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Higher Education Was Already in Trouble Before the Coronavirus

The pandemic, while it has undeniably worsened the outlook for many institutions, has only exacerbated and brought into sharper relief some of the extant forces threatening to pop the higher education bubble.”

Much has been made about the damage the ongoing Coronavirus pandemic is likely to do to higher education. True enough, many institutions are facing revenue shortfalls as a consequence of the global pandemic that has shut down college campuses, among other aspects of life. Some colleges and universities are responding with hiring freezes, while others are taking more extreme measures. In a striking example, the University of Southern California  is cutting salaries for its senior leadership; forgoing raises for faculty; and pausing travel, discretionary spending, and capital projects.

Perhaps even more worrying than immediate revenue loss, colleges face uncertainty about when and in what capacity they will be able to open back up—and how prospective students will adapt to that uncertainty. Thirty percent of students surveyed this month by Junior Achievement USA said COVID-19 is impacting their expected college start date. Another recently commissioned survey, by the American Council on Education, finds 12% of current college students are uncertain about their plans to re-enroll in the fall or definitely plan not to do so due to COVID-19.

But even before the virus closed campuses and moved classes online, the current higher education model was beginning to look unsustainable. The pandemic, while it has undeniably worsened the outlook for many institutions, has only exacerbated and brought into sharper relief some of the extant forces threatening to pop the higher education bubble.

Demographics and Dependence on Per-Student Revenue

Perhaps most fundamentally, demographics are working against colleges. Universities proliferated in an era of population growth; however, in recent decades, fertility rates have begun a sustained decline. The result is fewer prospective students for a greater number of institutions to fight over. College enrollment has fallen every year since fall 2011, dipping below 18 million students for the first time in a decade this past fall, according to the National Student Clearinghouse Research Center

A declining number of customers throws a big wrench into the higher education business model. Traditional universities have high fixed costs—building and land maintenance, tenured professors, an expensive administrative bureaucracy, and more—and are increasingly dependent on per-student revenue sources like tuition and fees. This has forced schools into an arms race of sorts. Competition over students has led colleges to increase non-education expenses like marketing and on-campus amenities. And the costs of these are then passed onto the students in the form of higher tuition and fees. Ironically, this dampens the demand for higher education, which schools must then compensate for by offering steep discounts on tuition, eating at their margins.

The shrinking pool of prospects will be harder on some higher education models than others. Private and especially for-profit colleges rely more heavily on tuition and fees as sources of revenue than do public institutions. Smaller liberal arts schools, in particular, are vulnerable, with less extensive alumni networks and smaller endowments to supplement tuition revenues. 

Already casualties have been mounting: Mount Ida, a liberal arts college in Massachusetts, announced it would shut down in April 2018 after briefly considering a merger with Lassell University, a neighboring institution. Green Mountain College, in Vermont, shut its doors at the end of 2019, citing an inability to attract enough students. These are but a few examples of a growing trend, particularly in the Northeast, where population growth is low or negative, and small, private liberal arts colleges abound.

Dependence on International Students

Some schools have sought to circumvent this problem by attracting richer students—or, at least, students who will pay more to receive the same education. This has often—and controversially, where state schools are concerned—meant pursuing out-of-state or foreign students, the latter being especially lucrative. 

China is, by far, the largest source of international students in the United States. According to Homeland Security’s Student and Exchange Visitor Information System, there were nearly 400,000 international bachelor students studying at American universities in January 2020, 34% of which were from China. Together they represent $15 billion of higher education revenue. 

As many have pointed out, COVID-19 will certainly depress that number. Part of this is due to technical problems: families cannot come to the United States to visit campuses; testing and recruitment events in China have been postponed; and it’s still unclear when and how American universities will re-open. 

However, like the American demographic crunch, waning Chinese enthusiasm for American education was already visible before the virus struck. After a decade of steady enrollment growth, Chinese student numbers are starting to drop. Diplomatic tensions between Washington and Beijing are an obvious culprit. The Trump administration famously targeted Chinese goods with trade tariffs and has accused Chinese students of intellectual property theft. Arkansas Senator Tom Cotton recently called for the government to deny visas to Chinese students looking to study science in the United States. In June of 2019, the Chinese Ministry of Education officially warned its citizens to “raise their risk assessment” in response to increasing difficulties obtaining visas to study in the United States.

Limited Opportunities to Improve Efficiency

Education has not taken to innovation the way many other industries have. The crux of education—transmitting knowledge from one mind to another via person-to-person instruction—is the same as it ever was. So far, technology can’t make this process any less time-intensive, and class sizes can only scale so much before quality begins to suffer. But while productivity growth is very low, wages in higher education are expected to rise like in any other industry. The result, in terms of dollars spent per knowledge acquired, is that higher education is actually becoming less efficient. 

In theory, there are opportunities to deliver education to consumers more efficiently, which schools have recently been forced to try. Online courses could allow schools to educate more students at a lower cost per head. Many fixed costs could eventually be eliminated or greatly reduced, passing savings onto students. This is the vision of many distance-learning enthusiasts, who tout MOOCs (massive open online courses) like EdX and Coursera as an alternative to traditional learning.

Whether or not one believes such an alternative is viable depends on what one thinks people go to college for. The traditional assumption is that students go to college to learn new skills and knowledge, which, in turn, make them more employable and increase their salaries. Without getting into too deep a philosophical discussion, I believe that’s at best an incomplete picture. 

There’s plenty of evidence to suggest students are interested in college diplomas as signals of competency and other characteristics to employers. Affiliation with a university also provides a sense of community that’s growing more difficult to find elsewhere in American life. And, as the recent college admissions scandal shows, affiliation with select institutions can bestow upon one a sense of social status that even the well-off are hard-pressed to resist.

Ironically, the less one embraces the traditional view of the value of higher education, the more reason there is to doubt online courses will replace in-person education. Grades, assignments, and lectures can be delivered digitally, of course. But some of the value of attending college is determined not by what a student learns but by where and with whom he’s sitting. And this can’t be so easily replicated.

Unfortunately, schools’ strength in this regard is a double-edged sword. The idea that students place an intrinsic value on the communitarian aspects of college means schools aren’t able to cut programs or discontinue money-losing activities without risking the holistic value of the service they provide.

Eddie Ferrara writes about policy from a data-driven perspective. He studied sociology at the University of Massachusetts Amherst. He blogs at Follow him on Twitter @EdwardFerrara_

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