By Jim Murtha, Ph.D.
Chairman & CEO Maguire Associates

Writing recently in The New York Times, Floyd Norris reports that “The proportion of new American high school graduates who go on to college — a figure that rose regularly for decades — now appears to be declining. Last October, just 65.9 percent of people who had graduated from high school the previous spring had enrolled in college, down from 66.2 percent the previous year, the lowest figure in a decade. The high point came in 2009, when 70.1 percent of new graduates had gone on to college.” (Norris, Floyd. “Fewer U.S. Graduates Opt for College After High School”, New York Times, 25 April 2013)

The Times piece continues: “’Falling college enrollment indicates that upward mobility may become more difficult for working-class and disadvantaged high school graduates,’ said Heidi Shierholz, an economist with the Economic Policy Institute in Washington. ‘… It’s another part of the long-term scarring process of the Great Recession that has been partly hidden’ that might reflect poorer employment prospects for parents and students who would have worked their way through college a few years ago, and added that ‘many parents in the past paid for college by refinancing mortgages, an alternative no longer available to many families.’”

This news bulletin adds to mounting evidence that the recession and fiscal crisis of 6-7 years ago truly was the worst downturn since the Great Depression.

We experienced nearly unprecedented financial upheaval, with the failure of major investment firms (Bear Sterns, Lehman Brothers); a credit crisis in the derivatives market (e.g. the failure of AIG); unprecedented government involvement with banks, leading to new regulation; a government bailout of the auto industry, the TARP program and much more. Together these events placed market analysts in quandary: would there be a quick rebound? Was it a long-term event?

In the Financial Times, Mohamed El-Erian responded to the quandary, arguing that change was here to stay; that we faced an economic and fiscal “New Normal” characterized by: lower global growth and investment returns; higher than normal unemployment; slower than expected growth; and lingering very low interest rates. These trends were generated by cheap debt, which fueled a spending binge, leading to a housing price bubble and resulting in debt overload for government, individuals and many businesses. When housing prices fell to more typical levels, many owners tried to bail. These families had to pay off debt even as home prices declined, a lot. In turn, families lost wealth, leading to lower consumer spending. Reduced spending also lowered overall economic activity and made businesses skittish about hiring, even when things improved. A classic downward spiral. (El-Erian, Mohamed. “Hold On Tight for a Bumpy Ride to the New Normal”, Financial Times, 16 June 2009; paid content)

Looking at that downward trending economy, I asked myself whether this financial New Normal had led to a corresponding New Normal for Higher Education. Did the economic downturn change higher education? In a fundamental way? For the long term?

If we examine the bellwether indicator, enrollment, since the crisis, we see the following somewhat confused results:

  • New student and total enrollment increased in 2008 and 2009, declining in 2010
  • Total enrollment began declining in 2011, and the decline continued into fall 2013
  • Community college enrollment first grew sharply and then fell
  • Four-year public sector remained flat
  • Four-year private sector increased modestly
  • The for-profit sector grew and then declined sharply
  • Beginning graduate student enrollment grew early in the recession and then quickly declined (and included a growing proportion of non-resident students)

The headline: overall college enrollment in the United States was flat between 2010 and 2011 and has declined for the subsequent two years. Economic downturns usually send people back to college and boost attendance, and there is some evidence that this occurred in spurts. But as reflected in the recentNew York Times article on college going, we have entered a period of modest disengagement from higher education, a New Normal.

It is a New Normal with the following features:

Greater price sensitivity:  Where families, students, the government and institutions focus much more on price. And students and families become more concerned about what they actually pay: net price. Maguire Associates’ studies during the financial crisis documented the rising concern with net price among students and parents. State institutions have raised prices but they remain low, particularly for in-state students. But greater numbers of students are now comparing the “net prices” of public and private colleges, since private institutions have had to hold their net prices down barely keeping up with inflation.

And in dealing with this greater price awareness, institutions have:

Fewer resources:  Endowments are smaller because of the rapid market drop. Ironically, wealthier institutions had a greater problem than others because they depended more on their endowments. (Many have recovered nicely, but they suffered a big bite from their assets.) Many institutions realized, like individuals, that they had too much debt and are looking to reduce it. Cutbacks in state funding for most public institutions produce greater fiscal dependence on tuition. Higher tuition discounts in the private sector mean less revenue per student.

Fewer resources have added:

Expense pressure:  Which in turn has led to slowing capital plans. Also to layoffs, some in places where it would have been unimaginable a short time ago. We have also seen many colleges reduce employee benefits and restructure pension plans. Generally there is a sharper focus on “productivity” and “efficiency” throughout the industry.

There is also:

Greater competition:  The demographic decline produces fewer traditional students. Fewer adults are returning to college. Lower State funding pushes public colleges to enroll more students to bolster their budgets. Private colleges face greater competition from both publics and for profits. Community colleges seek to offer bachelor programs.

And, we see a:

Struggle to survive:  Economic forces have forced a number of institutions to close. Some have survived through merger or consolidation caused by another college. Many are one payroll away from default.

At Maguire Associates we have worked with hundreds of colleges and universities as they have struggled with this new normal of greater price sensitivity, diminished resources, expense pressure, greater competition and in some cases the very struggle for survival. We try to help them adapt to changing times and circumstances using our Enrollment Forecast Analysis System (EMFASYS), which helps colleges achieve the enrollment profile they desire. Most have been successful, at least in relative terms.

But that success does not come easy, and we remain concerned for the colleges we serve now and in the future. As we know, change does not come easy to these very traditional organizations, but the new normal shows no sign of abating. This spring’s competition for new students was the fiercest yet.

The broader social consequences intertwined with this new normal, however, give us our greatest concern. The breaking faith with higher education we see in the data and in the press has its greatest effects on first generation college aspirants who seem increasingly likely to take a job – likely a low paying one – over college. Fewer options constrain choice among colleges: lower income students more often than not find their way to colleges with lower graduation rates and even lower chances of Bachelor’s degree completion. Research from the national longitudinal study [Bailey, Martha J. and Dynarski, Susan M. (2011). Gains and Gaps: Changing Inequality in U.S. College Entry and Completion. Cambridge, MA: National Bureau of Economic Research. Working Paper 17633.] on the 1960 and 1980 birth cohorts shows that children from low-income families who make it to college are much less likely than those from high income families to get a degree since they remain significantly less likely to finish.

Economic conditions have likely increased this income gap in the 1990 and later birth cohorts. Ironically, even as our business and government leaders call for increased educational attainment and occupational preparation, evidence mounts that economic conditions lead those most in need down different, less productive paths.

I remain hopeful, however, that innovations such as the City University of New York’s (CUNY) Accelerated Study in Associate Programs (ASAP) program for community-college students will begin to make a difference. This program addresses money issues, which are typically students’ top concern, by covering tuition that’s not paid for by federal and state grants, as well as paying for public transit and giving students free use of textbooks, saving them upward of $900 a year. To help balance the demands of college with work, life and family obligations, students take their classes in a consolidated course schedule. The New York Times write up on the program notes importantly, “While the added dollars make a big difference, students consistently report … that the personal touch — biweekly seminars and one-on-one advising — is crucial. An evaluation last year concluded that though ASAP isn’t cheap, it’s a solid investment.” (Kirp, David. “How To Help College Students Graduate”, New York Times, 8 January 2014)

We need more investments like these to bend the curve toward better outcomes in higher education for those who most need the help and to break out of this new normal, which as of now seems like it still has some distance to run.