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Perhaps the only positive outcome of a recession is that it results in a more educated and productive workforce, more suitable to meet the needs of the post-recession economy. The education industry is counter-cyclical. When the economy is booming, people work to reap the rewards of their skills. When it is down, workers find it difficult to get jobs, and many consider it rational to invest in new skills which are in demand.
In the industrial economies, demand for college education therefore increases in bad times. Empirical research indicates that recent high-school or college graduates who enter the jobs market during a recession are relegated to low lifetime earnings; a recession not only affects their current but future earnings as well. To escape the long term effects of an ailing economy on earnings, savvy high-school graduates delay entry into the job market and enrol in colleges. Likewise, those with a two-year college diploma sign up for four-year degree programmes and graduates often seek Masters certification. Driven by the same logic, a large number of workers laid off during recession go back to college to qualify for better jobs when the economy turns around.
A notable characteristic of the higher education system in several Western countries particularly the US, is flexibility. There are no age limits for college enrolment and rarely any time limits in non-professional colleges to complete education. Students are expected to take a certain number of courses in different disciplines for which they receive credits. These credits are transferable across universities — domestic as well as foreign. Students who drop out without completing their degree programmes enjoy the flexibility of returning to college with the benefit of credits earned in the past. The system thus provides limitless opportunities to acquire education and training for new careers. Research shows that the average American makes three career switches in her lifetime — because the higher education system facilitates transition to new careers.
The current recession has witnessed college enrolment increases in several western countries. In the US, freshman (first year) enrolment in colleges and universities increased 6 percent in 2009 — the largest intake increase in 40 years. The decision to go back to college is often prompted by the easy availability of subsidised education loans. Banks charge modest interest rates for loans that cover tuition and living expenses. The repayment schedule often begins a year after completion of college with the expectation that the student will have acquired a job within a year.
Private universities which suffered sharp declines in endowments after the 2009 financial meltdown are reaping the divid-ends of higher enrolment. The fiscal condition of public universities is some-what mixed as they are heavily dependent on government support. While they have benefitted from higher enrolment, they are also grappling with sharp cuts in government funding.
Given that public universities account for 75 percent of college enrolment in the US, and as much as 90 percent in most European countries, reduced government funding has serious implications for publicly-funded institutions and the economy in general. With most Western countries slashing allocations to lower their fiscal deficits and public debt, sharp cuts in faculty positions and salaries are imminent. The University and College Teachers Union in the UK expects a loss of approximately 23,000 academic and non-academic jobs in higher education.
Although at the G-20 summit in toronto last month President Obama promised to keep the economic stimulus going in the US, he does not have the political muscle to announce another stimulus package to ensure economic recovery and job growth. The federal government has taken steps to increase financial aid and restructure the Pell program, a federal grant programme for post-secondary education for students from poor families. Restructuring will guarantee mandatory annual increases of its corpus. However, education is primarily funded by state governments and they are in dire financial straits. Unlike the federal government, state governments don’t have the advantage of printing money. As the economy has slowed, so have states’ tax revenues and outlays for education.
Combine joblessness, rising tuition fees and growing demand for college education and you get a system that is increasingly dependent on loans. Arguably, loans for education are the best types of loans — their purpose is to invest in human capital development and such investments are unlikely to go wrong. There is however, a clear and present danger. Delinquency rates of college loans have been rising. According to a study by the Chronicle of Higher Education, 20 percent of all loans disbursed for collegiate education since 1995 are in default. By the end of fiscal 2009, the total default aggregated $51 billion (Rs.239,700 crore). Although the amount is modest in comparison with defaults by the corporate sector, it’s not insignificant and doesn’t augur well for the future of higher education funding.
Indeed, the current recession is a test of Western govern-ments’ commitment to education. And that’s as true for primary and secondary schooling as for higher education.
(Dr. Neeraj Kaushal is associate professor of social work at Columbia University, USA)