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A Slow-Moving Storm: Why Demographic Changes Mean Tough Challenges for College Leaders

By Jeffrey R. Young     Apr 17, 2018

A Slow-Moving Storm: Why Demographic Changes Mean Tough Challenges for College Leaders

The financial crisis of 2008 was tough for the country, but the real impact will hit colleges in the year 2026.

It turns out those fiscal anxieties a few years ago coincided with a dramatic "birth dearth"—a reduction in the number of children born, which means that the number of kids hitting traditional college age will drop almost 15 percent around 2026. That could amount to a crisis for colleges, unless they start planning now.

That’s the argument of Nathan Grawe, an economics professor at Carleton College. He’s author of a new book with a very straightforward title: Demographics and the Demand for Higher Education. EdSurge recently sat down with Grawe, who described how this slow-moving storm raises existential questions for higher education.

The conversation has been edited and condensed for clarity. You can listen to a complete version below, or on your favorite podcast app (like iTunes or Stitcher).

Why is it important for higher-ed leaders to pay attention to demographics?

I think all of us [colleges], one way or another, are dependent on demand. If we're at a state institution we might have a funding formula that's related to numbers of students. If we're at a private institution, we are more or less tuition dependent.

We're lucky in higher education that we can see some of these trends in the demand for our products 18 years in advance because of the lead time. We should take advantage of that, and think about what will education look like in ten years, and how can we make plans today that put us in the best position to be responsive to that demand when it comes.

You found in your analysis what you describe as ‘birth dearth’ that started the time of the financial crisis. Could you talk a little about that?

When the economy tanked in 2008, predictably, young people decided it wasn't the best time to have kids. A little less predictably, when the economy recovered, we didn't see a recovery in the total fertility rate. So, between 2008 and 2010, the total fertility rate fell by about ten percent, and then since then it's drifted down even further. So, as a result, we're missing at this point 13 percent of the birth cohorts, and that's been persistent now for the better part of a decade.

If we fast forward from 2008, 18 years, we see the front end of when those kids would have been graduating from high school and become demanders in the higher education market. We're all of a sudden just missing a large number of kids.

The next interesting question is, who isn't having kids? And are these the kids who are most likely to attend college, least likely to attend college, what can we do to get a better nuanced picture of what that demand will look like? But the bottom line remains that we've seen a dramatic decrease in the number of kids.

So this is going to matter?

It will matter. My question, when I saw this data for the first time, was, how much is it going to matter for me? And I think the answer is that it's going to matter for all of us. Some institutions, I expect, will actually see an increase in demand despite the birth dearth, because of the changing composition in the US population. In particular, parents are increasingly educated, and they send their kids to more selective institutions. So, I think more selective institutions may see demand for their product go up. So, I can breathe a sigh of relief.

But it's not quite that simple, because places unlike Carlton are going to see a drop that's much bigger than the increase at the top end. So, what does that mean for a place like Carlton? I expect it's gonna mean that there are a bunch of hungry market participants who are going to change how they interact with students. They're going to compete differently with financial aid, they're going to change their program offerings. And so, I think, even the elites, where we might expect nothing changed, they will need to be aware that change is coming and they too need to be agile and responsive to the world around them.

Clayton Christensen, who is known for his theory of disruptive innovation, has famously said that as many as half of US colleges could close or go bankrupt in 10 or 15 years. What do you think of predictions like that, is that kind of thing possible with the kind of demographics you're seeing?

That's not going to be driven by the demographics, I think he's focusing more on how technology might change the way we do higher ed. And, to be fair, there's some evidence for some significant changes going on. Some institutions are offering three-year degrees for instance, though I notice in those stories that while they offer them, they're not highly subscribed by students, and I wonder is there really a demand for that?

I might also note, that the doom-and-gloom take on demographics is not entirely misplaced, but I think that we would do better to focus on what we can do to change. We control a lot about what's about to happen, we can chose to ignore the problem entirely, and wake up in 2027 with dramatically, rapidly, reducing class sizes. And that will be probably calamitous for a lot of institutions, or we can look at it right now, see what's coming on the horizon, and we can choose to make investments that are maybe a bit more flexible, a little bit less set in stone, so that when we have a contraction, we can contract in ways that make more sense rather than less sense. So, that the institutions continue to serve their mission.

We've been through demographic change in the past, I think this is going to be a more dramatic and sudden demographic change than some in the past. And we've already pulled some levers. For instance in the ‘70s and ‘80s, people talked about the effect of a birth dearth, and we increased admission rates for women, and we reached out to international students, and we expanded into non-traditional markets, and then we got lucky, because the returns to college tripled. The return to college relative to high school. And, everybody wanted to get a college degree.

