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As the only Japanese college that could boast a course on the culture of golf, Hagi International University shouldn't have had that much trouble attracting applicants. Yet not even putting precepts taught by a pro golfer could save Hagi from recently becoming the first university in Japan to apply for bankruptcy protection because of a lack of students. The international-relations school, located in southwest Japan, opened in 1999 at a cost of $58 million, but was never able to get off the ground. Today, it has 194 students—16% of the target class size. "The school was undercapacitated from the start, and our recruitment strategy was prematurely planned," says a university official.

Hagi, like many other private colleges in Japan, had been counting on a steady stream of applicants. But the country's aging society means that its universities are running out of customers. The nation's shrinking population of 18-year-olds stands at 1.5 million, down from 2 million in the early 1990s; and nearly a third of the country's 600 private universities and colleges are operating at less than full capacity. Given the tight job market for graduates, universities are realizing that they must attract students by expanding beyond their traditional role as prep schools for corporate Japan. The Kanazawa Institute of Technology boasts a career-services program that secures jobs for 99% of its graduates, while Ochanomizu Women's University offers child-care services to draw in mature students. Other schools are discounting application fees, while some are resorting to American-style innovations: nearly half accept interviews and essays in place of written entrance exams; and venerable Kyoto University, the second oldest college in Japan, even offers organic coffee, local sake and microbrews in its cafeteria.

Lower-tier schools, however, may not be able to compete because of a lack of resources, and many will likely end up closed or consolidated. But the ruthless competition will ultimately be good for students, says Kiyoaki Murakami, a science and technology research director at Tokyo-based think tank Mitsubishi Research Institute. "I believe the quality of Japanese education will improve, especially if the current sense of urgency drives Japanese schools to start competing with M.I.T. and Harvard." As for Hagi, new investors are considering relaunching it as a training school for social services, including elderly care—one job sector that's sure to grow in aging Japan.

• Bryan Walsh
• As Japan's population ages, its universities face bankruptcy as enrollment plunges