Coronavirus
will end the golden age for college towns
These engines of regional growth will struggle
with state funding cuts, fewer foreign students and destroyed household
finances.
NOAH SMITH
Bloomberg Opinion
The coronavirus pandemic is likely to bring
about many deep, long-lasting changes in U.S. society and the economy. It’s
difficult to predict what most of those will be. Unfortunately, one likely
possibility is that college towns will suffer.
For the past few decades, college towns have
been a pillar of the economy. Universities draw in lots of
educated workers, in large part because of their research activities. This in
turn lures private capital, which draws in yet more educated workers — a
self-reinforcing effect. The result is that college towns and their surrounding
areas have been some of the big winners from the
knowledge economy. In some cases, universities have even become the seeds for
tech clusters, creating thriving new metropolises. Austin, Texas, and the Research
Triangle cities of North Carolina are good examples. Some Rust Belt cities such
as Pittsburgh have built
their economic revivals around top universities. But even when colleges don’t
do much research, they can still generate modest but
real benefits for declining regions, simply by drawing in and concentrating
money and consumers.
But even before the pandemic, this golden age of
college towns was under threat. The Great Recession caused most states to make
deep, long-lasting cuts in university funding. Even by 2018, with the recovery
complete, most states were still
spending substantially less than before the recession. Meanwhile, demand for
for-profit and private nonprofit schools had fallen, shuttering a growing
number of colleges:
This may have been because of a growing realization that the
job opportunities available to many college graduates weren’t worth the large
amount of debt that many students had to take out to get their degrees.
But if universities were on shaky ground before
coronavirus, they will be crushed by this pandemic and the resultant depression. The first blow
will come from even deeper cuts in state funding. With tax revenues in free
fall, states are already running huge budget deficits while their
borrowing ability is limited. Spending will surely be cut. If the
2008 crisis is any indication, cuts to higher education spending will not be
quickly restored even when recovery begins.
Tuition also will be crushed. The pandemic
itself is already depressing enrollment
because students don’t know when classes will be reopened. But even when that
threat is gone, mass unemployment will reduce the ability of many American
households to pay steep college prices.
Furthermore, the most lucrative group of
tuition-payers — international students — will mostly disappear.
International students pay top dollar to study at American universities,
subsidizing domestic students and helping to support university
budgets in the wake of state funding cuts. Even before coronavirus, President
Donald Trump's administration had been working to decrease the inflow of
students from overseas. Coronavirus will exacerbate this trend, thanks to
travel restrictions related to the pandemic, further tensions with China, the decreased
attractiveness of the U.S. job market and further restrictions by Trump.
Big drops in state funding and tuition are
already devastating universities’ budgets, forcing salary cuts and layoffs at a rapid
rate. Fewer students and university workers will mean reduced demand for local
businesses in college towns. And if online classes during the pandemic lead to
a long-term shift toward distance education, it will mean even less money gets spent
around university campuses.
But the long-term impacts could be even more
severe. Budget cuts will make it harder to pay for graduate-student stipends,
research-assistant salaries, construction of research facilities and other
things that draw in educated workers and private capital. The dearth of
international students will also hit science and engineering departments hard
because these students make up a majority in many key STEM fields:
Anyone who has worked in a university laboratory
knows that graduate students do much of the actual research. It will be
impossible for engineering departments to replace many of these lost
researchers. That in turn will force many labs to shutter or scale back, making
college towns a less attractive investment destination for private companies.
Thus, the golden age of American college towns
may be ending. The highly successful model of using tax and tuition dollars to
subsidize and plant the seeds for thriving local economies is getting hit from
all directions at once. The economic activity that once clustered there will
begin migrating out — to big cities, to distributed networks of remote
workers, to other countries or simply to nowhere at all. The federal government
could partially offset the situation if it chose to by giving big bailouts to
states, by reversing restrictions on international students and by taking
action to quickly suppress the pandemic. But absent such a rescue, college
towns are in for a long period of pain.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant
professor of finance at Stony Brook University.
