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Brief #101

The Crisis In American Higher Education; College Enrollment; Student Debt; Student Loan Forgiveness

Rosalind Gottfried        

Economics

December 21, 2020

Policy

The pandemic has exacerbated troubling trends in higher education.  College enrollment fell by 11% from 2011-2019.  The rate of decline accelerated in the past year, with undergraduate enrollment falling by 3.6% from the previous year; that is two times the previous year’s rate.  The brunt of the decline has been sustained by Community Colleges where enrollment fell by 10%.  Community Colleges, public institutions with two year college degree and certificate programs, educate the largest group of college students in the country and service a disproportionately high percentage of low income students and students of color.  They also suffer the most underfunding, in higher education, as they don’t command as much public money as four year schools and they maintain low tuition as part of their mandate.

The high school class of 2020 demonstrated a 21.7% drop in college enrollment which was unevenly spread over the graduating class.  In high poverty high schools the drop was 32.6% while the drop was only 16.4% in low poverty schools.  The fear is that the class of 2021 will have similar data.  FAFSA (the federal application for student financial aid) applications are down 14% and some colleges, including the California State University system, have extended their admissions deadlines in the hope of gaining more applications.  During the pandemic, short certificate graduate programs and Masters Programs showed some increased enrollment, along with for profit schools.  Many for profit undergraduate programs spend a lot of money on advertising and they charge high tuition and generally show low graduation and employment rates.  These colleges are thought to be siphoning some of the potential pool of community college students, partially because of their advertising and also because they have a history of easy access and online learning.

Even when the effects of the pandemic are eliminated, demographic shifts in the population point to a decreased pool of eligible college students.  The portion of students graduating from high school will peak in 2025 and then face a period of sustained decline until 2037.  In response to lowered enrollments, many institutions have experienced layoffs and furloughs among staff and faculty.  Some schools have canceled sports, certain majors, and even whole departments.  Fifty universities have suspended enrollment in their doctoral programs.

The pandemic has many students questioning the efficacy of gaining a higher education, especially among low income students.  Many students are wary of paying tuition for online learning instead of  opting to join the workforce and make money, potentially saving it for future education opportunities.  Data show, however, that the longer an individual delays college attendance, the less likely they are to ever attend.  The most vulnerable students are first generation college students and they are disproportionately from low income and/or non-white households.  These students are also vulnerable to failing to complete degree programs and still owing payments on student loans, without the benefits of jobs requiring college degrees.

Student loan debt is at a record high of 1.6 trillion dollars.  Student loan debt is second to mortgage debt.  Forty five million people hold student loans.  Forty five percent of loan holders, benefitting from student loan forbearance in place until January 31st, say they fear they will be unable to make their subsequent payments.  The median loan payment is $222 and the average (mathematical) is $393, likely accounting for the small proportion of students with over 100K in debt.  Thirty percent of students graduate without any loan debt and 23% have less than $20,000 in debt.  These figures likely represent the students from affluent families or the small portion that gain full financial aid.  These figures highlight the likelihood that the low and moderate income students are the most likely to accrue debt and they are also the ones who are most likely to struggle to make payments.  If young adults are not saddled with student debt, they could buy houses, cars, start businesses and families—all things which have been delayed or eliminated.  It is estimated that loan forgiveness would boost the GDP by 108 billion dollars per year and add 1.5 million jobs.

Analysis

President elect Joe Biden has pledged to address the issue of student debt forgiveness.  Senators Warren and Schumer support eliminating up to $50,000 in student debt and that is one consideration.  A majority of Americans favor student loan forgiveness of up to $50,000.  Another possibility is that Biden will move quickly to forgive $10,000 in federal student loans per individual, through Executive Order which is possible under the current Higher education Act.  The senators also want to eliminate the tax liability on the loan forgiveness which is currently accrued by the small portion of students who have gained forgiveness under public programs.  Americans feel that tax breaks made for the very wealthy are unfair and “regular” Americans should also get a comparable break. Those tax breaks made under the Trump administration did not improve the economy though canceling debt for the lower income groups would boost the consumer power of that group.

The Biden administration is considering multiple fixes to the crisis in higher education.  In addition to forgiving debt, the proponents of reform suggest restructuring education funding and making four year public colleges tuition free.  The federal government will have to support higher education in new programs because tuition increases already have stretched family budgets.  In 1968, the ratio of college tuition to income was 1:30; today it is 1:5.  Incomes have stagnated or increased only minimally.  Many schools increased tuition during the Great Recession to compensate for slashed state budgets and cannot sustain viability without a federal infusion of funds.  The millennials are the first generation to be worse off than their parents and the bulk of this trend is seen among the most vulnerable groups, namely low income students and students of color.  Biden can help, though there is concern that if he invokes his power of Executive Order it will be contested in the courts, possibly up to the US Supreme Court, a worrying prospect.

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