The Next Crisis: Higher Education

The financial firms were first, now it’s the automakers. We hear estimates of anywhere from 1 million to 3 million jobs at stake, and other industries are lined up to make their own claims about their importance to the long-term health of the economy. President-elect Obama has responded forcefully, unveiling a plan to put up to 2.5 million workers on the federal payroll by January of 2011, putting them to work on infrastructure and energy-related projects. These are terrific steps – the appointment of Timothy Weithner as Treasury Secretary is another – but in the course of these discussions it’s time we focused on yet a different danger that is involved in this general economic crisis. I am referring to the danger to America’s system and tradition of higher education.

Let’s start with some background. There are three historical trends that combined to create a situation that on the verge of instability even before the current crisis began. First, the ever-expanding (yet still inadequate) access to higher education; second, an almost 30-year pattern of rising expenses and costs being shifted from public funding to students and their families; and third, a rapidly approaching point at which rising costs outstrip families’ ability to pay, threatens the continued viability of the system. At stake is one of the miracles of post-World War II America, the expanding access to higher education for middle and low-income families. Don’t worry; the families that could really afford to choose a college based on the quality of the omelet chef in the dorm are not likely to find themselves suddenly resorting to fish sticks. But the truth is that those families are not, ultimately, the ones on whom we should be focusing our attentions.

The historical trend of expanding participation in higher education is longstanding. Consider the following percentages of Americans over the age of 25 who had at least a bachelor’s degree in different decades. 1940: 4.6%; 1950: 6.2%; 1960: 7.7%; 1970:10.7%; 1980: 16.2%; 1990: 20.3%; 2000: 24.4%;. In 2007, the number was 27.5% (another 7.4% held associate degrees, and 19.5% more had some college education.) The 27.5% figure breaks down into 28.2% of males and 26.8% of females, as compared with 26.1% of men and 22.9% of women in 2000. The 2000 figure of 24.4% is further broken down by race : among Americans over the age of 25 27.0% of Whites, 14.3% of African-Americans and 10.4% of non-white Hispanics had college degrees.

These numbers represent some outstanding successes, particularly in the progress of women. If we focus on young adults, meaning people aged 25-29, the numbers in the most recent years are even more striking. In 2007, 29.6% of these young adults had at least a bachelor’s degree: 33.0% of women and 26.3% of men. Breaking those 2007 numbers down by race we find that the advantage of women over men crosses racial categories. Among Whites, 39.2% of women and 31.9% of men had college degrees; among African-Americans the numbers were 20.0% for women, 18.9% for men; ; among non-White Hispanics the figures were 15.4% of women and 8.6% of men. Overall, between 1960 and 2005 the number of Americans enrolled in college went from 3.75 million to 17 million. Total expenditures on higher education (in constant 2007 dollars) went from $40 billion in 1960 to $360 billion in 2005.

As is well known by now, higher education correlates strongly with earning power. In 2007, 6.7% of Americans with a college or graduate degree were below the poverty line, compared with 18.9% of those who had not completed college. The median income for Americans over 25 who had at a bachelor’s degree was $46,805; it was $61,287 for someone with a graduate or professional degree . . . and $26,894 for someone who had never attended college. So, on the one hand, the story is one of ever-increasing access, with ever-increasing rewards. On the other hand, it remains the case that only around half of Americans ever attend college (54.5% in 2007), and just under a quarter receive a degree (27.5%, as noted above). As a matter of competition with other nations, moreover, America is losing its edge. While it remains the case that we rank second (after Canada) in total percentage of adults with college degrees, in the 25-29 cohort we slip to seventh, and when rates of college completion are calculated the U.S. comes in at 16th.

A closer look reveals the distribution of these avenues of opportunity along several dimensions. First, most students do not attend the super-expensive and sometimes super-rich institutions that get most of the press attention. Out of 17.5 million college students in 2008, 75% were at public institutions. Data from 2006-2007 breaks down in more detail: out of 15.1 million college students that year, 6.95 million attend public 4-year colleges; 4.3 million attend private 4-year colleges; 6.225 million are at public 2-year colleges and 293,000 are at private 2-year schools. 65% of students at four-year colleges attend institutions whose tuition and fees is less than $9,000 per year; for 56% of students, that figure is below $6,000. Only 5% of students in 4-year colleges attend schools whose tuition and fees is more than $33,000.

