Debate: Close Some U.S. Colleges, or Build More?
Colleges are both admired and reviled, though there is broad consensus that they are crucially important as vehicles for achieving personal and community prosperity. The costs, however, have become prohibitive, putting higher education out of reach for too many young adults without going deep into debt. Bloomberg View columnists Conor Sen and Noah Smith recently met online to discuss the status of America's college.
Noah Smith: Colleges serve three basic purposes. They educate young people, of course. Good universities also do research. And third, they anchor regional and local economies and have big multiplier effects.
We need more of all three of these things. Dying regions in the Midwest and elsewhere can be resuscitated by universities. R&D spending in the U.S. should be boosted. And the stubbornly high college wage premium implies that there’s still scope to boost productivity by increasing enrollment nationwide. Therefore I propose that we do the following:
No. 1. Spend more on research, and distribute the money more widely among universities.
No. 2. Expand enrollment at top universities.
No. 3. Build new universities -- perhaps branches of existing state schools -- in underserved areas.
Conor Sen: You make good points about the role that higher education plays in the economy, and the impact that higher-ed institutions have on local economies. The framework you laid out -- more students being educated and trained, more society-beneficial research being done, and more struggling communities getting revitalized -- sounds great if we could pull it off.
The problem is on the demand side. We’ve just completed a 20-year period where higher-ed enrollment had three structural forces working in its favor, but which are now reversing. We should be cautious about adding capacity at a time when demand may fall for years.
What happened during the period from the late 1990s through the mid-2010s? First, the millennial generation, which was much larger than the 1970s babies that came before it, went through its higher ed years.
Second, while the labor force participation rate for young people was falling, higher education participation was increasing. Part of this was structural – a continued shift from a goods-producing to a service-providing economy needs a better-educated workforce. And part of this was cyclical, as the terrible labor market following the 2008 great recession forced some young people to go to college who might not otherwise have in a stronger labor market. This helps explain why student loan growth was so high in the early part of this decade.
And third, globalization has been a boon for U.S. higher education. International student growth, particularly from China and India, have flooded into our colleges and universities.
All three trends are now questionable. With the millennial generation no longer applying to college, there’s no longer a demographic tailwind to higher ed enrollment. With the labor market stronger than it’s been since the late 1990s, and demographics suggesting it could remain tight, we could see labor force participation increase, and hence higher ed participation decrease. And third, the immigration situation in the U.S. is murky, to say the least, these days.
I’m skeptical that building more supply at a time when demand is falling is a good use of resources.
NS: I agree with you that we’re suffering a negative demand shock for college education. But that doesn’t mean that increasing supply is bad -- probably the opposite.
Think of it in terms of supply and demand for college. A negative demand shock, like the one we’re experiencing, will put downward pressure on tuition, and will also hurt college enrollment:
But now suppose we expand universities, or build new ones. That’s a positive supply shock. It drives tuition down even more, and should help regain some of the lost ground in terms of enrollment:
Both of those are good things! Driving tuition down is good, because it relieves pressure on working families. Pushing enrollment back up is good, because it increases human capital and makes the U.S. workforce more educated.
So I think that falling demand for college spots just makes it even more of a priority for us to increase supply.
CS: Won’t the first impact of falling demand be belt-tightening on the part of colleges looking to cut costs in order to offset lost revenue? Are we sure that higher ed is sustainable with a revenue model brought about by falling student demand and lower tuition revenues? After all, maybe it’s all the amenities and “excess” that students want and are willing to pay for. And won’t a slimmer higher ed model -- perhaps brought about by cutting research and other services not as impactful to the bottom line of the students they serve -- work against some of the goals you have for higher ed?
I’m also curious to know how universities would be able to attract faculty talent if their revenues are falling, and the tight labor market gives Ph.D.s, postdoctoral and graduate students more lucrative employment opportunities in the private sector.
NS: You’re absolutely right that downward pressure on tuition forces universities to tighten their belts. Some of that will come from reduced salaries of administrators, or from hiring fewer administrators. But as you say, some of it will result in less tuition money for research. This is where the government really needs to pick up the slack. A big part of college expansion will have to be increased research funding.
As for retaining talent, I doubt this will be a problem -- there’s a huge oversupply of Ph.D.s who want faculty jobs, so increasing the number of faculty jobs won’t make us run out of professors anytime soon. As for top talent, researchers who want to do deep pioneering basic research will always have to work in academia in order to do it, and the government can keep their labs well-funded.
One final piece of the puzzle has to be high-paying international students. Yes, President Donald Trump is trying to make it harder for smart foreigners to study here. But Trump is doing lots of bad things, and if we’re going to recommend good policy, we can’t always make our recommendations conform to what Trump would like.
CS: Maybe the synthesis here is cost-conscious colleges and universities spending their limited budgets satisfying student wants, whether they be amenities or teaching, with government leveraging the schools’ infrastructures to step up research funding that universities may be less able to fund in the future. And I agree that encouraging high-paying international students is a sensible way of subsidizing university operations, and brings wealthy and talented foreigners here to boot. That’s as close as a free lunch as you get in policy.
Overall, I’m skeptical that expanding capacity or building more institutions is the way to go here, but it sounds like we’re more in agreement on how universities should allocate limited resources and the highest-utility way governments can get involved here by paying for any research that universities can’t afford.
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