Reversing decline in college enrollment hinges on labor market, says Baker Institute expert

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HOUSTON – (Aug. 8, 2022) – Undergraduate college enrollment has declined since 2020, especially among institutions that serve low- to moderate-income students. Will that trend continue?

When and if enrollment levels rebound depends mainly on the strength of the labor market, which hinges on the economy’s response to Federal Reserve interest rate hikes designed to combat inflation, argues Joyce Beebe, fellow in public finance at Rice University’s Baker Institute for Public Policy, in a recent blog post.

Undergraduate enrollment declined by 4.7% between spring 2021 and spring 2022, with most of the drop coming at community colleges and public four-year colleges. Compared to student enrollment before the COVID-19 pandemic, the total student body in spring 2022 had 1.4 million fewer students than it did before 2020, representing a 9.4% decrease.

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“What is more alarming is the divergent enrollment patterns across different types of higher education institutions,” Beebe wrote. “Selective flagship public universities and private not-for-profit colleges have continued to attract a record number of applicants, despite the pandemic and the hot job market.”

According to the Beebe, the current job market offers young people unprecedented opportunities — both in experience and wages — and they are in the “right place at the right time” to take advantage.

“It is not surprising that some prospective students stay out of school when the economy is good and the job market is strong, because the opportunity costs are high for them — meaning that they would be giving up good wages to attend school,” she wrote. “However, the real question is how these young workers will fare once the Fed successfully achieves its goal (and it will) — at best, executing a soft landing, and at worst, causing a recession.”

Beebe said potentially college-bound people who choose wages now over future post-college earnings should beware not to “step over a dollar to pick up a dime.”

“The real issue is whether the reduced enrollment is temporary, in which case the students will return to campuses once the job market cools down, or the 1 million students are lost for good,” she wrote in the blog post. “Unfortunately, if evidence from the prior housing market economic cycle provides any reference, the non-enrollment decision appears to be permanent.”

Beebe cited a study that indicates the housing market boom-and-bust cycle between the late 1990s and late 2000s played a significant role in reducing college enrollment then, thanks to employment opportunities in construction, finance, insurance and real estate. She argued it’s possible the recent housing market boom contributed to the latest decline in enrollment.