The distribution of colleges is, predictably, similar. Of the 4,314 colleges in the U.S., 643 are public 4-year institutions, 1,986 are private 4-year colleges; 1,045 are public 2-year institutions, and 640 are private 2-year institutions. 500 of these universities serve more than 10,000 students; there are 495 that have between 5,000 and 10,000 students; 1,560 have between 1,000 and 5,000 students; and 1,707 have fewer than 1,000 students. A lot of these schools are not highly selective. Among all 4-year colleges, fully 30% accept at least 90% of applicants, including schools that list no admission criteria at all. Another 21% accept between 75% and 90% of applicants. Among all 2-year colleges, 86.2% accept 90% or more of applicants.

Not selective does not necessarily mean not expensive. The average tuition and fees for a year at a public 4-year school is $5,585. At a public 2-year school the figure is $2,017. For a private four-year college, the average cost of tuition and fees is $20,492. But tuition and fees are only part of the story. The average total cost of a public 4-year college in 2007 was $12,805; for a private 4-year college the figure was $20,492. Those costs had been rising steadily for decades, well ahead of the general rate of inflation: since 1992 the CPI has risen 48%, while the average cost of tuition and fees has risen a whopping 175%. Moreover, starting with the recession of the early 1980s, more and more of the burden of meeting those costs has been shifted to families as states and localities move toward politically popular low-tax policies and expenditures on things like prisons, Medicare, and primary and secondary education continued to rise. As a result, the average college graduate in 2007 had $20,098 in debt, compared with $18,976 the year before and $9,250 in 1993. In 2004 (I could not find more current data) the average student loan amount just for that year – not counting PLUS loans – was $5,816; the average PLUS loan runs $9,019.06.

Put another way, in 2004 the average student got 43.66% of their budget from loans of one kind or another; the average student need above and beyond the Expected Family Contribution in 2004 was $9,247. Those numbers, of course, have only gone up since then. To see these figures another way, consider the percentage of an average family’s income that it costs for one member of the family to attend a public 4-year college. As of 2007, in Ohio, that figure is 42%; New Jersey, 37%; Washington, 31%; Illinois, 35%. For the poorest decile nationally, the average cost of attending a public 4-year college would be 55% of family income, as compared with 39% of family income in 2000. And aid is not keeping pace: since 2000, 28 states have seen tuition rise faster than the provision of aid. For many graduates, the prospects appear less and less attractive. A report by strategic advisors to the debt collection industry describes a “perfect storm”: high student loans, weak employment prospects, and upwards of 10% of students already relying on credit cards to meet educational expenses.

In other words, before the current crisis hit America had a greater number of people in college, and a greater number of college graduates, than at any time in our history, and a greater pay-off in subsequent earnings. Higher education had become a burgeoning industry with multiple elements, including highly profitable private schools – not all of them particularly academically demanding – and an extensive system of public higher education. The cost of that accomplishment was a huge debt burden on students and their families, however. College graduates were accumulating more debt than ever before, and as costs were increasingly beyond the means of families to pay there were already signs of a downturn in participation and completion rates. In 16 states, the educational attainment level for young adults (25-29) was already lower than that for adults in general (ages 25-65); these states included Florida, California, and Texas. In a 2006 "National Report Card on Education" from the National Center for Public Policy and Higher Education, no state got a grade of A or B for affordability, and 43 states received grades of F. Moreover, at best the successes of previous decades had only partly opened the doors of opportunity. In 2007, only 18.4% of Americans who complete 9th grade to on to graduate college — with predictable consequences for their economic productivity and earnings.

Now for the bad news about the current situation. As the financial crisis has progressed, colleges and universities are starting to feel the pain of cratering state budgets, the collapse of the private student loan market (part of which was due to some singularly ill-advised government interventions in past years), and declining endowments all in a period of rising enrollments and parents whose houses and stock holdings will no longer contribute nearly as much as they might have before to the cost of an education. How bad is it? We are only just beginning to see the signs: hiring freezes at a dozen universities including Cornell and Brown; enrollment limits in the Cal State system, and threats of the same for the U of C schools; tuition spikes and support cuts around the country. All of this, moreover, comes on the heels of declining state investment in higher education and political frustration with rising tuitions.

