will they come?

Academic term will start soon here, just in time for football season.
Enrollment is high, due to demographic and economic factors, but, with the slowly developing funding crunch, will the students actually show up and register?

Enrollment in institutions of higher education, in the US, is very high right now, due primarily to demographics- the echo of the baby boom is passing through the lucrative 18-22 phase - but also because of higher participation rate and because times are hard.
It is rational for people to defer entering the job market and take on the direct and opportunity cost of going to university for a few years, if jobs are hard to come by or compensation is poor.
The gamble the student takes, on the margin, is that in a few years the job market will be better, and the costs of education will be offset by more and better paid opportunities.

But, this presumes the funding is there to go to university at all.
For a lot of students this is not a big deal, they have educational funds, parents with disposable income or savings, or get grants; but, for even more students this is a key issue - being able to go to a particular institution, or any higher education institution is a gamble requiring loans, work options during term time, or hard decisions by the family about disposable income disposition and debt.

So, if funding opportunities are squeezed, this has to affect the student population that actually shows up and pays tuition - and this number may be different from those who stated they intended to do so; both for new students, and for current students who find they crossed a line into unaffordability.
The people involved may enter the job market, competing in a tighter market, or go off the economic radar for a while, staying with parents or friends/partners.
Others will "substitute inferior goods" - they will go to a cheaper instution of higher education than they intended, not necessarily a worse one, but one that costs less and was not their stated preference.
We're probably talking single digit percentages, but that is still a lot of people and a significant hit on university budgets already being squeezed by lower funding from states and likely hit to endowments.

The potential impact is coming from all directions: consider, for example, Cal Grants, California's State based grant system for higher education. Cal Grants have two components, and the CA governor's current executive order eliminates the "competitive Cal Grant" for the upcoming year. Affecting 22,000 students, mostly poor students hoping to attend local community colleges or Cal States, as I understand it. That is about 2% of the higher education population, as I understand it.
Pennsylvania is also cutting, they chose to reduce each grant but keep up the numbers - of course with more students seeking to attend college even that doesn't keep the recipient fraction up.
More seriously, the PHEAA pulled out of the main Federal Family Education Loan Program, because of the crunch in the credit markets - student loans through governmental programs have capped interest rates and costs, and lenders are now highly risk averse and fear defaults, so the loans can not be marketed and the agencies that issue them don't actually have funds to make more loans.
Same in Massachusetts, where MEFA is suspending issuing loans to 40,000 students,
"The nonprofit lending authority, which last school year provided $510 million in loans, said it has been unable to secure funding to provide private student loans due to the ongoing turmoil in the nation's credit markets. The agency had already disclosed in April that it would no longer offer federally backed student loans.

It is now contacting the tens of thousands of students to whom it has made loans in the past, urging them to seek other options.

"As a result of our problems and the continued dislocation of the capital markets, we have been unable to raise funds for the coming academic year," said Thomas M. Graf, the authority's executive director.

The news surprised some of the authority's customers."
(btw you will want to click through and read this).
The feds are on this, and just revised and extended the Higher Education Act - hard to tell how much that helps right now.

No worries, there are other lenders, and university student aid offices are rapidly redirecting students to those...
BUT, private loans are more expensive, because they lack government assurance and they want a risk premium - correctly so, the perception is that with poor economic situation possibly prolonged, there will be more defaults.
This makes student loans more expensive, which makes the marginal decision to take them less worth while, the market works, demand shrinks.
That is fine, except the universities suddenly have fewer students.

BUT, it is even worse, because private lenders are reducing their exposure to student loans,
"Students with fair or even good credit records may have trouble getting private loans and less well-endowed colleges could see their budgets squeezed, the rating agency said."

partly because of the risk, and partly because the banks don't have the money - the US banks have taken serious losses and are illiquid and with the exception of "temporary" federal lending facilities, no one wants to lend money to US banks because of the risk of bank failure.
cf. Citibank cutting student loan division

Now, normally some of these cuts would be moderated by the boomer parents bringing more to the table - refinancing houses, drawing on home equity lines of credit etc - but those options are also being shut down by lenders on massive scales, because of the same perception of increased risk and the reality of poor liquidity on the lender side.

This is a slowly growing problem and it is going to hit a wall, at some point either the terms being offered to students for loans become marginally unacceptable, or the funding simply is not there at any price.

I worry that we are at that point and this will surprise us over the next few weeks, and that we will have an autumn of fewer students, less funding and the onset of a crisis.
Further, some of those who defer going to higher education never come back, and in aggregate it is a benefit to the long term health of the economy to have an educated workforce, particularly as the long term impacts of the boomer demographic bulge work through the system.

Could be in for interesting times.


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