The Effect of the Recession on Colleges and Universities

Ben Barasch

With about a half of the school year remaining, to high school seniors there is not a more diverse set of emotions towards a single issue than college acceptance. A portion of the senior class (such as my Purple Youth colleagues Max, Jon, and Gabe) is already in college; for them the rest of their high school career is about as challenging as criticizing George W. Bush. The remaining seniors are faced with a long road ahead filled with last minute applications, college visitations, and counselor meetings. As someone who witnessed another (my sister) agonize until spring break, let’s just say that I am happy that I am a junior (words that have are rarely spoken). Unfortunately the current economic climate is going to make the college experience, from applicants, to students, to educators, to admission board members, more challenging than it was before.
Basically colleges are run very much like large corporations. Because they usually generate more expenses than they can pay for from tuition, universities and colleges rely on earnings from their endowments and gifts to cover their costs. As we all know, investments in general have not really been in the green of late, and those of universities and colleges are no exception. Endowments are way down due to a combination of the failing economy and fewer people are willing to donate money. Harvard, a school that most would expect to be immune to such a crisis, has  lost 22% of its endowments which equals about an $8 billion loss.  Endowments are not the only financial hit that these education institutions face. As mentioned above, now that people generally have less money, donations are decreasing.
In theory, the amount of money that a parent has should have nothing to do with increasing or decreasing the chance of a student to get into the school of their choice. Many of our best schools have adopted “need-blind” admissions policies.  Now, this egalitarian practice may be at risk. It may turn out that parents who can afford tuition give their children better chance to be admitted to the schools of their choice. That would be unfortunate.
Another problem caused by the recession, is how the universities are going to deal with having less operating money. Less money for colleges and universities is bad news for everyone. Less money means that schools that were looking to expand need to put projects on hold and in some cases schools will shrink or even worse close their doors. Certain improvements that were proposed and were feasible two years ago are no longer economically viable and have been put on the back burner.
An added concern for applicants caused by the recession is price elasticity of   demand for schools now that money is tight. Price elasticity of demand is a measurement of how much interest waivers/increases as prices rise/fall respectively. For example if a top flight student from Illinois gets into a Princeton or a Yale, will he or she now be more inclined to attend their state universities where they can still receive a good education for a lot less? The answer is yes and no depending on the financial situation and circumstance of that particular family. Because of the reputations of the top schools, many parents will spring to send their children to the top private universities. This may spell trouble however for the less distinguished private universities where the tuition is still higher than state schools. It is a no brainer for a student to attend their state school as opposed to a private college/university where they are getting a similar education for a lot less.
Fortunately, amidst all of the financial issues facing schools, most schools have not yet cut into their financial aid programs to free up money. If Wall Street continues to deteriorate, financial aid may be the next thing in jeopardy in this economic crisis.