For all the talk about near-term inflation, we sure don’t spend a lot of time talking about the long-term costs of education. Yet, in the United States, the perception has long been that Americans require a college diploma.
But since the 1970s, the cost of college has increased by more than 1,400%, according to government data. There are many reasons for this price increase. Still, the acceleration of this trend hit full tilt after the government nationalized the student loan industry during the first term of the Obama administration. It’s hard to find a product or service that has increased at such a level over multiple decades. But this cost has reached its breaking point.
The End of College?
College education was already too expensive. However, the rise of COVID-19 has fueled a dramatic exodus of new and existing students. Over the last two years, the number of students at U.S. colleges fell by 6.5% from 2019 to 2021. According to the National Student Clearinghouse Research Center, that is the largest drop in the previous 50 years.
At the community college level, the drop-off has been the steepest at 14.1% over two years. That’s troubling because education is typically in higher demand during periods of economic downturns. Traditionally, Americans will return to community college to learn new skills and aim for higher pay during economic weakness. But this hasn’t occurred over the last two years.
The Beginning of a Long-Term Negative Trend
I think this is part of a longer-term trend that will create significant challenges for most mid-tier universities, particularly private liberal arts schools with costly tuitions. Education will be undergoing significant scrutiny in the face of rising inflation, weaker job prospects, and higher enrollment costs.
Even though college education does correlate to higher salaries over time, the mechanisms for delivering education require a significant overhaul. Looking ahead, I expect that private universities will expand their online and digital education systems and increase their enrollment.
Public universities and community colleges will look for ways to cut costs and likely rely on companies like Coursera (NYSE:COUR) to deliver digital education and hybrid college programs to the masses. But that still leaves hundreds of private schools that could close their doors without a dramatic recalibration of their offerings or a massive change of heart among American students.
The college education market is breaking right now. We’ll discuss ways to invest for its overhaul in the weeks ahead. The industry will look much different come 2030, and with it, smart investors will profit by getting out in front of their new business models.