Can Higher Ed Survive the Pandemic?

Some colleges will close. Most will have less money. But here are six ideas for a strong future.

By Daniel Baer

Tagged COVID-19Higher education

There is no question that higher education is going to be gutted by the coronavirus. Some commentators have already observed—at times with apparently dispassionate remove—that a number of colleges and universities will likely be forced to close their doors through the coming months. Others have noted that pandemic has catalyzed the move to online instruction—students and professors are both being forced to use online learning platforms, and universities have been making emergency investments in the technology to enable this change.

It is reasonable to look for the silver linings in a moment like this. And higher education isn’t the only sector in which people are musing about the possibility for creative destruction to positively disrupt the way things are done. But while experiments with enhanced online instruction and the loss of some institutions unable to fill their classrooms may offer opportunities for efficiencies, the most important opportunity that the coronavirus shock presents is an opportunity to rethink the political economy of the entire higher education system, and reshape it to fit the challenges of the twenty-first century.

The System We’ve Got

The post-World War II history of the American higher education system has been, in important ways, perversely regressive. The GI Bill famously invested in returning servicemembers from World War II, giving them free or near-free college and a path into the middle class, although many non-white GIs were de facto excluded. Even for those who weren’t eligible for GI Bill benefits, public investment in community colleges and public universities remained high enough that a year’s tuition could be paid for with earnings from a summer job at minimum wage in many states well into the 1980s. Meanwhile, there remained plenty of jobs in the American labor market that offered a reasonably secure middle-class life and did not require a post-secondary degree.

In the last 30 years, however, two major shifts happened.

First, a generation ago, public investment in higher education began to wane. Then it nose-dived during and after the 2008 financial crisis as states struggled to balance budgets. With public investment on the decline, schools needed to make up for lost revenues, and so they turned to tuition increases. In Colorado, for example, at public institutions of higher education in the early 2000s, approximately two-thirds of the cost of educating a student was covered by public dollars, and one-third was covered by tuition. By the middle of the next decade, the share covered by public investment versus tuition had inverted.

Unsurprisingly, in order to enable students and families to cover the skyrocketing costs of tuition, institutions and the government encouraged students to take on debt. And, as the floodgates opened to debt-financing of higher education, the “customer base” for higher education became less sensitive to price and more demanding of product features—the difference between taking on $95,000 of debt and taking on $80,000 of debt started to seem less important. As long as they were taking on massive amounts of debt in any case, students were drawn to campuses that offered superior student experiences.

There is a tendency to vilify institutions themselves for tuition hikes, for exploding student debt, for the—often more apocryphal than real—rush to offer “luxury” dormitories and other amenities. But the schools were, for the most part, responding to market forces and to the changed political economy of the higher education landscape. We Americans collectively de facto privatized much of public higher education in this country over the course of a generation—and now we are outraged and appalled by predictable outcomes of that.

But it gets worse, and this is the second major shift: At precisely the moment that the price of higher education has pushed it out of reach of most Americans (without taking on mountains of debt), for the first time in our history, economists agree that the vast majority of Americans will need some kind of quality post-secondary credential or degree in order to have any shot at a middle-class life. The post-industrial digitization of our economy has ushered in a new skills age where there are fewer and fewer good jobs—jobs that afford a middle-class lifestyle and reasonable job security—available for those who don’t have some training or education beyond high school.

In other words, our subsidies were highest in the post-WWII era when higher education was available to mostly white and mostly middle- or upper middle-class Americans, and when a post-secondary degree was helpful but not a prerequisite for a middle-class life. Yet now that it has become required, we have slashed subsidies and prices have skyrocketed. No wonder today’s student generation feels screwed. They are being told that they need a post-secondary education to access the middle class, but that in order to get that education, they have to take on burdensome debt that will prevent or delay them from doing other things that we used to associate with being middle class—buying a house, starting a business, raising a family, and so on.

