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ARTICLES OF INTEREST

From The Chronicle of Higher Education

What Colleges Can Learn From Recessions Past

By DAVID W. BRENEMAN

The present financial and credit crisis is unprecedented in recent history, resembling in many ways the onset of the Depression of the 1930s more than subsequent recessions. Presumably we have learned something about managing such events and will not permit the current economic mess to deteriorate to Depression levels. It should be helpful, then, to ask what we can learn from the recent past about how higher education has fared during economic downturns, and how colleges have adapted in the aftermaths.

Although we are not officially in a recession yet, the prospect seems likely. Official recessions occurred in 1973-75, 1980-82, 1990-91, and 2001-3 — roughly every 10 years, near the start of each decade. If that pattern holds, a recession in 2009-10 would be a bit premature but close to the mark.

What lessons can one learn from a look at these four recessions?

The 1970s opened with a widely read publication by Earl F. Cheit, written for the Carnegie Commission on Higher Education, titled The New Depression in Higher Education. Costs were outstripping revenues at many colleges, new Ph.D.'s were suddenly having difficulty finding academic jobs, and by the mid-1970s, college graduates were struggling in a sluggish labor market. Productivity increases dropped sharply following the 1973 oil shock, and the unlikely combination of rising unemployment and sharply increasing inflation — stagflation — took hold.

Despite those economic woes, enrollments continued to climb, rising from eight million in 1969-70 to 11.6 million in 1979-80. Current fund revenues for colleges almost tripled between 1970 and 1980, and tuition and fee revenue followed suit. The Carnegie Commission and the Committee for Economic Development issued reports advocating higher public tuition, shifting more of the burden of paying for college from the taxpayer to the student. The 1972 Amendments to the Higher Education Act gave rise to what became known as Pell Grants, expanding the federal role in providing student aid. In a sense, the momentum for growth from the 1960s carried institutions through the difficult 1970s, as the last of the baby boomers moved into higher education.

The 1980s ushered in the Reagan era, as well as a sharp recession designed to break the back of inflation. The market was hailed as the best vehicle for resource allocation, and slowing or curtailing the growth of government was the agenda. That philosophy provided a justification for further shifting the cost of college onto students through higher tuition. State appropriations began a long-term decline as a share of university revenues. Public-university leaders were forced to rethink their support for low tuition, and private-college leaders, recognizing that substantial increases in federal student aid would not materialize, increased their own institutional aid selectively as a tool for enrollment management. Liberal-arts colleges began a steady process of adding professional fields to the curriculum in response to student demand for more applied courses.

The baby-boom generation was followed by the birth-dearth generation, as the population of 18-year-olds began a downturn that lasted from the early 1980s through the mid-1990s. States no longer had to add capacity, and institutional leaders discovered a new market in adult students. Thus, rather than dropping, enrollment rose, from 12.1 million in 1980 to 13.8 million in 1990. Private colleges had always been entrepreneurial in outlook, living by their wits, but now public-university leaders, too, saw themselves less as managers of state agencies and more as aggressive heads of entrepreneurial institutions. Faculty members felt more pressure to bring in research grants and to absorb some loss in real income, as salaries often failed to keep pace with inflation.

While much of the job loss in previous recessions was in manufacturing, the recession of the early 1990s differed in that white-collar workers were laid off. Sharp cuts in state support for higher education led to enrollment caps, elimination of class sections, increasing class sizes, lengthening time-to-degree duration, lagging salaries, unfilled faculty positions, more hiring of adjunct and part-time faculty members, and growing calls for accountability. The search was on for how to do more with less.

As tuitions rose in response to reduced state support, a middle-class backlash developed, and states and institutions became focused on affordability. But affordability underwent a subtle change in meaning to emphasize the financing plight of middleand upper-income families as opposed to the problems of low-income students. As a consequence, the 1990s witnessed a plethora of new programs to help more-affluent families pay for college, including the Georgia Hope Scholarship (copied by many other states), tax-preferred college-savings plans, federal tax credits for tuition, and an increased emphasis on merit aid. The 1992 Amendments to the Higher Education Act expanded loan availability, and private loan programs began to grow, as debt became the dominant form of student support.