Again, a few figures help tell these multiple stories. It is estimated that across the country, endowments will drop as much as 30% over the coming year. In 1984 4.1% of state spending went to higher education; in 2008 that figure had dropped to 1.8%. This took place, of course, against a backdrop of an ever-increasing student population. The University of Wisconsin system, to take one example, has seen a 21% decline in state contributions between 2001 and 2007, measured in 2001-adjusted dollars, including 5 consecutive years of declining contribution. (In unadjusted dollars, expenditures went up from 1.04 billion to 1.05 billion in the same period.) Extending the period, from 1997-2007 there was a decline in adjusted spending of 4%. In 2008 the amount increased to $1,271,724,000, including $101.5 million in spending on student aid. Nonetheless, in 1974, taxpayer contributions to the UW system accounted for 52% of its costs; in 2008 that figure was 25%. Governor Doyle has recently announced a $5.4 billion shortfall in the state budget; the consequences of this fact for the state’s funding of higher education can only be imagined. Cuts in state support for public university systems have been announced or threatened in Massachusetts (5%), Arizona (4% this year, 5% next year), Pennsylvania, Hawaii, and New York.

Worse, even before the current crisis, the brunt of declining funding was being felt where it would do the most harm: at the community college level. In 2007-2008, out of 28 states that employ funding formulas, 18 had community college systems that were not fully funding. Across the period from 2006 to 2008 state and local funding for community colleges fell 5.2%; funding for regional state colleges fell 3.7% in the same period, while funding for flagship campuses fell only 1.8%. In the coming year, fully half the states anticipate reductions in funding for community colleges, with those cuts concentrated in the areas of vocational, occupational, and technical education. Meanwhile, the pressure on the 2-year and community colleges is only increasing; as private and even public 4-year colleges become increasingly unaffordable. more and more students look to these less-expensive alternatives. In 8 states flagship colleges have already capped enrollments, and more such caps are expected.

Where is this all going? Absent federal intervention, for students the situation is dire. There is an assumption that demand for higher education is inelastic, and relatively speaking that has been shown to be true. But even before the current crisis, the system was showing signs of strain. The combination of students who can no longer afford student loans – or simply can no longer find them – declining values of endowments, and declining state and local tax revenues, will close the opportunity for college education for large numbers of young Americans. This goes beyond economics, it would have sociological consequences. Access to college education is the one genuine avenue for economic advancement as well as a basic requirement for a globally competitive economy.

On the supply side, among the colleges one can predict that smaller private schools and outlying branches of public colleges that depend on public funding, bonds, and student loans to provide their revenue are at risk. Half a dozen New England colleges closed in the 1990s; the numbers this time could be much, much greater. The trend in recent years has been to staff classes with large numbers of adjuncts and non-tenure track instructors. They will be the first to go, but beyond that colleges have to think about new ways to achieve economic efficiency.

Some of these changes might actually be beneficial, despite the pain with which they will be accompanied. For example, the increase in college staffs over the past decade, for example, has been concentrated in an ever-larger administrative sector, and there have been recent trends toward expensive investments in sports programs, dining services, and dormitories. In some ways, perhaps, streamlining the operations of colleges and universities to concentrate on their core missions might be beneficial, and even the loss of some small, non-selective private schools might be ultimately good for the system. But we can also expect to see other things: larger classes, heavier teaching loads, leaner and very much meaner operations.

But what is most likely to be the immediate effect is simply the loss of access to higher education, and particularly the loss of access to the kind of training and education that carries the promise of lifting the working poor into the working and middle classes, just when those opportunities are needed the most. To prevent this from happening, to secure the continued vitality of America’s system of public higher education, is essential if we are to retain what is left of the promise of opportunity that has become so tattered in the past two decades. (Furthermore, this is the worst possible time to allow the community colleges and the public 2-years and the smaller public 4-years to fail for another reason; in all the talk of creating 2.5 million jobs in infrastructure repair, we have not heard nearly enough about job training and, more generally, vocational and technical education. That will be the subject for another post.) President Obama is right to be concerned that the failure of the automobile industry could have ripple effects that would cause lasting harm to the American economy. But that is nothing compared to the harm – or, more precisely, the lost opportunity – that would be incurred if the new administration fails to act to save our system of public post-secondary education. We may never again in our lifetimes see the Gilded Age of higher education in America that we have just witnessed, but maybe we can see something better: a serious, sustained, directed and managed effort to reclaim the American dream for the next generation.