These two shifts act like the arms of a giant pincer that is crushing the future prospects of tens of millions of Americans. This is especially true for people of color. Because while the price of higher education has grown 250 percent in real terms in the last four decades, the wealth gap between white and non-white Americans has remained stubbornly persistent—and seems poised to grow even larger in the wake of the pandemic. The structural racism—including segregation, redlining, and discriminatory mass incarceration that contributed to a society where people of color are far less likely to have accumulated family wealth is perpetuated and reinforced by a system of higher education that is increasingly out of reach to those who don’t have such wealth.

Much of the business model of our current higher education system is oriented around a basic assumption that a post-secondary credential is principally a private interest of individuals (and their families), and that the student who receives the credential or degree is not just the primary but more or less the sole beneficiary of higher education.

This assumption is false. The same combination of globalization and technological advances that have made a post-secondary credential a pre-requisite for individuals have also made a well-educated populace a prerequisite for our nation’s competitiveness. We have a system that was built in a time when the United States could be a global power with only a minority of its workers receiving a post-secondary education. That’s not the world we live in today. It is, therefore, imperative that the United States figure out how to educate a greater percentage of our population if we are to confront the challenges of the twenty-first century.

The CARES Act Is Insufficient

Setting aside the many problems with the current system of higher education, it’s already clear that the $2 trillion “third package” of coronavirus stimulus (the CARES Act) will not be sufficient to preserve even the status quo. The CARES Act provided only approximately $15 billion for higher education institutions and students.

Despite massive disinvestment in public higher education in recent decades, public institutions of higher education remain heavily dependent on public funding. (Private institutions, both for-profit and non-profit, also remain dependent on federal grants and subsidies that enable their students to pay tuition.) Schools without endowments, large research operations, or large numbers of wealthier or foreign students who can afford to pay full tuition are most dependent on state-level funding. And they are also most likely to be those that serve historically underserved groups.

Coronavirus is going to devastate state budgets. And when state budgets take a hit, that hit is also echoed in many states by the decreased portion of money allocated to higher education. Here’s why: In most states, K-12 education, health care (Medicaid), and higher education represent the three largest lines in state budgets. Because of legal and policy constraints—including federal government requirements—spending on K-12 and health care cannot be substantially cut. As the large budget line without statutory or other protections, higher education ends up being the piggy bank in times of crisis. Yet when budgets increase again, higher ed rarely sees disproportionately high increases in exchange, creating a downward spiral that is exacerbated with each downturn. This is what happened across the country during the 2008 financial crisis and ensuing recession, and this is likely to happen again in the wake of coronavirus, absent intervention. And while one-time injections of funds may help plug budget holes in the near term, the new lower base of funding will leave shortfalls for years to come.

It’s too soon to know the exact toll that the pandemic and economic slowdown will have on state budgets, but early projections suggest that a 10 percent drop might be a conservative estimate. And, for the reasons outlined above, we can expect that a 10 percent drop in state budgets will translate to at least that magnitude of cut to state allocations for higher education. In addition, enrollment declines are likely, especially for schools with student populations that are largely dependent on service industry jobs to pay the bills while they’re in school.

Now, let’s account for the 1.1 million foreign students who were studying in the United States before the pandemic began. In the last 30 years, colleges and universities have moved aggressively to attract them because they often pay full tuition and can be used to subsidize domestic students for whom public funding is declining. Collectively, international students inject more than $10 billion per year directly into U.S. institutions of higher education. Next year, that number will plummet. Finally, think of all the canceled events, sporting income, dining hall and dormitory revenues, and so on—these dollars go straight to institutions’ bottom lines, and the new costs of ending in-person classes and helping students and faculty transition to online learning do too.

