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Is there an economic case for saving regional public universities and mid-tier private colleges?

Is there an economic case for saving regional public universities and mid-tier private colleges?
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The COVID-19 pandemic has produced severe economic and financial disruptions of a magnitude rarely observed over the past century. One area that is facing a unique set of challenges because of the pandemic is the U.S. higher education sector. Even prior to the pandemic, key segments were encountering long-term structural changes and experiencing financial turbulence.

Broadly, the non-profit portion of the higher education system can be grouped into five categories: flagship public universities, elite private colleges and universities, regional public universities, mid-tier private colleges and community colleges. Private for-profit institutions still play only a marginal role in the higher education arena. While highly selective private colleges and flagship public universities are likely to come out of the crisis with just a few cuts and bruises, the pandemic and its aftershocks pose a mortal threat to many of the regional public universities and mid-tier private colleges.

While flagship universities have in recent decades increased their out-of-state and international student enrollments, regional public universities are dependent on in-state residents for meeting their enrollment targets and typically focus on promoting access to tertiary education for students who may not have access to elite institutions. Historically, states cut appropriations for higher education during recessions and then restored funding during the economic recovery phase. But the Great Recession and its aftermath proved to be an exception. In many states, funding had failed to fully rebound even a decade after the end of the Great Recession.

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While flagship universities were able to offset the decline in state support by sharply raising out-of-state tuition and by boosting enrollment of out-of-state and international students, regional public universities have floundered. Regional public universities are dependent on in-state residents to meet their enrollment targets and, even though they typically focus on promoting access to students with limited options, their in-state tuition has of late ballooned to levels above that of state flagship universities. Flagship state universities, with their national and international brand recognition (helpful for attracting out-of-state and international students) and diverse revenue sources (federal research grants, university hospital networks, patent license, royalty fees, etc.) and much wealthier alumni and donor networks (which enable the creation and sustenance of large endowments), are often at a significant advantage vis-à-vis regional public universities in their relative ability to withstand shocks.

Similarly, mid-tier private colleges often are at a severe disadvantage vis-à-vis their more selective peers. Ivy League institutions and nationally ranked liberal arts colleges have an enormous reputational advantage and sizable endowments that enable them to withstand economic recessions and other exogenous shocks. Heavily tuition-dependent mid-tier private colleges are, even under normal conditions, quite vulnerable to enrollment declines, and a major crisis can push them over the cliff. The pandemic shock is likely to prove to be particularly devastating to less-selective private colleges as some of the weaknesses of the high tuition sticker price-plus-high tuition discounting model are exposed.

While some institutions will inevitably fail (and the badly managed ones should in fact be allowed to merge or close), there is a need to save as many viable regional public universities and mid-tier private colleges as possible. From a broader economic standpoint, the failure and collapse of such institutions can have a devastating impact on already struggling local economies across the U.S. Many regional public universities and mid-tier private colleges are located in small towns and less-populated counties, where they typically act as an economic anchor. They are often not only the largest employer within their locality but are also usually the source of the highest paying jobs in the area. Furthermore, local businesses and chains of national retailers and hotels in college towns are highly dependent on the spending of college students, faculty and staff. In addition, many of these institutions are a critical cog in local economic machinery as they undertake research activities and develop human capital that are of particular significance to their regions and they build long-standing bonds with local firms and employers.

In recent years, regional public universities (adept at enrolling and graduating first-generation college students, low-income students and minorities) and mid-tier private colleges (which play a role in identifying and nurturing talented local students who may otherwise have had limited opportunities to access elite higher educational institutions) are enablers of middle-class mobility in the modern American economy. Failure of regional public universities and mid-tier private colleges will be particularly harmful to the local economies of the Midwest and Northeast region that are already facing challenges associated with the long-term decline in manufacturing jobs and unfavorable demographic trends. (High school graduating classes keep shrinking and many youngsters prefer to move to other parts of the country to pursue higher education.)

With local and state governments facing a sizable budget shortfall, there is a need for targeted federal government stimulus to aid struggling regional public universities and mid-tier private colleges. Supporting higher education institutions will yield a lasting and more significant economic return than a one-time cancellation of student loan debt.

Recent economic research also suggests that the multiplier effect associated with federal education expenditure is considerable and provides important short-term gains to local economies. The incoming Biden administration needs to allocate future stimulus dollars in a manner that both provides a short-term boost to struggling local economies and improves the prospects for long-run growth.   

Vivekanand Jayakumar is an associate professor of economics at the University of Tampa. Brian Kench is a professor of economics and Dean of the Pompea College of Business at the University of New Haven.