The current recession may be rewriting the fiscal ground rules for higher education, as the economic transaction between students and their parents and the chosen school assumes costlier consequences for all parties involved.
The former weigh even more carefully than before the benefits of postsecondary studies against the substantial financial outlay necessary to obtain them. Students and families want more bang for their hollower buck. This poses a threat to the latter, which base monetary success partly on examining, understanding and predicting student behavior. Schools may need to revise practices to adapt.
Philosopher Eric Hoffer, in his 1963 book The Ordeal of Change, wrote that "in times of change, learners inherit the Earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists."
Indeed, in 2006, prescient Charles Miller, chair, and Cheryl Oldham, executive director, respectively, of the federal Commission on the Future of Higher Education, identified economic stress as one of the transformative forces in higher education and concluded that "the need for a comprehensive national strategy for postsecondary education ... has never been greater." (1)
Higher education pays off
No doubt, the economic benefits of a college education are substantial, even in--maybe especially in--a downturn.
As measured by the U.S. Census Bureau's latest "Current Population Survey," (2) workers with a college degree average $25,756 more in salary than high school graduates. Over a lifetime of employment, say 40 years, that amounts to upwards of $1 million more for college graduates.
* In 2004, six in 10 jobs in the U.S. were held by those with some postsecondary education, compared with two in 10 in 1959. (3)
* Jobs requiring advanced skills are growing twice as fast as those requiring only basic skills. (4)
* 90% of the fastest-growing jobs in what's termed the new knowledge-driven economy call for some postsecondary education. (5)
As a result, the rate that high school graduates attend college has risen steadily since 1980, according to the National Center for Education Statistics (NCES), the main federal entity to collect and analyze education data (6):
* In 1980, about half of high school graduates went to college: 1,523,000 of 3,088,000.
* In 2006, that number had risen to about two-thirds: 1,776,000 of 2,692,000.
Higher education bills mount up
The costs of a college education are substantial as well--all the more so in a recession.
A main reason: Higher education continues to outpace inflation. The NCES reports that in constant 2007 dollars (7) between 1997-'98 and 2007-'08, prices for undergraduate tuition, room, and board at public colleges and universities rose by 30% (from $6,813 to $11,578), and at private counterparts by 23% (from $18,516 to $29,915). (8)
Meanwhile, household income that pays for student tuition in higher education--a sum that contributes 18.3% of the operating budget of public universities and 29% of private universities on average (9)--remains in a decade-long slump. While the median household income rose from $41,620 in 1970 to a high of $50,641 in 1999 (in 2007 constant dollars), since then it has remained below its 1999 level. (10) The Pew Research Center, a Washington, D.C.-based "fact tank" about American issues, reported in March that "the eight-year period from 1999 through 2007 is the longest in modern U.S. economic history in which inflation-adjusted median household income failed to surpass an earlier peak ... (and) the current recession likely kept this key indicator below its 1999 peak." (11)
Stagnant or falling incomes, of course, amplify the cost of a college education.
Even so, students whose families are generally less able to carry the escalating charges are being asked to pay a growing share of their higher education anyway:
* Public school tuition costs shouldered by students and their families have increased from 31.2% ($3,232 of $10,371 total tuition bill) in 1997 to 36.2% ($3,845 of $10,618) in 2007 (using constant 2007 dollars). (12)
* While private school tuition costs paid by students and their families fell from 68.6% ($9,801 of $14,285 total tuition bill) in 1995 to 62.5% ($12,307 of $19,301) in 2006 (using constant 2006 dollars), (13) this percentage drop masks the rapid increase in tuition from $14,285 to $19,301--35.1%.
To learn more, owe more
Not surprisingly, the response of students and their families to this predicament has been to accrue more debt:
* The College Board, a New York City-based not-for-profit membership association of more than 5,400 schools, colleges, universities, and other educational organizations, reported that total education loans more than doubled (in constant 2007 dollars), from $41 billion in 1997-'98 to $85 billion in 2007-'08. (14) That nearly accounts for all of the tuition and fee revenue reported by those institutions.
* Of those billions, the share of nonfederal private loans increased from 7% in 1997-'98 to 23% in 2007-'08.
The upshot: instead of banking on federal aid, students are forced to rely more heavily on their own resources as costs escalate--all the while hoping that long-term payoffs will be coming to them.
The report goes on to state that "an estimated 60% of bachelor's degree recipients borrow to fund their education" and their average debt has risen from $19,300 (in constant 2007 dollars) in 2000-'01 to $22,700 in 2007-'08, an increase of 17.6%. Paradoxically, the rising debt burden for students creates a challenge for many to acquiring a college degree at a time when the benefit of having one is growing--and vital.
