Forecasting the US College Meltdown

Professionals in higher education may deny that a US College Meltdown is occurring, but that doesn't mean it's not here. Arguably, a few variables related to the phenomenon have improved since the economic downturn of 2008-2009, but that's not a return to a healthy situation. That's why I have written more than two dozen articles on corruption, dysfunction, and financial failures in American higher education to document the many facets of the meltdown.

When I speak of College Meltdown, I am referring to the slow-moving decline of US colleges and affiliated businesses, which includes the following variables: (1) increased student loan debt, (2) decreased gainful employment of those who matriculate, (3) declines in student returns on investment (ROI), (4) increased student loan non-repayments, (5) increased student defaults, (6) reduced college enrollment numbers, (7) declines in entrance standards, (8) reductions in college revenues and endowments at less than elite schools, (9) increased use of debt (bonds) to fund colleges, (10) reductions in instructional staff and instructional pay, particularly with the use of adjuncts, (11) increases in class size, (12) college program closing, (13) reduced student services (14) selling of institutional assets, (15) accreditation downgrades, (16) college consolidations, (17) institutional closings, and (18) reduced values and ratings of student loan asset-backed securities (SLABS) .

Total college revenues and expenses have continued to climb, to $342B and $314B in 2015. But the number of community colleges peaked in 2003-2004. And total enrollment at all postsecondary schools combined peaked in 2010-2011.   

These College Meltdown Variables are influenced by a variety of macroeconomic and social variables, including: (1) age demographics, particularly the numbers of college age individuals, (2) family size, (3) family wealth, (4) state and local allocations to higher education, (5) federal allocations to higher education, (6) employment participation, (7) median and quintile personal income of Millennials, (8) K-12 preparedness for college, and (9) immigration numbers.

Professionals have acknowledged certain troubling aspects of the meltdown, especially the student loan debt crisis, but additional components of this problem, which many fail to acknowledge, date back several decades.

Bain Capital ( Denneen & Dretler, 2012) and the New America Fund ( Selingo, et al, 2013) argue that colleges are spending beyond their means, using outmoded teaching methods, becoming less accessible to students and their families, and refusing to be accountable for student graduation and default rates and “gainful employment” numbers.

For me, the question is not whether a meltdown is here, but how quickly it is spreading, which type of schools are most vulnerable and what colleges are in the most immanent danger of failing.

According to Neal McCluskey of the Cato Institute, about 300 colleges closed in 2016. While most were for-profit colleges, many other private and public schools are performing poorly and downsizing.

At first glance, the most vulnerable schools are for-profit colleges, HBCUs, community colleges in cash strapped states, small private liberal arts and Christian colleges, tribal colleges, and public "dropout factories." Low enrollments and downgrades in accreditation are variables that suggest huge problems. But factors such as negative Return on Investment (ROI) should also elicit alarm bells.

In developing predictive models, analysts must consider the dynamic, somewhat unpredictable, and seemingly irrational nature of human behavior. For example, as more working class and middle class people recognize that college is a high risk investment for themselves and their families, a greater number should choose to opt out of school or delay college participation, choose community colleges for the first two years of schooling, or select other majors. But this may not always be the case.

Rational Choice Theory has limitations for understanding college choice. Theories of asymmetrical information, time discounting, and sunken investment, illustrate that people can make sub-optimal decisions about choices even as they gain knowledge.

College administrations can also change their behaviors to survive and thrive in a more competitive environment.