Raising children is in some ways like taking a long hike in the woods. Each stage of childhood is a different part of the forest and parenthood is nothing if not a forest for the trees experience. A parent can get so caught up in the minutiae of life – practices, appointments, homework, schedules – that he can miss the larger picture, see just how the forest has changed. This is especially when the children are clustered close enough in age that there’s no reason to revisit a section to assess its change since last trekked.
In the PracticalDad household however, there is an eight year span between Eldest – now a wife and mother – and Youngest, now a high school junior. This means that we have revisited multiple parts of the copse and are now trekking again through that part pertaining to life after high school, known as The Great College Search. Such a span and trek begs the question, how has this area changed in the intervening eight years? Where were we then and where are we now?
This is the first thing that comes to mind. Don’t worry, it will make sense.
Attending college was mostly a no-brainer when Eldest was a junior in 2011. After decades of economic growth and development, both business and academia pushed the concept that the United States was now a knowledge-based service economy. Millions of manufacturing jobs were lost to competition or simply outsourced overseas so we no longer made things as much as provided needed services to both the rest of the world and one another. Toss in data supporting the income differential between a high school and college, a liberal sprinkling of fairy dust about finding yourself and fulfilling your dreams and it was off to the races for the institution of Higher Education. College enrollment rose over the decades as a growing number of students rushed down the cattle chute for a degree and the demand curve took over: if you have relatively stable supply – and this one is stable because starting a college isn’t easy – then the uptick in demand shifts the price upwards. Et voila!
How much upwards? In the twenty year span prior to 2008, Eldest’s freshman year of high school, the cost of public tuition rose an average of 4.1% beyond the actual rate of inflation. Even after the Financial Crisis of 2008 and the subsequent Great Recession, the cost of public tuition rose 3.1% beyond the rate of inflation.
Students were prompted heavily to attend college – Mike Rowe of Dirty Jobs fame noted how his 1980’s guidance counselor actively demeaned trade school and promoted college – while a rip-current of economic factors undercut the students and their families themselves. Medical care was increasingly offloaded to the family via declining coverage and disproportionately rising medical costs. Retirement was likewise offloaded to the family as company pensions were increasingly eliminated in favor of employee savings programs. States began reducing budgetary funding for higher education as the conservative mantra of personal responsibility and fiscal prudence took hold. Remember those millions of manufacturing jobs? Yeah, about that… The replacement jobs in the new knowledge-based service economy were usually at a reduced wage with neither medical benefits nor pension. It sounds dry and academic in a single paragraph, but this grinding process has taken place over the course of decades.
Student debt by 2003 was approximately $250 billion and in less than 15 years had almost quintupled to $1.4 Trillion (Trillion deserves to be capitalized). One crucial change emerged from the combination of the rip-currents and the damage caused by the Great Recession: the burden of student debt shifted largely from the family unit to the student.
So, how have things changed between 2011 and 2019, the siblings’ respective junior years?
First, families and students are now asking is a traditional college degree even worth the cost?
I might disagree with Rush Limbaugh in many regards, but he is correct when he says that words have meaning. One of the responses of higher ed proponents to the disproportionate rise in tuition was to change the terminology. College was no longer a cost as much as it was an investment. Elders have commented that decades ago, the price tag for college was such that a middle-class family could pay for it in a relatively short time frame. In Accounting parlance, cost implies a short period of time. But at some undetermined point, the price tag rose sufficiently to shift it to a longer time frame for repayment and this changed the terminology from cost to investment and that word, investment, means a longer repayment period. The corollary was that the additional wages gained by the degree would outstrip that of the high school diploma but this ignored a simple reality cognizant to most good accountants: wages concentrate on the cash flow of the individual and this is inherently short term in nature.
If people want a future that includes the prospect of a meaningful retirement – actually a relatively new concept since our great-great-grandparents usually died in the traces – then they must be able to accrue sufficient assets to support them. That entails a long-term perspective. Given everything that has already been offloaded to the family, the addition of student debt to the budget makes asset accumulation much more difficult.
Consider this. The research arm of the St Louis Federal Bank studied available historical data to determine the wealth effect of a college or post-graduate degree versus a high school diploma from the 1930s to the 1980s. There was a much larger impact on the wealth accumulation of our great-grandparents in the 1930’s and 1940’s than for the grandparents and parents of the later decades as the rate of accumulation declined over the decades. And yes, there is a racial disparity between white and black graduates although the results for both races pale in comparison to their circa-1930’s elders.
The combination of factors – macroeconomic and debt – is leaving Millennials with a financial position far worse than their own parents at a similar age. The median net worth of a Millennial is now -$1900, a drop of $9000 from only 2013. This generation is like it’s predecessors in wanting to someday retire but they have to first climb out of a seven foot hole and even then, the value of the degree won’t propel them as much as it did with their parents, grandparents and great-grandparents.
You’re bothered that Millennials want socialism? Be happy that some wild-eyed, debt-laden lumbersexual doesn’t douse you with beard oil and set you alight.
Second, what demand giveth, demand taketh away.
The societal push to obtain a bachelor’s degree was the nitrous booster to the engine of increasing student population. When Eldest was a junior in 2011, there was still a rising number of students available for the pool of prospective applicants. That number had been increasing for the better part of 15 years as the high school graduation rate reached a peak of 83.2% before beginning to decline. Couple that with an actual fewer number of high school seniors and except for an anticipated bump in the mid-2020’s, high school graduates will reach a level in 2032 less than that in 2013, the year after Eldest’s graduation. The institution of Higher Ed has been hit twice. The first was that great disturbance in the Force during the first half of the decade when millions of students and parents simultaneously uttered What the…?! on realizing the extent of student debt. The second is simple math: there just aren’t enough bodies to continue filling seats.
