“Recessions tend to increase the demand for higher education. There are fewer jobs and more unemployment, so higher education is an alternative to the labor market. Thus, when the labor market is soft, higher education becomes a relatively better opportunity.”

Larry Singell, an economist at the University of Oregon

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“The College Board is really driven by our mission to provide access and excellence. We have a clear vision of where we want to go, and we are well organized to get there. We have to be a positive force and keep the dream alive in these tough times.”

College Board President Gaston Caperton

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“At the heart of the educational organization are the teachers. … We owe a special thanks to those who work with our students every day. Everything comes back to those who teach in all schools and colleges, and the College Board must support them in every way possible.”

College Board Vice President James Montoya

Economist Explains What Recession Means
for Education

Larry Singell, an economist at the University of Oregon, delivered news about the current state of economics in higher education to the Western Regional Forum. He had the attention of everyone in the room. He said economists have long recognized that positive change is most often possible when times are bad — not when they are good. As President John F. Kennedy said in 1959, “The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for ‘danger’; the other for ‘opportunity’. In a crisis, be aware of the danger — but recognize the opportunity.” In other words, never waste a
good recession.
                    
Recessions increase the demand for higher education, because a soft labor market lowers its “opportunity cost.” But this varies across student groups. Low-income students, who are more likely than others to go to work after high school, receive a bigger push to go to college. Men, who are more likely than women to go directly to work, may opt to go to college and improve the
gender balance.

Recessions affect types of colleges and universities differently. Selective schools, such as flagship and elite private schools, tend to be recession-proof. Although having less money may keep lower-income students away, these schools can replace them with higher-income students. Less-selective schools, such as community colleges, also experience big enrollment gains, because they will attract many new, lower-income college entrants, as well as current students who are forced to find less-expensive alternatives. But schools in the middle struggle during a recession, because their students have limited means and the more financially able students may move to the more selective schools, replacing the lower-income students who can no longer
afford to attend.

Investing in higher education in difficult times makes good economic sense for the government. The opportunity cost of training our population is lower during a recession. Government allocations, such as from the stimulus bill, will not create jobs immediately, but they lay the groundwork for a future recovery. Elements of the stimulus package directed at low-income college students (e.g., $500 increase for the maximum Pell Grant award; $2,500 education tax credit; $200 million for the work-study program) help ensure that credit constraints do not prevent the poor from responding to their increased school-going incentives. But federal funds will likely accelerate existing state disinvestment in higher education, likely leading to substantial tuition increases that reduce access. Public institutions probably should not expect this funding to return when the economy turns around.

Other factors that help us predict how institutions within a given state will be affected by the recession include the type of state economy (manufacturing vs. oil); the type of tax system (sales, income or property tax); the college’s sources of income (state-financed, tuition-driven or endowments); ratio of in-state to out-of-state students; and geographic region.

Recessions can also affect K-12 students. High school dropout rates decline in recessions, because competing in the job market is less attractive. Lower-income or weaker academic students now have an incentive to stay in school. Schools experience recessions differently. State governments respond to recessions by lowering the mean expenditures per student and reducing the heterogeneity of expenditures across districts. Cuts at the bottom of the distribution are far more consequential than at the top of the distribution. Federal aid directed at lower-income students can have the unintended consequence of allowing states to maintain their expenditures for the more academically or financially able students. Federal programs can reduce the recessionary incentives for states to equalize.

While a recession can force us to part with sacred, long-standing practices, it also provides us with a golden opportunity to reach out to those we could never hope to when times are good.