So students and their families have willingly taken on increasing debt with the expectation that the benefits of a college degree ultimately will be worth the risk. Yet according to the Economic Policy Institute, a nonprofit and nonpartisan think tank based in Washington, D.C., the unemployment rate for college graduates younger than 27 years old has risen to 5.9% in March and April, the second highest rate ever. (15) The result is that an increase of cost doesn't necessarily guarantee immediate rewards, making the choice to pursue a college education a greater gamble, at least for the foreseeable future.
Plus, the Bureau of Labor Statistics, the principal fact-finding agency of the federal government in the field, reports that overall unemployment reached 9.4% in May, (16) only the second time since World War II it has risen above 9%.
The recession has increased the chance that college graduates may not be able to find a job--at least for a while--to repay their loans.
Students still want to attend college
Despite--and because of--all this, young people have not abandoned their college aspirations. Only 4% of college-bound seniors gave "much more consideration" to skipping college and working instead in the recession, according to a poll of almost 975 burgeoning scholars in April conducted by the College Board and Art & Science Group LLC, a consulting firm specializing in higher education marketing and enrollment management. (17) In contrast, 78% of respondents said they never considered not attending college.
To combat the recession, students are "giving much more consideration" to attending a public institution in their home state (41%), working part-time while in college (47%), considering schools with generous financial aid resources (28%), and living at home/commuting to school to save money (21%), according to the survey.
Public schools are less expensive than private schools; for 2008-'09, net tuition and fees after aid averaged $2,850 for public four-year in-state schools and $14,930 for private schools. (18)
The academy reassesses the ledger
The economic fate of colleges and universities largely depends on the economic behavior of students, all the more so in a recession like the current one. Schools manage their business partly based on their ability to understand and predict student behavior. The lifecycle, so to speak, of a student has three phases: recruitment, active enrollment, and alumnus. For each of these phases, computerized databases manage student information, making it possible to construct statistical models to predict student behavior and to formulate economic decisions accordingly.
During recruitment, data are collected from student applications as well as purchased from informational organizations such as the College Board and the Lee's Summit, Mo.-based National Research Center for College & University Admissions. These facts--and details about recruited students from previous years--are used in recruiting efforts and in constructing statistical models to predict which current recruits are most likely to apply and enroll. (19)
For instance, students demonstrating high aptitude in writing may be sent the schedule for the school's visiting writers' series and invited to attend the annual children's literature conference. But in a recession, schools having to curtail expenditures may not be able to generate, supply or underwrite these enticements and, therefore, risk losing the recruit. Or, the farther away a school is from a student's home, the less likely the student may apply or enroll. Because of the recession, many more students who have limited funds and who need to save on travel expenses may choose to attend a school a short drive away or opt to live with mom and dad, thus changing the relationship between the distance from home and the likelihood to apply and enroll (not to mention campus housing) observed in previous years. Institutions may need to devise new models, policies and goals as a result.
Statistical models further assess the ramifications of active enrollment. For instance, a model can be constructed that uses student information to predict who is likely to do poorly in a given major. Students who major in, say, physics but struggle with math, or history but struggle with research, will need more help than their peers. In a recession, when fewer resources are available, the institutional response to these students may be limited or otherwise change. Schools may instead choose to promote less challenging programs as viable alternatives rather than provide the support to ensure student success in the problematic field.
Similar models are used during the alumnus phase to predict receptivity to requests for donations and other financial contributions. These models are structurally the same as those used by mail-order retailers to determine the probability of customers to make purchases from the latest catalog. For instance, an expensive yearly report from the school president may be mailed to alumni, but only after it has been determined that they are likely to make some donation. In a recession, the likelihood of alumni to donate funds may be greatly diminished, undermining the rationale for an expensive yearly report. Yet a more modest pitch may threaten to deprive the institution of needed revenue.
The final reckoning is coming
It should be recognized that it may not be possible to construct an accurately predictive model from historical patterns now that those patterns may be changing. Still, the sophistication of the statistical models relies on a simple assumption: that behavior of students observed in the past is a good predictor of student behavior in the future.
The long-term effects of the recession on the economic behavior of higher-education students and, consequently, on the schools that depend on them continue to unfold as the fall 2009 freshmen classes arrive. The bottom line is yet unknown.
