Economic Crisis Ripples in and out of Higher Education

On Friday, the House passed and President Bush signed into law what was initially referred to as a “bail out” package. Later the descriptor of the plan was changed to “economic stability” or “rescue” plan.

The change in descriptor was met with laughter and derision across the blogosphere. And for the most part, despite what might actually be a proper nuance in language, an angry public saw the legislation as being designed to primarily help out Wall Street, with little, if any benefit for the working middle class.

However, to get a sense of how far-reaching and intricate the current crisis is, we turn our attention to the impact of the issue on higher education. In fact, the complexity of the economic issues and the interaction of those issues across several strata are likely best understood by taking a look at the impact on colleges and universities and their respective student populations.

The Crisis’ Impact on College Tuition
Reporting for the Boston Globe, Peter Schworm recently noted that the Wall Street turmoil is casting “a shadow over nearly all” of the financial operations within higher education. But its greatest impact is to likely make higher education, already unaffordable for many Americans, financially out of reach for an even greater number of students.

First, the current credit crunch combined with the recent stock market downturn has had an enormous impact on college endowment funds. The reduction in such funds will most certainly cause some schools to rethink potential construction projects and many others to begin considering possible hiring freezes.

At the very same time that endowments are taking an enormous hit, the overall impact of the economy on the public means that far fewer adults will offer up donations to schools during the traditional fund-raising period. The current economic challenges also mean that government subsidy of higher education will certainly not meet the cost of inflation. In fact, expectations are that such subsidies for public colleges and universities might actually decrease over the next few years.

Ultimately, the fact that fewer funds will be available to support higher education will in turn impact students directly. For the time being we will stay away from discussing the possible decreases in overall educational quality and number of course offerings to focus entirely on the financial impact for students.

First off, the decrease in endowments, gift-giving, and governmental support will most certainly mean that fewer funds will be available to offset the ongoing tuition increases that seem to be inevitably part of the college landscape. At the same time that college financial aid is likely to decrease, students will be in greater need of outside support in the form of loans.

With loans harder to secure, funding an individual’s higher education, already an extremely challenging endeavor, will move off the charts for some students. And for those lucky to secure such loans, interest rates will most certainly be significantly higher, a factor that will have students and their cash-strapped parents evaluating their situations more closely.

Collectively the impacts are likely to cause erosion in the number of students choosing to attend higher education. And in a never-ending cycle, fewer students means fewer funds to pay for programs, a factor that will seemingly only exacerbate tuition increases further.

The Return Ripple
That difficulty for students would also create a return ripple for the economy. Because, as Schworm notes, in the past colleges and universities have often been “a source of stability in hard times” for the economy as a whole. In the state of Massachusetts alone, Schworm points out that “independent colleges and universities pump $23 billion annually” into the state’s economy with the University of Massachusetts adding an estimated $4 billion by itself.

Yet, as unbelievable as it may sound, the financial mess could actually mean that some of America’s most venerable academic institutions could see the same sense of financial difficulties as some of the recent Wall Street giants. In his Globe piece, Schworm quotes Richard Vedder, director of the Center for College Affordability and Productivity in Washington, D.C., thus: “More people will say ‘It’s not worth the money and we can’t afford it. There’s going to be a drop in the number of people going to high-priced schools.”

There appears to be legitimate debate as to where the government could best invest money at this point. A number of pundits have noted that investment in construction, in our bridges, roads and rail infrastructure would be a good place to invest. It is within the construction industry that unemployment numbers are much higher than that of the general public.

Still others have noted that the sum of $700 billion would be more than enough to implement a governmental-based healthcare system for every American, a step that would have immediate impact for the average citizen.

Whatever the case, the intricacies and interconnectedness of our financial system represent an enormous challenge for our elected officials. An attempt to prop up Wall Street is not generally seen by the average American as a step towards helping individual citizens.

Yet, a simple review of the impact of our current economic doldrums on higher education reveals it simply is not possible to differentiate the two. While there appears to be legitimate debate as to how to best right our current economic ills, helping out Wall Street will in fact have an impact on the average American.

It certainly demonstrates why Congress felt a strong need to act.

Flickr.com photos courtesy of Epicharmus, Blurasis, and J Rogich.