Thursday, August 21, 2008

The Middle Class Just Blinked

The back-to-school season is losing its luster. The traditional college student population is shrinking, according to the Census Bureau--an unexpected development that may be a harbinger of worse times to come for the higher education industry. The number of full-time students attending four-year colleges fell by 337,000 between 2005 and 2006 (the latest data available). This 4 percent decline, to 7.7 million, is unprecedented and occurred although the number of high school graduates is at a record high. The decline also defied projections by the National Center for Education Statistics, which had forecast a rise in full-time enrollment at four-year schools to 8.2 million.

The drop in traditional college enrollment is a sign that the increasingly strapped middle class has reached the tipping point. According to Pew Research Center, 79 percent of Americans say it is harder than it was five years ago for the middle class to maintain its standard of living. That is putting it mildly. Staring down depreciating houses, gas guzzling cars, rising food prices, stagnant wages, unaffordable health insurance, tightening credit standards, and spiraling college costs, the middle class just blinked. It can no longer afford to keep up appearances--even for the sake of the kids. You know families are in crisis when parents are forced to cut back on their investment in their children. The downturn in full-time college enrollment marks the beginning of a new era for the middle class as it reevaluates the costs and benefits of the traditional college experience.

It's about time. For decades, the nation's 2,600 four-year colleges have brazenly raised prices much faster than the cost of living and still had students knocking down their doors. The college experience became yet another bubble market. The question was not whether the kids would go to college, but which college they would go to. College brands were as much of a status symbol as a Lexus in the driveway. In the competitive frenzy to get their children into the best school at any cost, parents ceased to consider the fundamentals. This explains why the cost of a college education could double between 1976 and 2006 while median family income grew by only 16 percent, after adjusting for inflation. It also explains why two-thirds of bachelor's degree recipients graduate with debt. The biggest increase in debt has occurred among students from the middle class, according to the National Center for Education Statistics.

With the economy teetering on recession, credit tightening, and housing values falling, the cost of the traditional college experience now far exceeds what the middle class can afford. The bubble has burst. To be sure, millions of young adults still yearn for the traditional college experience and are scrambling to pay the bills. Applications for federal student aid were up 17 percent through the first six months of this year, according to U.S. News & World Report. But many will be disappointed with the increasingly meager federal handouts. Four-year colleges have become so expensive that the maximum Pell grant covers only 32 percent of the average price of a public school--down from 52 percent two decades ago, according to the College Board.

The American middle class is rearranging its priorities. This may be bad news for overpriced four-year schools. But it is not necessarily bad news for financially savvy families, who have boosted the number of full-time students at two-year colleges to an all-time high.

1 comment:

Frank Goodman said...

These unexpected results are curious. Your arguement about the financial condition of households is not consistant with the Federal Reserve's survey of household financial conditions (or your own previous observations re: PSE.) Are there other possible causes? Is it possible that taking a year off before college has taken hold among to 10% households?