The so-called echo baby boom swelled the numbers of students enrolled from 13.8 million in 1990 to 15.3 million in 2000. From the mid-1980s forward, the private investment return on a college education remained strong even as the price escalated. During the echo-boom period (only now peaking), highly selective colleges became even more so, while less-selective ones were able to enhance their selectivity — a seller's market for most institutions.

State support, though, did not rebound after the 1990s recession as significantly as it did in past decades, largely because of the soaring cost of Medicaid. Virtually every state also had a structural deficit, with the existing tax structure not covering expenditures over the business cycle. Many public-university leaders, giving up hope that state appropriations might regain their past role in supporting institutions, turned to other revenue sources, such as tuition, private fund raising, enhanced endowment earnings, and increased federal support for research. The era of the privately financed public university was upon us.

The recession at the beginning of this decade followed the dot-com bust and resulted in a sharper than normal drop in state revenues. That recession was relatively shallow and short-lived, but its impact on state spending was severe. As appropriations dropped, public-university tuition rose by double-digit rates in 2003-4 and 2004-5. Enrollments continued to increase, however, as the students of the echo boom continued to view college as essential to a decent income. Borrowing for college grew rapidly, and for-profit institutions became larger players, primarily focused on the adult population. In many states, efforts were under way to rethink the relationship of public universities to their states. Wealth differences among institutions were wide and growing, as the endowments of a few institutions soared to previously unimaginable levels.

We approach what may be our next recession with a country that is not particularly happy with higher education. Some people doubt its performance, others question its cost and priorities, and still others attack its focus on prestige instead of public service. Many observers are also concerned that we have lost our lead over other countries in a globally competitive economy that requires us to do an ever-better educational job than we have to date.

The previous recessions have demonstrated patterns that are largely reassuring but still somewhat worrisome for higher education:

  • Student demand has remained strong through the vicissitudes of changing labor markets and shifting patterns of finance. Whether this pattern will continue is less clear, as credit is tightening while demand for student loans is at an all-time high. Furthermore, both public and private colleges are more dependent than ever on rising tuition to cover costs, and a prolonged credit crisis would put that revenue source in jeopardy. Even if credit markets loosen up, the changing demographics of the traditional college-age population may mean that current tuition levels cannot be sustained without causing a sharp drop in access and participation. As in many other areas of the economy, we may have pushed reliance on debt to its limit.
  • Contrary to popular view, colleges have proved to be adaptable and creative in their responses to changing economic circumstances. They have been particularly skillful at diversifying their sources of revenue. But again, there may be limits ahead to the expansion of tuition's share of costs, and a recession is never a good environment for fund raising. Whether colleges can find a source of support not already tapped is far from certain.
  • Higher education has been increasingly seen as a private good, with the implication that more of its cost should be borne by the student rather than the general taxpayer. While hard to imagine, the credit crisis and possible recession may begin to reverse that view. Increased governmental support may once again be seen as necessary to produce the number of college graduates required for our economy to remain globally competitive.
  • On average, faculty members' circumstances have declined; many more are part time or full time but not on a tenure track. The growing gap between rich and poor institutions, however, means that the variation in faculty well-being is much wider than before. Although the supply of new faculty members has generally been adequate to meet demand, that situation could change if poor working conditions, dim employment prospects, and rising costs of graduate education discourage many people from entering doctoral programs.

One might also speculate, if a severe recession does ensue, that students will shift from more-expensive to less-expensive institutions regardless of "fit," and that faculty members nearing retirement may decide to keep teaching for more years than they had planned, increasing the financial burden on their institutions.

Other responses will surely occur. But the record suggests that colleges will find ways to absorb the changes, adapting as necessary, and that higher education will continue to be a vital enterprise for the millions of citizens who depend on it.

David W. Breneman is a professor of the economics of education at the University of Virginia and a former dean of the university's Curry School of Education.