 213%. Where did all the money go? Universities spent much of it not to educate students but rather to serve the parochial interests of professors and presidents. Faculty scholarship usually redounds to the students' benefit, at least in the long run, but in recent years the amounts spent on it have grown beyond reasonable proportions. Millions get sucked into numbingly expensive facilities and equipment for research that confer prestige on deans and dons. Meanwhile, many faculty members are estranged from what should be their first mission -- education. A teaching ''load'' of only one undergraduate course a semester is common at the major research universities. Fortunately, academia's leaders are finally realizing that they must live within their means. Research, for one thing, has become uncontrollably expensive -- even classics professors use costly computer technology. Smarter university administrators are catching on that they must conduct research in fewer fields so they can afford to provide a quality education. In the process universities will become less universal. Says Columbia provost Jonathan Cole: ''No university is capable of covering all areas of scholarship anymore.'' But this new vision of the university should not hamper America's pursuit of knowledge. Rather, if put fully into practice, it should yield significant advantages. Students -- and their eventual employers -- will benefit from a greater emphasis on teaching. The work of educating will be accomplished with less overlap among schools and less duplication of resources. VARTAN GREGORIAN, the Armenian-born, septilingual president of Brown, envisions universities sharing an extensive range of resources -- not only state-of-the-art lab equipment but also students, faculty, and maybe even entire academic departments. Gregorian's chant: ''There's no reason my leading Egyptology professor can't be jointly appointed by three universities. It's not a matter of pride anymore.'' He proposes setting up federations of colleges that would swap students one day a week. For example, he could send Brown students off to places like Harvard, an hour's drive. Rice University is a prime example of what can be achieved when schools focus their resources on students. Rice's endowment per student -- $250,000 -- is one of the nation's highest, comparable with Harvard's or Yale's. But its $6,900-a-year tuition is about half an Ivy's tab. Rice's average class size is 20, and some 300 courses have fewer than ten students. The 9-to-1 student-faculty ratio is hard to match. The secret: Rice still conducts top- notch research, but very selectively. Says President George Rupp: ''We've made a central priority of using the income stream from the endowment to support undergraduate education.'' The new philosophy of academia's top managers is largely a response to a consumer revolt. Parents are putting up more resistance to outsize prices, so colleges can no longer resort to big tuition hikes to make ends meet. Stanford upped tuition 5.25% this year, its smallest increase in 15 years. Other institutions are following along. FORTUNE recently spoke with the top administrators of 25 colleges. The consensus: In coming years they'll keep the increases in their bills just above inflation. In lieu of excessive tuition increases, colleges are competing fiercely to recruit from the shrinking pool of young people. Admissions officers lived in fear throughout the Eighties. The number of 18- to 24-year-olds peaked at 30.4 million in 1981, then declined 14% to 26.1 million by the decade's end. Enrollment seemed destined to drop sharply, but it actually increased a bit thanks to an influx of nontraditional students, who are older and attend part time while they hold jobs. Typically the first in their families to go to college, they might take eight years to complete a degree. Nontraditionals surface mostly at public institutions. At Indiana University they make up a majority. But older recruits were only a temporary solution. The long-awaited student shortage struck with a vengeance this year. The University of Southern California fell 300 students short of its 2,800 capacity. Boston's Northeastern suffered a 23% drop in freshman enrollment. The University of Massachusetts at Amherst, which accepted 63% of in-state applicants in 1988, had to let in 86% to fill the class this year. Applications at Denison University in Granville, Ohio, fell 15%. Admission standards have weakened most everywhere. Says President Michele Tolela Myers of Denison: ''A lot of liberal-arts schools have had to dig deeper into their applicant pools.'' Even Stanford went unusually far into its waiting list, offering admission to an additional 200 students. Case Western Reserve, which like many major universities now actively recruits not just athletes but the unathletic as well, spends an average of $2,400 per freshman on mailings, promotional videos, and other courting efforts. Says admissions dean Bill Conley: ''Students have choices they've never had before among good universities. Guidance counselors' mouths dropped when they saw where kids got in.'' Indeed, in the frantic rush to fill their freshman classes, colleges may & be resorting to some questionable recruiting practices (see box). Private colleges are having a rough time attracting students from middle- class families who can barely afford tuition but do not qualify for financial aid. Michael McPherson and Morton Schapiro, economics professors at Williams College, figure that students from families who earned the equivalent of $40,000 to $75,000 a year made up 40% of undergraduate enrollment at highly selective, expensive private institutions in 1978; that number had slipped to 31% last year. Once again top schools are in danger of becoming preserves of the rich and the poor. Princeton, which significantly increased its enrollment of low- and middle-income students between 1968 and 1980, admits it has since reverted to a more polarized economic mix. Says Denison President Myers: ''What we're missing, all of us, is the middle class.'' Forced to compete for students while coping with financial constraints, colleges are looking to do more with less. Professors will once again perform chores they had pawned off on administrative staffers, such as advising students about picking courses and majors. Academia's managers are even talking about insisting that professors spend more time in the classroom. But forcing teachers to teach could be tough now that professors, for the first time since 1965, are in a seller's market. A Mellon Foundation study projects that by 1997 there will be only seven applicants for every ten faculty openings in the arts and sciences because the small crop of new Ph.D.s will be dwarfed by the number of anticipated retirees. When Joseph Duffey, chancellor of the University of Massachusetts at Amherst, asked his faculty for volunteers to teach extra courses, he was slapped with a union grievance. Since young Ph.D.s do more teaching than senior faculty, Brown is raising money to endow 100 assistant professorships. President Gregorian also plans to combat the faculty shortage by luring 30 to 50 fellows from the ranks of retired artists, executives, and professors to lead seminars. To enhance academic quality, Brown intends to reduce the size of its incoming freshman class by 145, some 10%, over the next two years. More of this kind of creative thinking is needed if universities are to live within their means and educate their charges for a world that will need their leadership.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: HERE'S WHAT COLLEGE COULD COST Responding to public pressure, colleges will try to contain price increases, in some cases to only 5% a year. That's a big change: Tuition rose at almost twice that rate during the Eighties.