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America's great college boom is winding down

Enrolment at four-year for-profit colleges is in free fall, dropping 13.7 per cent from fall 2014 to fall 2015

Noah Smith

The for-profit college industry is collapsing. The Chronicle of Higher Education reports that during the past five years, more than 1,200 college campuses have been closed — an average of about 20 every month. Of those that shut, 88 per cent were for-profit, and their students amounted to 85 per cent of those affected by the closures.

Enrolment at four-year for-profit colleges is in free fall, dropping 13.7 per cent from fall 2014 to fall 2015, 14.5 per cent the following year, and 7.1 per cent the year after that.

Perhaps the only surprising thing was that it took this long. For-profit colleges have long been plagued by poor performance — a 2012 study by economists Kevin Lang and Russell Weinstein found no earnings premium from attending a for-profit university. Follow-up studies yielded similar results. But the price tag for these colleges was high, and students were encouraged to take out lots of loans to pay it. The inevitable result was a generation of for-profit college students with poor employment prospects and a mountain of debt. 

Meanwhile, a whiff of dubious marketing hung about the industry, with DeVry University being forced to pay a $100 million settlement for misleading prospective students about the economic benefits of attending.

The winnowing of the for-profit college industry shows that although it can take years for poor quality and high prices to reduce demand in the education sector, eventually it does happen. Fortunately, for-profits only account for a relatively small slice of undergraduate education — perhaps about a tenth. The more important question is whether the carnage among for-profits is a harbinger of similar declines for nonprofit and public colleges.

Enrolment at four-year public and nonprofit colleges has remained essentially unchanged during the past two years. And college enrolment rates overall — which includes the big decline in for-profits and a smaller decline in two-year public schools — are essentially constant since 2005. But this conceals some potentially important underlying trends. Hispanic enrolment rates are up since 2010, but white and black enrolment rates have dropped a bit.

Meanwhile, tuition may now be falling at four-year public and nonprofit universities — another potential sign of weakening demand.

If demand for college were weakening, this is probably how it would manifest itself. The number of spots at good schools is rationed by the application process — these schools limit their enrolment in order to maintain their prestige. So falling demand would reduce prices for these colleges, but not the number of people attending. Meanwhile, enrolment would fall at institutions that were less in demand, such as for-profits and two-year colleges.

Why might demand for college be weakening? One reason is that there are simply fewer young people in the country these days.

The reversal of Mexican immigration probably has something to do with that. Meanwhile, falling fertility rates will do even more to thin out the ranks of the young in the decades to come. US universities could make up the difference by allowing in more international students, but President Donald Trump’s anti-immigration policies and attitudes have made that difficult; enrolment from overseas is now in decline.

The strengthening labour market might also be pulling a few young Americans away from college, though so far that trend seems to be very slight.

Another possible factor is that prospective college students may be learning to distinguish between the economic opportunities afforded by various college majors. Overall, the earnings premium for a bachelor’s degree has remained constant or continued to rise, depending on how it’s measured. But those overall numbers conceal large differences by field of study.

This may be why college students are avoiding humanities majors. But it could also mean that some prospective college students who don’t want to major in fields like science, technology, engineering, math, health or business might avoid college entirely, or be unwilling to attend more expensive schools.

Whatever the reason, if the decline in demand for college continues, it could be bad for many regions of the US. For more prestigious universities, falling undergraduate applications need not crush their plans for expansion. Most of the local economic benefit of a university comes from research, not from education. But a number of small towns owe their economic health to modest local colleges whose main activity is teaching; if these shrink or disappear due to falling college demand, the trend of local economic decline could accelerate.

Government programs to make college more affordable for lower-income Americans can help prop up enrolment in these vulnerable areas. But universities also need to help by cutting costs. Addressing administrative bloat and other sources of inefficiency will allow public and nonprofit colleges to make enrolment a more attractive proposition.

©Bloomberg