Business is booming.

US education: soaring costs will curb recessionary admissions surge

Colleges have traditionally acted as economic shock absorbers in the US. When the economy stalls — or is about to stall — demand for higher education goes up. Adult workers return to school to improve their job prospects. Young people stay in class in the hope their graduation will coincide with renewed economic growth.

Past downturns suggest as much. During the Great Recession, the number of students enrolled in colleges jumped by 2.9mn, or nearly 16 per cent. It went from 18.7mn students in the autumn of 2007 to a peak of 21.6mn in the fall of 2010, according to the National Center for Education Statistics.

As talks grow of another recession, the layperson might assume that another admissions boom awaits. Do not bet on it, though.

College enrolments have been in steady retreat since 2010. They took a nosedive during the pandemic. Between the autumn of 2019 and 2021, nearly 1mn fewer students enrolled in colleges, data from the National Student Clearinghouse Research Center show.

Bar chart showing Number of students attending post-secondary institutions (mn)

Some of the drop can be blamed on the pandemic. Students chose to postpone their studies as classes migrated online. But the fact that enrolment has not rebounded even after Covid-19 restrictions were lifted suggests a fundamental shift in attitudes towards the value of a college degree.

For good reason. The cost of a college education has ballooned exponentially since 2010. And with it, so has the level of student debt.

More than 43mn borrowers collectively owe about $1.6tn in federal student loans. Throw in private loans, and total student debt stood at $1.76tn at the end of March 2022. That is more than twice the $760bn recorded in 2010. Meanwhile the average federal student loan debt has doubled to more than $36,000 since 2007.

Line chart showing US student loan debt ($tn)

The problem has become a hot political issue ahead of the midterm elections in November. The Biden administration is considering some form of student loan forgiveness.

High levels of student debt affect the debtor’s ability to accumulate wealth, resulting in a declining college wealth premium. Indeed, the earnings premium between college and high school graduates has been shrinking since 2013.

Falling college enrolment is not necessarily a bad thing. Increased government-subsidised student lending has allowed colleges to make higher education more expensive. This is not sustainable. Higher education is long due for a shakeout.

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