One of the peculiar things about higher education is that it runs in the opposite direction of the economy. When the economy stalls, demand for college typically rises as the unemployed decide to go back to school to improve their job prospects. Since it seems near certain that the coronavirus pandemic is triggering a new recession right now, I thought it would be useful to recap what happened to colleges and universities during the Great Recession of 2008 to help us think through what might and might not repeat this time around.
The number of students who enrolled in college jumped by almost 2.5 million, or nearly 16 percent, from 15.6 million undergraduate students in the fall of 2007 to a peak of 18.1 million students in the fall of 2010. Most of the increase was driven by older adults, according to Doug Shapiro, executive research director of the National Student Clearinghouse Research Center, rather than typical college-age students who had recently graduated from high school. These older adults tended to enroll in two-year community colleges and for-profit online schools, such as University of Phoenix.
The back-to-school rush didn’t happen right away. There was a long 18-month lag. First, workers were laid off. Then, they exhausted their unemployment benefits. “When the reality sets in that they’re not going to find another job, then they start thinking about school,” Shapiro said. “And by the time they get through the whole process of finding a school and getting into a school, a year and a half to two years has gone by.”
Federal policy encouraged Americans to go to school during the last recession. The 2009 Recovery Act increased the amount of Pell Grants to low-income students to more than $5,000 per year and expanded the number of students who were eligible for it.
“The federal government invested a lot of money in new students,” said Shapiro.
Ironically, funding for education plummeted. States didn’t have money and they cut funds to public colleges just as enrollments surged. “Funding per student was a disaster,” said Sandy Baum, a senior fellow at the Urban Institute. “We’ve seen it recover very slowly but it’s still lower than what it was before the recession.”
Budget cuts forced public institutions to raise tuition. Even after Pell and other grants, inflation-adjusted tuition at public four-year colleges and universities rose 19 percent from 2006 to 2012. Students took out loans to pay it.
Legislation raised the amounts that students could borrow in 2007 and again in 2008. Student loans soared from $110 billion a year in 2007 to $132 billion a year in 2010 — an historic record for annual college borrowing. That was also the year that student loan debt surpassed credit card debt.
Then, as the economy created jobs, many returned to work without degrees. Completion rates declined for students who enrolled in college during 2008, 2009 and 2010. Only 39 percent of the students who enrolled in a two-year institution in 2008 had a degree six years later, according to the National Student Clearinghouse. Total associate degrees awarded rose initially as the recession first hit, from 750,000 a year in 2007-08 to more than one million a year in 2011-12, but they did not rise any further. One might have expected them to increase as students had more years to complete their degrees.
This strikes me as a sad outcome. There was a well-intended effort by policy makers to use the recession to invest in Americans’ education. But instead we underfunded the sector as we steered people toward it. Some benefited but too many Americans ended up saddled in debt without degrees.
But if the recession lasts longer, public policy isn’t yet creating new incentives for people to return to college. There are no provisions in the 2020 relief package to increase grants or loans for future students. Most of the higher education relief is to help current students stay in school or help former students with their loan payments.
We’re already seeing states from Missouri to New Jersey cut funding for public colleges and universities because they don’t have the money. That’s potentially setting the stage for tuition hikes. “Here we go again,” said Baum.
Another big difference is the context leading up to the recessions. Before 2008, there were years of rising college enrollment as policymakers urged more high school graduates to get an education. Ahead of this recession, enrollment has been declining in many regions of the country. A nationwide decline in the college age population is predicted for the years ahead.
If the unemployed do decide to return to school, established online universities are likely to be the big beneficiaries, both Shapiro and Baum predicted. During the last recession, online education was dominated by for-profit universities. But since then, nonprofit private and public institutions, such as the Southern New Hampshire University and Arizona State University, have built their online platforms and marketing arms to become big national players.
Last month, Moody’s Investors Service lowered its outlook for the whole higher education sector to “negative” from “stable.” Moody’s is worried that international students won’t be returning to U.S. campuses in the fall and that many domestic students won’t enroll now that colleges are delaying and canceling events for accepted students.
The big wildcard is whether students will be able or willing to return to physical and residential campuses in the fall. “If they don’t,” said Baum, “I think we’re going to have a whole set of issues that we’ve never dealt with before.”
This story about how the great recession affected higher education was written by Jill Barshay and produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for the Hechinger newsletter.