How Higher Ed is responding is drawn from the textbooks of any Marketing 101 class and it has appeared in this household.
First, a marketing professor will tell you that the key is to find a way to distinguish yourself from the competition. In other words, develop a brand. There are some standout institutions with a Brand – Harvard, Stanford, Penn and Yale. But those are only four of literally thousands of colleges and universities nationwide and all of them need to fill seats. What I’d noticed between Eldest and Youngest was in the amount of contact that colleges were having with the kids. Eldest received her first mailer just before Thanksgiving of her freshman year in 2008 and over the ensuing two years, that volume increased almost exponentially until the attention span was exhausted, both for her and for us. The mail simply began to stack up and we honestly stopped paying attention. It was different for Youngest however. He got a mailer from the same university his freshman year – ‘sup Washington University? – and then…nothing. There was an occasional piece of mail but the absence of mail over the next two years was jarring. I commented about this to him a year ago and he responded that there wasn’t much in the mailbox but his email account had been swamped with college solicitations since freshman year. He was particularly irritated by the repetitive mails from several, who were akin to the insecure kids demanding approval.
There are two reasons for the shift. The first is mundane in that it’s just cheaper. Save money on the paper, the ink, the mailing costs that go into an effort with a minimal return. The second is emblematic of big technology today and consequently more worrisome: more institutions are data mining the youngsters. Some of what’s occurring is simply a greater effort by the admissions staffs to understand their successful students, in terms of graduation rates and self-described satisfaction. The consulting firm providing this service to Higher Education defends itself by saying that they are only gathering data obtained from students who respond to a link in an email they received or from personal information on the college sites that the students visited. But in doing this, they open their browsers to be mined for information both on what other school sites were visited, how often, and the sites visited prior to and after that digital college “visit”.
So cost isn’t the big reason here. In an effort to differentiate and gain competitive advantage, the colleges are taking a page from the corporate playbook. Apart from the sheer issue of data mining, this approach puts parents at a disadvantage. Most parents do not have a handle on their kids’ email account, let alone social media, and aren’t privy to what is being sent by colleges. If your teen is entering her junior year and you’re only now gearing up for The Great College Search, gird your loins for some hard discussion because a half dozen colleges have pitched tents in her head and two are probably whispering sweet nothings in her ear. But Daddy, they’re sooooo environmentally conscious…
They had damned well better be at $60000 annually.
The other lesson that comes from Marketing 101 is that when all else fails, you can differentiate yourself simply by cutting the price of your product. It isn’t widespread yet but more institutions – all private – are cutting tuition. They have found that they have neither the cachet nor the endowments of the brand universities and I suspect that they see the writing on the wall for the private colleges. Their response is to ride the curve early: who panics first, panics best. At a college visit to Rosemont College in suburban Philadelphia, we had the opportunity to talk with it’s president, who joined us at our lunch table. She was an alumnus who returned and had already led it’s transition from a Catholic liberal arts women’s college to a co-ed school when a marketing research survey found absolutely no interest among prospective students in a 90 mile radius of Philadelphia. Despite some improvement, they still found demand wanting so she had led the effort to cut their tuition by almost a third the year before. Since then, we’ve received other mailers from private colleges touting their tuition cuts. One local college took out a full digital highway billboard promoting to every passing trucker that it was cutting tuition by a third. They missed the irony that the lower tuition was still beyond the reach of the average trucker’s kid.
The demand curve affects state-supported public education as well. Their situation is different from the private colleges in that they are charged in their state charters to provide an affordable higher education for the residents of their states. They have been charged with holding the line on costs and have not succumbed to the Mongolian Grills and climbing walls that have hit the private colleges; that said, they have developed the athletic departments as economic ventures that leave the privates in the dust. Their bind is that despite the charters, they have to provide an education with modern facilities and declining state funding. How to manage? The admissions departments have started to monkey with the fine print of the charters, aka what the big print giveth, the little print taketh away. The charter requires that the in-state rates are lower for residents but it says nothing about how many residents have to compose the incoming class; the result is that state institutions are shifting the class composition to increase the tuition revenue. The result? A state’s poorest students are being squeezed out of their final options to obtain a degree.
Price competition isn’t as much of an option for the state institutions since they’ve already kept their rates much lower than many of the private colleges and universities. What other options are there short of begging the legislature for more?
Another marketing professor would recommend looking at the state’s system as an on-going concern and each individual university within that system as a separate product. Let’s use Pennsylvania as an example. The state university system is known as PASSHE (Pennsylvania’s State System of Higher Education) and is responsible for the overall administration of fourteen separate state universities; note that Penn State is not a member of PASSHE and is best thought of Schrodinger’s University since it’s a public university and yet, it’s not. The professor would assign a grad assistant to look at the entire portfolio of universities and suggest that the least profitable and economical be consolidated; it’s what auto manufacturers have done through the years and has led to the demise of such estimable brands as Oldsmobile and Pontiac. An Ag Science professor would simply refer to it as “culling the herd”. That’s the theory and unfortunately, that’s precisely what the Pennsylvania legislature did in 2017 when it contracted with the RAND Corporation to “review and assess” the health and feasibility of PASSHE. There were multiple options recommended but consolidation was one, at least the one, that grabbed everybody’s attention.
Can’t control the price? Cull the herd.
That’s where we’re at now. Both the Millennials and Higher Ed have reached their respective Wile E Coyote moments of going off of the cliff and the only difference between those moments is the distance that each has traveled since the plummet began. Millennials took the plunge years ago and are much closer to bottoming than Higher Ed, which is giving that pie-eyed stare as it recognizes its predicament. We’ll have to see where that’s at when their population bottoms in 2032.