In the short term, there’s a risk that schools will shut down in a disorganized closure—and that some of the students who are currently enrolled in institutions that close will lose out on their progress toward a degree (but not their debt) because there will be no system to try to ensure they enroll elsewhere. In the medium term, there’s a near certainty that what happened in 2008-2013 will happen again: Public investment in higher education will decline, and tuition and student debt will rise as surviving schools try to make ends meet.

The Opportunity in Front of Us

For the last generation, our policy decisions have made higher education increasingly a private good rather than a public one in this country. For reasons of social justice, national security, and economic competitiveness, we should move dramatically toward treating higher education as a public good. Because it is.

Reshaping the political economy of higher education will be like turning a giant tanker ship, but the present calamity, and the destruction it will render, does offer an opportunity for us to “build back better” and align resources to the outcomes that we need to see. We need both more (and more accessible) post-secondary education and different models for it. Here are six ways to start.

First, we should have a clear national policy goal: Every American should have a high school diploma or equivalent, and every American should have some kind of high quality post-secondary training, credential, or degree. In order to count as “high quality,” it should prepare an individual for a good job, one that can be the foundation of a middle-class life. This goal should be repeated not just by the President, secretary of education, and governors, among others, but also by the secretaries of the Treasury, Commerce, State, and Defense. It should be included in our national security strategy. It should be a national priority.

Now, there will be some who say: “We don’t need everyone to go to college, we’ll be overeducated and underemployed.” Right now fewer than half of American adults have a college degree or some other post-secondary credential (two-year degrees, one-year certificates, apprenticeships). Within a decade, though, more than three quarters of jobs—and an even greater proportion of middle-class jobs—will require that level of attainment. Saying that we shouldn’t aspire to universal post-secondary training or education is like Henry Ford saying that he shouldn’t build a faster car because the speed limits everywhere are only 25 miles per hour. If we build a faster car, a stronger, more-educated and more-skilled America, we won’t stall out; we’ll raise the speed limits on our success.

Second, we need to change the calculus for prospective students and invest at a level that reflects an approach to higher education as a public good. In order to avoid some of the systemic inequalities associated with disparate funding for K-12 education, this investment should be made or directed at the federal level. Higher education can retain elements of a competitive marketplace, but we have to make it much more accessible and much less burdensome for those who access it, particularly first generation and low-income students. Pell Grants—the federal government’s primary subsidy for students—should be dramatically expanded in scope and size. And the application process should be streamlined—any means testing should happen at tax filing, rather than being a cumbersome burden on high school seniors and their families.

Today Pell Grants are limited to around $6,500 per year, and to get that amount families have to have a family income of often much less than $50,000. Meanwhile, the average in-state tuition at a four-year public college or university is more than $10,000. That’s absurd, and it leaves both low-income and middle-class families with an insufficiently compelling incentive to choose higher education. The Pell Grants limit should be raised to something like the average full-time tuition cost at public four-year institutions plus half of the federal poverty line for a single person. Today that would be approximately $15,000. And, in addition to being bigger, Pell Grants should be available to any student attending a public institution of higher education, and to students from families with incomes of less than $150,000 attending private institutions. (We let rich people go to public high schools without paying—it’s a public good!—and we should base public higher ed on a similar premise.) Basically, if you go to a public institution of higher education and maintain good standing, you should be able to count on your tuition being paid, and a small monthly subsidy to help pay for rent and groceries along with your part-time job.

Third, the government should catalyze a move away from debt-financing. Instead of overseeing and subsidizing loan programs, the government should move toward offering Income Sharing Agreements (ISAs) to make up the difference. An ISA commits the recipient of funds to pay back a share of future income, usually above a specified threshold and for a specified period of time, and potentially with caps. They have a number of advantages over loans. One is that if you’re not earning above the threshold—because you’re a first year math teacher or because you’re starting a business—you don’t pay, so they don’t dissuade graduates from taking risks or entering service professions like loans do. Another is that they can be progressive—the person who uses a computer science degree to go work for the Defense Department may end up paying back $25,000 for funds that were fronted for her degree. Her classmate who starts a company that goes public may end up paying much more. It’s not equal, but it’s fair—and it reflects the notion that we invest in people’s education with an eye toward productivity, and toward the idea of a public good, while knowing that some will see more direct personal monetary gain than others.

