Currently, around 300,000 school leavers are eligible to apply for college each year but the number is expected to drop to 195,000 in 2021, the Liberty Times said, citing the education ministry.
In 12 years, more than one-third of the island's 164 colleges are expected to have closed because they can not enroll enough students, forcing about 1,000 professors to lose their jobs, the report said.
Educational officials are not immediately available to confirm the report.
Taiwan's birth rates have been on a steady decline in recent years, and last year there were less than nine newborn babies for every 1,000 women of reproductive age, according to the interior ministry.
Education minister Wu Ching-ji was quoted by the paper as saying the ministry was considering measures for colleges to merge or become private for-profit learning institutes.
Taiwan's government has been offering various incentives in a bid to boost fertility rates amid growing concerns that a severe manpower shortage will hurt the island's economy.
Health authorities have said the declining birth rate reflects decisions among many women to marry at an older age or to stay single.