I don't know that, A, we can pull the lever on admitting women again. I think that lever's been well pulled. I'm skeptical that there are that many more non-traditional students. 25% of enrollments today are non-traditional students, can we really admit that many more? And how many of them were driven by the returns to college education spiking like it did?

International students is a place we might go, but there are political challenges to that.

In your book you name technology as one strategy colleges can use to respond to this, but you mention this not really as silver bullet.

Well, I think technology clearly has changed the way we provide higher education—we see it maybe most clearly in some of the public institutions which have adopted online courses in total. But even at elite, high touch places like Carlton, we use technology all the time to change the way that we are more effectively reaching students. Ultimately, it's all about student learning and how can we facilitate better student learning. I think there will be experiments where institutions view technology as their best play to adapt to this changing environment. Or, at least, to preserve some chance that they won't have to experience retrenchment to the same degree.

Do you worry that this reduction in students will end up hurting efforts to achieve more equal opportunity for higher education, since there’s a sense that higher income students are cross-subsidizing lower-income ones?

I think it could threaten it. I would push back a little bit on the notion that the high income students are cross subsidizing the low, even at Carlton, the high-income students pay less than the average cost because our endowment provides the difference. And if you go to a state institution and you're a high-income student, well, the state subsidy is dramatically reducing your cost relative to average cost. At Carlton, we not entirely jokingly say that every student here is a financial-aid student, it's just some of them are aware of it and some of them aren't.

I think the bigger point is we're gonna have fewer resources, and teaching students whose families can bring very little to the table is just an expensive proposition. All sorts of institutions that are striving to serve a more diverse student body face trade-offs of—do we take this lower socio-economic student, knowing that it might mean that we have to give up on these two middle income students in order to make the books balance?

Interestingly it means the second tier students may be easier to find in a full-pay capacity, because maybe some of the institution that are intentionally trying to seek out low-income students will pass on some high income students, and that might have, in some nice, indirect way, a sense of spreading the wealth. The endowments at the top allow them to pursue these really expensive students, and leave behind some full pay students instead, who then go to strong second tier institutions and bring with it a full paycheck.

Community

A Slow-Moving Storm: Why Demographic Changes Mean Tough Challenges for College Leaders

By Jeffrey R. Young     Apr 17, 2018

A Slow-Moving Storm: Why Demographic Changes Mean Tough Challenges for College Leaders

The financial crisis of 2008 was tough for the country, but the real impact will hit colleges in the year 2026.

It turns out those fiscal anxieties a few years ago coincided with a dramatic "birth dearth"—a reduction in the number of children born, which means that the number of kids hitting traditional college age will drop almost 15 percent around 2026. That could amount to a crisis for colleges, unless they start planning now.

That’s the argument of Nathan Grawe, an economics professor at Carleton College. He’s author of a new book with a very straightforward title: Demographics and the Demand for Higher Education. EdSurge recently sat down with Grawe, who described how this slow-moving storm raises existential questions for higher education.

The conversation has been edited and condensed for clarity. You can listen to a complete version below, or on your favorite podcast app (like iTunes or Stitcher).

Why is it important for higher-ed leaders to pay attention to demographics?

I think all of us [colleges], one way or another, are dependent on demand. If we're at a state institution we might have a funding formula that's related to numbers of students. If we're at a private institution, we are more or less tuition dependent.

We're lucky in higher education that we can see some of these trends in the demand for our products 18 years in advance because of the lead time. We should take advantage of that, and think about what will education look like in ten years, and how can we make plans today that put us in the best position to be responsive to that demand when it comes.

You found in your analysis what you describe as ‘birth dearth’ that started the time of the financial crisis. Could you talk a little about that?

When the economy tanked in 2008, predictably, young people decided it wasn't the best time to have kids. A little less predictably, when the economy recovered, we didn't see a recovery in the total fertility rate. So, between 2008 and 2010, the total fertility rate fell by about ten percent, and then since then it's drifted down even further. So, as a result, we're missing at this point 13 percent of the birth cohorts, and that's been persistent now for the better part of a decade.

If we fast forward from 2008, 18 years, we see the front end of when those kids would have been graduating from high school and become demanders in the higher education market. We're all of a sudden just missing a large number of kids.

The next interesting question is, who isn't having kids? And are these the kids who are most likely to attend college, least likely to attend college, what can we do to get a better nuanced picture of what that demand will look like? But the bottom line remains that we've seen a dramatic decrease in the number of kids.

