Is This the Time to Right-Size Higher Education?

By Dr. Watson Scott SwailPresident & Senior Research Scholar, Educational Policy Institute

Last night, the Senate was unable to pass an $1.8 billion stimulus bill over a variety of issues, some of which are known and some not. Of those we know, included was the Democrats sense that there is not adequate funding to protect and support higher education. A second issue is the level of support for student loans, including a request to provide more than a six-month moratorium on loan payments.

In some respects, it sounds like both Democrats and Republicans are using this opportunity, to a degree, to fund or defund campaign issues, when the only goal of this aid package should be to protect and carry people over to and through the pandemic. It shouldn’t be designed as anything else. A prudent bill must protect the least protected in our society, which means focus should be placed on low- and middle-income families, those directly impacted by the COVID-19 virus, and those with significant non-pandemic related medical issues, including people with disabilities. Yes, there are many other subgroups of society that have needs, but the three significant catchalls that we must focus on include those impacted by income, health, and wellbeing.

Some Senators are focused on propping up corporate America by providing bailout funds, such as the airlines and other transportation-related areas. Some level of this must happen to protect our industries. The other end of the spectrum is pushing to provide direct checks to people across the country. With regard to this, it is my understanding that the initial discussions of a bill included $1,000 to individuals and up to $3,000 to families, depending on the number of children. Since then, Senate Republicans have pushed to make these mean-tested payment—that is, checks would only go to those who have household incomes less than $75,000. The idea here is that any money sent to individuals would be spent in the market and act as a stimulus to the economy, while also providing not-enough-but-much-needed money to families. For the latter, the Republicans would like to focus funding on those who mostly need it rather than an omnibus effort to provide some aid to everyone, rather than create a larger stimulus through this portion of funds. Thus, this is a divide between giving massive breaks to corporations rather than letting the market lay bare to this issue through individual payments and purchasing. The positions of both parties, to some degree, are antithetical to their normal positioning on these issues, where Democrats usually want funding to focus on the needy and Republicans to broaden support of the income ladder. How one sits on such an issue depends largely on ideology.

For its part, higher education is in a very precarious position right now. So is K12, but not in the same manner as the postsecondary arena because K12 funding comes primarily from localities and states, with relatively nominal (about 12 percent) funding from the federal government. Postsecondary education, on the other hand, depends largely on state, federal, and private funding (e.g., tuition and fees) and runs on the back of student grants and loans, mostly the latter. As mentioned in the opening, student loans are a concern for policymakers. According to this morning, Democrats want a longer moratorium (more than six months) and are also asking for the government to pay not only the interest but the principal of loan payments, to effectively reduce loan balances by at least $10,000. Given my premise on what this bill should be about, I think the focus should be to accept a six-month moratorium and forget about the balance issue right now: that isn’t an immediate impact right now. Rather, the monthly payments are problematic. So, put in the moratorium and cancel payments until fall 2020 with the government taking care of the interest during this time so that principal does not increase. That would be fair. If conditions are the same at that point, Congress has the ability to do something about it then. But we can live with six months.

Perhaps the bigger issue is what level of support is necessary to buttress institutions of higher education for the lack of revenue they will incur over the next year (plus). For institutions, they do not want to reduce their staffing unless necessary. On the revenue front, they are relatively fine right now: they have their tuition payments, housing payments, and ancillary payments. I know, because I pay for room and board for one of my children and that money was collected months ago. I am not due a refund, apparently.

The rubber will meet the road this summer and fall for colleges around the country. Enrollments will decline as people will not have the money that makes college costs bearable. More importantly, international enrollment is going to tank, after years of tanking. In late February, the Institute for International Education conducted a survey of US colleges in February regarding the real and perceived impact of COVID-19. To put this in perspective, there are over one million international students attending US institutions and over 350,000 from China alone. Even the disenrollment of a fraction of these students will have serious repercussions for US higher education. True to that thought, findings from the survey found that over one third (37 percent) of institutions reported that some Chinese students were unable to return to campus due to the virus, and that a majority of institutions had to constrain or cancel all marketing to China. One-in-five institutions had no alternative marketing plans for fall 2020.

Surely, some students will participate online from abroad, but many of these students are in STEM-based programs which is difficult to do without lab studies. Back in the late 1990s, Rensselaer Institute of Technology (RIT) and other STEM colleges created virtual labs for studies, but these surely are the outliers rather than the norm. Online won’t work for many of these students.

It is difficult to predict how many students, most of whom are full-pay students, will not return for studies this fall. But a safe bet would be a third, which would represent, on a paper napkin, 350,000 students at an estimated $50,000/year equaling over $17 billion dollars in lost revenue. The numbers are illustrative and may be high or low, but taken at face value, that would translate to over $7.5 million per four-year, public and private institution in the US. If the number creeps to half a million students, then we are in the $25 billion landscape, or $11 million per institution.

Combine this with other students that may not return or matriculate to higher education. These numbers could be in the $100s of billions for the 2020 year alone, let alone medium-term fallout.

Some say that epidemics and pandemics, like wildfires, play a role in society by limiting the herd. I don’t subscribe to this philosophy (I do for wildfires), but let’s use it as a premise for this discussion. Perhaps this is an opportunity to reconsider our four-century higher education experiment in the United States, which has grown from one institution in 1636 to over 3,300 two- and four-year public and private institutions across the country; Almost 6,200 if we consider the private, for-profit endeavors that suck up much of the Pell Grant and subsidized funding from the federal government.

I’ve stated for many years that we have too many colleges and universities in the US. Of our 3,313 two- and four-year, public and private institutions, one third (1,102 institutions) enroll less than 1,000 students. Seventy-five percent enroll less than 5,000 students (2,495 institutions). Of the 85 percent of institutions that had retention data, the average fall-to-fall retention rate was 69 percent for full-time students, meaning that over 30 percent of students didn’t show up for their second year at their initial institution. The retention rates are slightly lower at small institutions versus large institutions (68 vs. 72 percent).

I count 2,249 four-year public and private institutions. Small institutions (<1,000 students) represent 36 percent of these institutions and three quarters (78 percent) enroll less than 5,000 students. This is not to argue that small institutions are bad. That wouldn’t be accurate. But over a large, diverse system, it can be argued that higher education is not near efficient enough, resulting in cost containment and elevated pricing issues. While I cannot say that larger institutions are better, they are typically much more efficient. There has to be a balance between quality, cost, and price. Right now, we have too many institutions that (a) provide an education for too few students at a very high cost; and (b) too many institutions of all sizes that simply do not produce enough graduates.

Given the enrollment issues to come, internationally and domestically speaking, retention is the name of the game over the next few years. Marketing will be limited. The money for institutions will be in retaining students.

From a system perspective, perhaps it is legitimate to consider shuttering a large number of institutions, including some of the 305 four-year public institutions that serve less than 5,000 students, or some of the 745 four-year private, not-for-profit institutions that serve less than 1,000 students.

Given that higher education is involved in a current natural experiment on the applicability of online, asynchronous education as a norm rather than an outlier, there will be seats available at larger institutions this fall, given that the pandemic allows students to show up at all.

The COVID-19 pandemic reminds us of the fragility of life and gives us an opportunity to rethink our place in society as well as how it is run. The impact of the pandemic on the US, let alone other countries, is still largely unknown. We do know it will get much, much worse in the coming days and weeks before we see numbers subside. But even then, our landscape for the next several years has been altered significantly. For higher education, this is a time of reckoning for the decades-long eternal quest for more students and higher costs. While a just and prudent society requires us to be educated, we must redefine what level of education we need and how people can receive this education in order to serve appropriately.

There exists an opportunity.  

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