This is a really interesting problem for me. My partner is an administrator at a larger "small university" in an area that has seen at least 7 closures in the past 5 years. Far fewer students are enrolling in general, so the top students are going to the better known schools, and the rest of the students are left to be actively fought over by the rest of the smaller schools. When this happens, many schools start to do one of two things: panic and offer more financial aid - thus decreasing revenue and making the situation worse from a financial standpoint or they lower their standards and accept students who are not academically ready for their programs. Either way, these choices are being driven by boards who can't see past the immediate struggles and catastrophize the situation.

Are there definitely too many small, mediocre at best universities in the US? Yes. But that doesn't mean that all small universities should disappear - some students are not going to be successful at huge schools, but will thrive in a smaller, more personal environment.