So this is going to matter?

It will matter. My question, when I saw this data for the first time, was, how much is it going to matter for me? And I think the answer is that it's going to matter for all of us. Some institutions, I expect, will actually see an increase in demand despite the birth dearth, because of the changing composition in the US population. In particular, parents are increasingly educated, and they send their kids to more selective institutions. So, I think more selective institutions may see demand for their product go up. So, I can breathe a sigh of relief.

But it's not quite that simple, because places unlike Carlton are going to see a drop that's much bigger than the increase at the top end. So, what does that mean for a place like Carlton? I expect it's gonna mean that there are a bunch of hungry market participants who are going to change how they interact with students. They're going to compete differently with financial aid, they're going to change their program offerings. And so, I think, even the elites, where we might expect nothing changed, they will need to be aware that change is coming and they too need to be agile and responsive to the world around them.

Clayton Christensen, who is known for his theory of disruptive innovation, has famously said that as many as half of US colleges could close or go bankrupt in 10 or 15 years. What do you think of predictions like that, is that kind of thing possible with the kind of demographics you're seeing?

That's not going to be driven by the demographics, I think he's focusing more on how technology might change the way we do higher ed. And, to be fair, there's some evidence for some significant changes going on. Some institutions are offering three-year degrees for instance, though I notice in those stories that while they offer them, they're not highly subscribed by students, and I wonder is there really a demand for that?

I might also note, that the doom-and-gloom take on demographics is not entirely misplaced, but I think that we would do better to focus on what we can do to change. We control a lot about what's about to happen, we can chose to ignore the problem entirely, and wake up in 2027 with dramatically, rapidly, reducing class sizes. And that will be probably calamitous for a lot of institutions, or we can look at it right now, see what's coming on the horizon, and we can choose to make investments that are maybe a bit more flexible, a little bit less set in stone, so that when we have a contraction, we can contract in ways that make more sense rather than less sense. So, that the institutions continue to serve their mission.

We've been through demographic change in the past, I think this is going to be a more dramatic and sudden demographic change than some in the past. And we've already pulled some levers. For instance in the ‘70s and ‘80s, people talked about the effect of a birth dearth, and we increased admission rates for women, and we reached out to international students, and we expanded into non-traditional markets, and then we got lucky, because the returns to college tripled. The return to college relative to high school. And, everybody wanted to get a college degree.

I don't know that, A, we can pull the lever on admitting women again. I think that lever's been well pulled. I'm skeptical that there are that many more non-traditional students. 25% of enrollments today are non-traditional students, can we really admit that many more? And how many of them were driven by the returns to college education spiking like it did?

International students is a place we might go, but there are political challenges to that.

In your book you name technology as one strategy colleges can use to respond to this, but you mention this not really as silver bullet.

Well, I think technology clearly has changed the way we provide higher education—we see it maybe most clearly in some of the public institutions which have adopted online courses in total. But even at elite, high touch places like Carlton, we use technology all the time to change the way that we are more effectively reaching students. Ultimately, it's all about student learning and how can we facilitate better student learning. I think there will be experiments where institutions view technology as their best play to adapt to this changing environment. Or, at least, to preserve some chance that they won't have to experience retrenchment to the same degree.

Do you worry that this reduction in students will end up hurting efforts to achieve more equal opportunity for higher education, since there’s a sense that higher income students are cross-subsidizing lower-income ones?

I think it could threaten it. I would push back a little bit on the notion that the high income students are cross subsidizing the low, even at Carlton, the high-income students pay less than the average cost because our endowment provides the difference. And if you go to a state institution and you're a high-income student, well, the state subsidy is dramatically reducing your cost relative to average cost. At Carlton, we not entirely jokingly say that every student here is a financial-aid student, it's just some of them are aware of it and some of them aren't.

I think the bigger point is we're gonna have fewer resources, and teaching students whose families can bring very little to the table is just an expensive proposition. All sorts of institutions that are striving to serve a more diverse student body face trade-offs of—do we take this lower socio-economic student, knowing that it might mean that we have to give up on these two middle income students in order to make the books balance?

Interestingly it means the second tier students may be easier to find in a full-pay capacity, because maybe some of the institution that are intentionally trying to seek out low-income students will pass on some high income students, and that might have, in some nice, indirect way, a sense of spreading the wealth. The endowments at the top allow them to pursue these really expensive students, and leave behind some full pay students instead, who then go to strong second tier institutions and bring with it a full paycheck.

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