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Do Softening College Enrollment Rates Reflect a Falling ROI in Educational Attainment?

Recessions have a way of generating some unintentional positive outcomes. Take the case of educational attainment. Conventional wisdom is that during the Great Recession of 2008-9, as the job market became much more challenging amidst millions of layoffs and massive cutbacks in hiring, a surge of young people flocked to universities as a multi-year escape hatch from the economic downturn. This allowed for a more productive use of their time via investment in education, and provided a vehicle to enhance their competitiveness in the labor market once an economic recovery ensued.

Prior to the financial crisis, the long-term trend of rising college enrollment rates was seen as a positive sign for US economic prospects. The surge during the Great Recession added to those gains, despite a continuing surge in the cost of a college degree. But along with rising enrollment rates and costs came the unwelcome side effect of surging student debt loans. A rising share of those loans was going unpaid as the degrees attained by many of the more recent college enrollees failed to provide entry to careers that generated enough income to launch graduates into economic independence.

Sure enough, a few short years after an economic recovery had gotten underway, the rise in college enrollment rates has lost momentum, bringing up a new question:

Is college worth it?

While the income premium of a college degree vs a high school only education remains large, the combination of 1) heavy education debt balances, 2) the surging costs of rents and house prices, and 3) an unusually high share of under-utilized college degrees slowed the usual transition of college graduates into household formation. That left a lot of Millennials out of the loop of increasing household net worth via home ownership.

If college enrollment rates are now falling, are all young people implicitly calculating a falling return on investment in education and looking for other options? Or is that top level picture an oversimplification of a more complex reality?

When viewed on an aggregate basis, rising college enrollment rates have been a long-standing positive trend for the US. Much of that rise historically was caused by the increasing attendance of women, who, in the decades prior to the 1960s, were effectively shut out of higher education and pushed into more traditional economic roles, largely as homemakers. As women became more active in the workforce, the return on additional education investment increased in tandem with the expansion of earning opportunities. This in turn helped boost overall college enrollment rates, and ultimately pushed up educational attainment rates as well.

But after that sustained rise, college enrollment rates peaked in 2011, and have mostly moved sideways since. Is the high and rapidly rising cost of college finally starting to make college look like a bad investment, and deterring young people from enrolling?

Let's dig in to the details...

The two primary top level trends in college enrollment are those of all persons age 18 to 24, and those of age 16-24 that have completed high school.

For the population age 18-24 overall, enrollment rates (for both 2-year and 4-year colleges combined) grew at a faster rate from 2006 through 2009 as the job market wilted, but leveled off afterwards. While in theory, a decline in the high school graduation rate could weaken college enrollment rates, that was not the cause, as graduation rates continued to rise through the last decade. This trend has been consistent for both men and women.

Digging deeper, we start to see what was really happening in recent years to make it appear that college enrollment rates were weakening. Breaking out 2-year vs 4-year colleges shows the impact of the last recession. Late in the business cycle when labor supply dwindles, relatively easy employment prospects make college less appealing, and 4-year degree programs see lower enrollment rates. But once the job market slumps in recession, enrollment picks up, and continues to rise thereafter. Additionally, 2-year programs see a sharp increase in enrollment rates during times of economic distress, but once recovery is under way, those rates revert toward their historical average.

Looking at the enrollment rates for high school completers, we see a similar trend of steady increases through 2009, after which enrollment rates flattened out.

But that apparent weakness was also the product of lower enrollment rates in 2 year colleges.

Part of that downturn was better job opportunities, but another important part was the scaling back of expectations about the return on investment for students enrolling in private for-profit education. The shake out of that industry, and the shuttering of the some of the worst offenders that heavily indebted students while providing substandard degrees, is a big factor in the declining 2-year college enrollment rate after 2012. A painful lesson was learned by many, and a resurgence in that career pathway looks unlikely, even amidst the current recession.

So can we signal the "all clear" and put our worries about weaker return on investment in education behind us, putting the blame on trends in 2-year colleges? Or will focusing on the underlying components of enrollment rates make the picture look less sanguine?

Who exactly are the people that are more likely to be enrolling? Is it a widespread phenomenon, or particular demographic groups?

Turns out, once we dig into the components of enrollment rates by gender and ethnicity, it's a more nuanced story.

For high school completers, enrollment rates in 4-year college programs show a substantial difference between men and women. Women first overtook men in enrollment rates around 1990, and have never looked back. The gap is now widening as progress for males has stalled in the last decade.

Enrollment rates for 2-year colleges show little variation by gender; rates for both men and women have trended lower since 2012.

The underlying trends by ethnicity and type of institution also show substantial variation. In fact, what looked like a big rise in 4-year college enrollment obscured significant weakness in educational attainment over the last decade. When viewed by race and ethnicity, the main factor in rising enrollment rates was the steady surge in enrollment by Hispanics, whose college enrollment rates have more than doubled since 1990 and are now on par with African-Americans and closing in on White enrollment rates. Meanwhile, since 2009, rates for all other ethnicities have made no progress or drifted lower.

While cross tabs of the data by race, gender and 2/4 year college are not available, the number we do have show that it is a major simplification to generalize about trends in enrollment. Developments over the past decade have broken the long term trend visible in every demographic break described above, and enrollment rates going forward must be viewed at a more granular level.

With a new recession under way, which has disproportionately affected people of color, it's not clear what direction enrollment rates will head, especially given that the new realities of college life are vastly different than prior experiences, but which so far are just as costly. That points to a potential for an even further devaluation of the return on educational investment.

A recent article in the Washington Post confirms the worries that college enrollment amidst a pandemic has fallen further. Enrollment rates this year have fallen across all ethnicities, but relatively less so for Hispanics.

Where we go from here in the short-term will be defined largely by the duration of the pandemic, but when we finally do return to a more normalized economic environment, along with a less dangerous public health environment, the lingering issues that are thwarting further rises in enrollment rates will need to be addressed.

As the recession tamps down incomes, college is becoming even less affordable, and this will potentially further depress the perceived ROI of a college education. Compounding this problem is the high likelihood of rising tuition at public universities, as massive state budget deficits are forced back into balance via tax hikes, spending cuts, and rising fees, particularly for education. A more challenging labor market, meanwhile, cuts into the potential income premium of attaining a degree.

Current policy deliberations regarding college debt forgiveness point to one potential avenue of improvement, but existing programs have done little to improve the situation for debt-laden grads. Without substantial bailouts for state budgets, the short-term outlook for college costs only worsens.

The lingering bright spots in recent US college enrollment trends are dimming, and without a more concerted effort to remove the roadblocks to educational attainment, a long-term strength for the US outlook is at risk. A persistent downturn in enrollment rates would make for an even more challenging long-term economic outlook, as weaker educational attainment slows productivity growth.



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