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2022-07-18T18:47:45+00:00July 22, 2020|

Recession & Higher Education: What the Current Economic Downturn Could Mean for Institutions

Economic ebbs and flows are simply a reality of life for both organizations and individuals. Every period of expansion inevitably ends, and this was apparent more than ever when COVID-19 spread across the United States. The country quickly went from enjoying one of the longest stretches of economic expansion in history to plummeting into a recession.

No industry is left completely untouched by an economic downturn, either. But that doesn’t mean every type of organization is affected in the same way. Consumers typically flee from some businesses, yet flock to others when it comes to their spending habits. Higher education, for instance, is one area that tends to attract more interest in these situations.

Of course, there’s much more to the story. The circumstances surrounding a given economic contraction can lead to drastically different outcomes. To better understand the interplay between the current recession and higher education both now and going forward, it’s important to start by revisiting the past.

Understanding the typical relationship between a recession and higher education

Most individuals are far more selective about their spending habits during recessions. While this means people eliminate or reduce costs in some areas, they also have a tendency to reallocate some of their funds. The many professionals who are thinking of furthering their studies likely view the costs associated with higher education as a wise investment. Granted, it may be easier to adopt this mindset with the knowledge it’s possible to avoid substantial expenses (i.e., repaying student loans) until they’ve completed their intended program.

The reason many people begin weighing a return to the classroom in the first place goes back to the toll an economic downturn takes on the workforce. During times of recession, people typically seek higher education as a way to gain new skills and improve their future job prospects. Research confirms this.

“Generally speaking, recessions lead to enrollment increases for many schools,” says Bob King, executive vice president of partner strategy at Collegis Education.

Higher education is generally a countercyclical industry to the economy. When more people are unemployed, in particular, there are more adult learners in school.

Bob King

Still, that surge in students only continues for so long. Even if the economy is still recovering, institutions can’t count on learners flocking to their programs forever. The Great Recession made this abundantly clear.

“The 2008 recession was notable because of how long it lasted,” King explains. “While it initially had a positive impact on enrollments, the length of the recession ended up leading to a significant decline as the economy stabilized.”

How the relationship between this recession and higher education could differ

Many of the market trends that emerged during spring occurred as a result of COVID-19. Surveys revealed that students became more likely to choose local institutions and many started thinking about deferring their enrollment if online education became the only option. For learners who want a residential experience, the idea of exclusively taking distance classes in the near term is unappealing.

“If school is online in the fall, there are going to be a lot of students taking a gap year,” predicts Brad Frank, chief marketing officer at Collegis Education.

But while these current attitudes certainly have implications for the next few semesters, they’re all tied directly to the pandemic. The recessionary effects are just beginning to unfold. That might seem unusual given the National Bureau of Economic Research determined the recession began in February, but it has to do with the specific nature of this economic downturn.

Comparing the post-COVID-19 period to the previous time of economic contraction reveals some stark differences. First, consider that the unemployment rate peaked at 10 percent during the Great Recession. But 2020 saw that number reach 14.7 percent by April — and the U.S. Bureau of Labor Statistics has already acknowledged that, due to a classification error, the true unemployment rate was likely closer to 19.7 percent during that time.

The other key difference as it relates to unemployment is the time it took to reach those peaks. The Great Recession, which began in December 2007, reached the highest jobless level nearly two years later in October 2009. The post-COVID-19 recession made that progression in mere months.

While these differences seem to indicate that there would be an influx of people interested in pursuing higher education, that hasn’t really been the case yet. One of the primary reasons behind this unusual situation is government assistance. When workers were furloughed or laid off, they were able to obtain regular unemployment checks for a number of months. But those payments have a shelf life, which could mean big changes in the coming months and years.

“I think we’re still going to level out at an unemployment rate that’s higher than the previous recession’s peak,” Frank forecasts. “The government has muted the recessionary impact, but at some point, that’s going to go away.”

The other unique difference about the post-COVID-19 era is who has been impacted by unemployment. In most economic downturns, enrollments typically increase at the bachelor’s and master’s levels. Faced with a lack of good employment prospects, workers advance their education to gain additional skills and knowledge that can help them stand out from the competition. But COVID-19 has disproportionately affected low-income workers who often have lower levels of educational attainment.

Because of who’s being affected by the unemployment trend, I think we’ll see a greater impact on the certificate and associate level degrees.

Brad Frank

It’s also important to consider that the pandemic seems to have sparked even greater demand for technology solutions. It’s unlikely that will change any time soon, and institutions will need to adapt to remain relevant.

“We will see changes in the prevalence of online learning, the application of technology in the classroom and the way schools engage with their students,” King hypothesizes.

Lastly, it’s worth recognizing that institutions may find themselves in an increasingly difficult financial position over the coming years even in the face of impending enrollment growth. Following the Great Recession, colleges and universities took a significant financial hit as they received less funding from local governments and fewer donations. Raising tuition rates was the only option for most institutions. But as students and their families face an increasingly uncertain financial future, that strategy is unlikely to prove effective in the future.

Adopt a forward-thinking strategy

A clear pattern has emerged over the years: the economy eventually heads toward a recession and higher education moves into growth mode. There’s reason to believe that history will repeat itself this time, at least in some respects. But rather than relaxing and expecting students to fill seats, colleges should consider how the post-COVID-19 recession differs from previous ones to start preparing for what lies ahead.

One change we can expect is that hybrid learning will become more common. It may even become the go-to modality in the coming years. For more insight as to why this will likely prove true, visit our article, “The Future of Residential Classes Is Hybrid Learning.”

Our experts can help you develop a strategic plan to weather the storm ahead.

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