The Growing Crisis of Confidence in U.S. Higher Education

I have written previously, here and here, about the ongoing contraction in higher education and the growing risk to what amounts to a majority of all private colleges in the U.S. While demographics explain the lion’s share of the decrease in enrollments (and thus revenue) over the last seven years, there is another, equally problematic phenomenon that higher education ignores at its own peril: the decreasing confidence that Americans in general have in the value of higher education. Recent surveys by Gallup found that this “crisis in confidence” is worsening, with less than half of American adults now having “a great deal” or “a lot of” confidence in higher education. While private institutions face a more grave existential crisis than do public institutions due to the differing financial models and political support, the crisis in confidence extends to all of higher education. In fact, many Americans no longer see college as the path to a better life, and in many cases, see it as an actual barrier to a better life due to crippling debt.

Attending college or university has always represented a major investment of time and money, but over the last 25 years, the decrease in public funding and the increase in tuition, has created a situation in which Americans are now, for the first time, broadly questioning the value proposition of a college degree. In just the last ten years, the cost of attending a four-year college in the U.S. has increased by nearly 30%. Until recently, students and their families were willing to borrow money to pay the increasing costs—to the tune of approximately $1.5 trillion dollars in outstanding student loan debt. However, it appears that the appetite for borrowing has waned as the value proposition of tens of thousands of dollars in debt (the U.S. average is about $30,000 per student, with about one in five borrowers owing over $100,000) becomes much less compelling. As a result, the average “discount rate” for tuition in private colleges now hovers around 50% with many institutions exceeding 60%. What this means is that in order to get students to enroll (and a decreasing number at that) institutions are actually charging only half of the published tuition rate. This is one of the primary reasons that not for profit private colleges are closing at a rate of about one every two weeks. The financial model is simply unsustainable.

If we evaluate the value of a college degree across the entire population, graduates are generally still better off with a four year degree than without one, on average, earning up to $1 million dollars more over a lifetime than those with only a high school diploma. However, even with that increased earning power, the average graduate who does pay off his or her loans, takes over two decades to do so and defers everything from marriage to home ownership in the interim. The reality is that half of all borrowers today are making interest-only payments, and thus see zero progress toward paying their loans off. Moreover, research conducted by the University of South Carolina found that the student debt itself correlated with increased stress and related health problems, which contributes to the growing negative connotations associated with higher education.

The current oversupply of higher education in the face of continuing declines in enrollment is exacerbated by historically low unemployment and deep concerns about the value proposition of a university education in the first place. There is no question that the contraction will continue and that public institutions will downsize and merge and private (both for profit and not for profit) institutions will close. The question is how deep and sustained will the contraction be?

So, what should institutions of higher education (IHEs) do?

One bit of good news that recent Gallup research of graduates shows, is that there is an inverse relationship between the size of their student debt and the degree to which they believe their education was “worth it” (the higher the debt, the lower the satisfaction and vice versa). Why is that good news? Because the simplest and most effective thing colleges and universities can do to improve the perceived value proposition is to graduate students with lower debt. Relatedly, the research also determined that the issue is not just about money. It’s the value. Even high debt graduates are still likely to believe the cost (and debt) was worth it if they believe they had a high quality educational experience, which led to good employment. For the half or more of all students who don’t graduate at all, the outcome is usually quite grim, but that is another issue…

There are two critical lessons here for institutions of higher education. One is that student debt overall must come down if colleges and universities hope to overcome the increasingly negative views of higher education, and two, whatever debt students do incur must be “worth it” relative to the quality of their educational experience and the quality of their employment prospects upon graduation. The “between the lines” message here is that there is a very limited number of students overall for whom high cost on the front end with poor employment and income opportunities on the back end is viable. In other words, the notion of $30,000 or $50,000 to $100,000 or more in debt for a degree that leads to low pay or no gainful employment (social work, teaching, art history, photography, etc.) is very close to the end of its viability in higher education. To be clear, the career fields are not the problem per se. The problem is high cost degrees for low wage employment—the ROI simply doesn’t work for students in these cases.

Obviously, many colleges and universities will survive because, in addition to addressing student debt, they will make a host of decisions about innovation, partnerships, alternative revenue streams, value proposition, expense models, etc. However, with the exception of a minority of institutions (think elite flagship state universities and highly selective private colleges) the survivors and thrivers in the remaining 80% or so of IHEs, will make it because they change the way they operate. Even then, supply will shrink, but the institutions that survive will be much more innovative, customer-centric, and financially viable–and students will have the confidence in the return on investment to enroll.

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