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Higher education generally runs countercyclical to the economy. When a recession hits, college enrollments tend to rise as displaced workers return to school to improve their job prospects. At the same time, tuition often increases as colleges try to offset reductions in state funding, while federal student aid may also increase to help students afford higher tuition costs.
As a prospective student, understanding the complex financial impact of recessions on higher education can help you make better decisions for you and your future.
Key Takeaways
- Economic recessions historically lead to increased college enrollment due to job market challenges.
- State funding cuts during recessions often result in higher tuition and fees at public institutions.
- Changes in financial aid, including student loans, during economic downturns can significantly impact student enrollment decisions.
Historical Context of Recessions and Higher Education
After a recession, state funding for higher education typically drops. It fell by 12% after the 1990 recession, 15% after the 2001 recession, and 25% after the Great Recession. Most institutions pass these funding gaps onto students through tuition hikes.
Another way colleges respond to funding cuts is by spending less on faculty. After the Great Recession, for instance, public institutions retained and hired fewer faculty in proportion to the number of students. Colleges also relied more heavily on part-time faculty, who earn significantly less than their full-time counterparts and typically don’t receive benefits.
Impact on College Enrollment
Of course, recessions also affect student enrollment. While you might expect enrollment to fall due to higher unemployment and tuition costs, studies show that in the four decades from 1970 to 2009, enrollment wasn’t impacted by recessions. In fact, after the Great Recession, enrollment actually jumped. By 2010–11, enrollment levels were 33% higher than in 2006.
Interestingly, most of the year-over-year (YOY) increase in college enrollment between the fall of 2007 and 2010 was driven by older adults rather than recent high school graduates, suggesting much of the spike was from displaced workers trying to improve their job prospects. This aligns with research showing that reduced work hours and difficulty paying rent or repaying a mortgage increased the likelihood of returning to school.
How did those struggling financially afford college amid rising tuition costs during the recession? Many opted to attend less expensive two-year colleges, which accounted for a large portion of the jump in enrollment. Furthermore, federal student aid rose to unprecedented levels.
For example, total Pell Grant expenditures doubled from $15.9 billion in 2007–08 to $31.5 billion in 2009–10 and then rose to $37 billion in 2010–11. Meanwhile, Congress raised federal student loan limits and passed the Ensuring Continued Access to Student Loans Act, allowing the United States government to buy loans from private lenders to keep student aid flowing. As a result, federal loans jumped from $74.6 billion in 2007–08 to $110.4 billion by 2010–11.
Fast Fact
Unlike federal student loans, their private counterparts typically aren’t based on financial need, have higher interest rates and borrowing limits, and less flexible repayment options.
The 2020 recession was a unique case. College enrollment dropped as schools shut down to curb the spread of COVID-19. Though many classes later resumed online or in-person with strict social distancing measures, these changes made college less appealing for many students.
The Bottom Line
Recessions can reshape the cost and accessibility of college, but with strategic planning, you can adapt and make informed decisions about your education and career. By understanding historic patterns, you can prepare accordingly for an economic downturn.