(1) Miler, Charles, and Oldham, Cheryl, "Issue Paper: Setting the Context," from A National Dialogue: The Secretary of Education's Commission on the Future of Higher Education, U.S. Department of Education, 2006. http://www.ed.gov/about/bdscomm/list/hiedfuture/reports/miller-oldham.pdf see the full report at: http://www.ed.gov/about/bdscomm/list/hiedfuture/reports/final-report.pdf
(2) U. S. Census Bureau, "Current Population Survey, 2008: Annual Social and Economic Supplement, "Table PINC-03. http://www.census.gov/hhes/www/macro/032008/perinc/new03_001.htm
(3) Carnevale, A. P., and Desrochers, D. M., "Standards for What? The Economic Roots of K-16 Reform," Educational Testing Service, 2003. http://www.learndoearn.org/For-Educators/Standards-for-What.pdf
(4) Hecker, Daniel E.," Occupational Employment Projections to 2012," Monthly Labor Review, February 2004, 127(2), 80-105. http://stats.bls.gov/opub/mlr/2004/02/art5full.pdf
(5) Commission on the Future of Higher Education," A Test of Leadership: Charting the Future of U.S. Higher Education," U.S. Department of Education, 2006. http://www.ed.gov/about/bdscomm/list/hiedfuture/reports/ftnal-report.pdf
(6) National Center for Education Statistics, "Digest of Education Statistics, 2007," table 192. http://nces.ed.gov/programs/digest/d07/tables/dt07_192.asp
(7) Constant dollars are based on adjusting values for individual years by the amount of inflation between the individual year and the constant-dollar year as reported in the Consumer Price Index prepared by the Bureau of Labor Statistics, U.S. Department of Labor.
(8) National Center for Education Statistics, "Fast Facts," http://nces.ed.gov/fastfacts/display.asp?id=76
(9) National Center for Education Statistics, "Digest of Education Statistics, 2008," tables 350 and 354. http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2009020
(10) DeNavas-Walt, Carmen; Proctor, Bernadette; and Smith, Jessica (August 2008), "Income, Poverty, and Health Insurance Coverage in the United States: 2007," Table A-1. http://www.census.gov/prod/2008pubs/p60-235.pdf
(11) Pew Research Center. "The Phantom Recovery," March 26,2009. http://pewresearch.org/pubs/1167/phantomrecovery-flat-household-income-eight-years
(12) State Higher Education Executive Officers (2008). "State Higher Education Finance, FY 2007," Table 2. http://www.sheeo.org/finance/shef_fy07.pdf
(13) The Delta Project on Postsecondary Education Costs, Productivity, and Accountability, "Trends in College Spending," 2009. http://www.deltacostproject.org/resources/pdf/trends_in_spending-report.pdf
(14) College Board (2008),"Trends in Student Aid," Figure 8. http://www.collegeboard.com/html/costs/aid/4_1_loans.htmlz/CollapsiblePanel7#figure8
(15) Economic Policy Institute," Unemployment Rate High for Young College Graduates." http://www.reliableplant.com/Article.aspx?articleid=18113
(16) Bureau of Labor Statistics," Labor Force Statistics from the Current Population Survey." http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000
(17) College Board and Art & Science Group," The Effects of the Current Recession," April 2009. http://www.artsci.com/studentpoll/v7-3/index.aspx
(18) College Board (2008), "Trends in Student Aid," Figure 7. http://www.collegeboard.com/html/costs/pricing/3_1_net_prices.html
(19) Bruggink, Thomas H., and Gambhir, Vivek, "Statistical Models for College Admission and Enrollment: A Case Study for a Selective Liberal Arts College, "Research in Higher Education, April 1996, 37(2): 221-240. Or Goener, Cullen F., and Pauls, Kenton, "A Predictive Model of Inquiry to Enrollment," Research in Higher Education, December 2006, 47(8), 935-956.
Dean E. Nelson (University of Pittsburgh at Greensburg) is Assistant Vice President for Academic Affairs and Assistant Professor of Statistics at the University of Pittsburgh at Greensburg. He received his Ph. D. in Applied Social Research from Lehigh University (1999) after earning an M.S. in Biometrics from the University of Colorado School of Public Health (1987) and a B.S. in Mathematics and Philosophy from Metropolitan State College of Denver (1985). Prior to his current appointment, Nelson worked in institutional research at Saint Vincent College and as a statistical consultant at the University of Wisconsin Madison and Lehigh University. He has published papers en various topics in statistics and statistics education and is a member of the American Statistical Association. Email him at firstname.lastname@example.org.…