Fourth, incentives for institutions of higher education must be changed to prioritize the national goal of increasing attainment rates (which requires closing equity gaps). Right now, public universities are competing for a larger share of student tuition (and loan) dollars so that they can maintain their bottom lines. But as long as they can do that, they have little incentive to contribute to raising the overall attainment rate of our society. This makes them less likely to reach out to historically underserved groups, which is essential to raising overall attainment rates. Federal funding for higher ed should incentivize serving these students and should compel states to use their funding to do the same. This means limits on tuition increases for schools that receive significant government funding and shifting funding to reward those institutions that are working hardest to raise attainment rates.

Fifth, we need to diversify the options in the higher education marketplace. Post-secondary education is most often understood to mean college and community college, but there are other routes to train workers and equip them with the skills they need. We don’t need to increase just the number of people going through the traditional pipeline; we need to be innovative and flexible and expand the number of “pipes.” This means increasing apprenticeship programs and expanding the number of fields in which they are used to provide work-based learning. In addition, there are high-quality certificate programs in subjects like information technology that could be expanded. Traditional institutions of higher education should be encouraged to offer these “stackable” credentials and work-based learning opportunities, many of which allow those already in the labor market to upskill as necessary without taking a long “time out” from working. Only half of “college students” today are recent high school graduates continuing their education—the other half are adult learners returning to school or looking to upgrade their skills, and our system needs to serve them, too.

Sixth, there needs to be a major investment in data. We know that most people go to college because they believe it will help them get a job. But we don’t have very good data about how successful different institutions, programs, and degrees or certificates are at preparing students for success in the labor market. While accommodating reasonable concerns about privacy, we need to do much more to comprehensively track the success of programs so that students and families can make informed choices, and so that programs that aren’t working have incentives to improve and programs that are working have the opportunity to expand. Today, information gaps are contributing to the skills mismatch between American workers and employers’ needs. Integrated employer and education data could help institutions know what jobs local employers foresee hiring for so that they know how to prepare their students.

There is an opportunity to start now the transformation toward a system in which higher education is treated as a public good.

These changes are illustrative, not exhaustive or precise prescriptions. We will also have to change other things—for example, if we have a goal that every American gets a post-secondary credential or degree, we have to prepare all students for this next step in the K-12 system. And we have to invest resources and drive innovation in that system as well.

There is an opportunity to start now the transformation toward a system in which higher education is treated as a public good. First, we have to stem the bleeding by getting additional emergency aid to students and institutions to keep those who are already in school on track. Yet we also know that there are tens of millions of Americans who are newly unemployed. Some of them will go back to their old jobs when the economy begins to recover, but for others, employers will accelerate plans to phase out jobs that are vulnerable to automation. The coronavirus is going to move the “future of work” forward on the calendar of our economy. There are likely to be millions of Americans who remain unemployed this fall. They should be encouraged to go get the education and skills they need to get better jobs than the ones they lost, and we should make it economically attractive for them to do so.

The pandemic has loosened federal purse strings because it must. There is no way to help the country recover without massive amounts of spending, and if we spend too little now we will be stuck with much more painful and costly reality later. At a time when spending is relatively less constrained, it makes sense to assess whether we want to preserve the status quo or whether there are structural changes that could be made to our economy that would put us on a stronger footing going forward. This is a once in a generation opportunity to invest in change. It will help ease the recovery now and put us in a position of strength in the decades to come.

Read more about COVID-19Higher education

Daniel Baer is a senior fellow at the Carnegie Endowment for International Peace. He is a former executive director of the Colorado Department of Higher Education and U.S. Ambassador to the Organization for Security and Cooperation in Europe.

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