Transcript

Charles Gerena: I'm Charles Gerena, online editor for the Research Department at the Federal Reserve Bank of Richmond.

Thank you for listening to "Speaking of the Economy." You can find past episodes on the Richmond Fed's website or subscribe on Apple Podcasts.

Today's episode will discuss community colleges. According to a recent report from the Community College Research Center at Columbia University, nearly half of American workers between the ages 24 and 64 have attended one of these institutions of higher learning at some point in their lives. Last April, Sen. Bernie Sanders and Rep. Pramila Jayapal introduced legislation that would make tuition free at community colleges.

My guests have studied this topic from different perspectives. Laura Ullrich, the Richmond Fed's regional economist based in Charlotte, North Carolina, has written about changes in enrollment at community colleges in two Regional Matters articles published in May and November. Urvi Neelakantan, a senior policy economist, has researched the factors that influence a person's decision to pursue further education after high school, whether it's an associate's degree from a community college or a degree from a four-year university.

Thanks for joining me, Laura and Urvi.

Laura Ullrich: Thanks for having me.

Urvi Neelakantan: Good to be here.

Gerena: Let's look beyond the pandemic for a moment. In the past few decades, what was the trend for enrollment in community colleges? How did that enrollment change during the Great Recession?

Ullrich: Community college enrollment grew pretty steadily, really beginning with the creation of community colleges around the 1960s. We saw enrollment growth from that point all the way up until the early 2000s.

We definitely did see a jump in enrollment during the Great Recession. In 2008, enrollment in public two-year institutions — when I say community colleges that's what I mean, public schools that are two-year schools — enrollment in those schools … grew 5 percent. In 2009, it grew by almost 7 percent. If you look into the data, you actually see that it grew by even more in the Fifth District during that time.

This is consistent with enrollment spikes we've seen in past recessions. It makes sense that during a recession, the economy softens. People lose jobs due to this softer economy and they return to school to get retrained or to get upskilled. Also, since the market for employment right after high school is weaker during a recession, you see more 18- and 19-year-olds choose to enroll in community college rather than go directly into the workforce.

The difference in enrollment that we've seen in the community college landscape really started after the Great Recession. Since 2011, community college enrollment has fallen each year, so even pre-pandemic we were seeing enrollment declines. By 2013, community college enrollment was back to where it was pre-Great Recession.

This isn't necessarily surprising during that period of time because we had the longest expansionary period in modern U.S. history, so we had the longest period of time between recessions that we've seen before. Labor markets were tight. When the economy's doing well, layoffs are uncommon. And so fewer people enrolled at community colleges.

But if you look at the data a little more closely, you'll see that there were also some additional trends that can be observed. During that period of time — so this is post-Great Recession but pre-pandemic — community colleges saw larger declines in traditional student enrollment, so that 18- to 24-year-old age group, especially amongst male students.

Many schools began to focus more seriously on educating high school students. They do this through dual credit and dual enrollment, you may have heard of those programs in your local area. Schools started to focus a lot more on those students because they were losing traditional age students at higher rates.

Gerena: Okay, that sort of makes sense.

What happened during the recession that followed during the pandemic? I guess it wouldn't be surprising that enrollment fell, at least during this time period, given the traditional approach for educating students was turned upside down trying to protect people with shutdowns and so forth.

Ullrich: Yes, so in a way, this actually was a big surprise for community colleges.

As I mentioned, historically community college enrollment has always increased during a recession. Typically for community colleges, one of the ways they can predict their enrollment is by looking at what the economy is doing, looking at unemployment rates, things like that. Pre-pandemic, we would have predicted that a softening of the economy and certainly something like the shock we saw during COVID would have caused people to flock to community colleges just to get reskilled.

That is not what we saw at all. Instead over the past two years, if you compare 2019 to 2021, community college enrollment has declined more than we've ever seen in a two-year period. But to your point, this time was very different in other ways as well, right? There's a lot of ways in which we can't compare prior recessions or prior times in the economy to COVID.

Colleges were forced to move classes online in almost all cases. As you can imagine, there are some things that are taught in a community college – for example, nursing or welding – that are not easy to teach in an online environment. So, in the short run, some of those classes had to be canceled. There's a lot of survey data out there that show that while some students are comfortable with online courses, many are not. So, it's not surprising that we would see some students say, "You know, I'm not going to go back to school" or "I'm not going to continue school right now when the majority of my classes are going to have to be online."

Gerena: Were those declines that we saw over the pandemic uniform across institutions of different sizes or student demographics?

Ullrich: This is actually something I've spent a lot of my time researching and reading about in the past couple of years. They have not been uniform. In fact, there have been some really interesting demographic trends and some concerning trends, in my opinion.

Just to level set for listeners, community college enrollment is down 14.8 percent nationally, if we compare fall 2021 to fall 2019. That's based on data from the National Student Clearinghouse. If you look at the data, enrollment declines are even more severe amongst freshmen.

When I say the word "freshmen," you might think of an 18-year-old, but a freshman is just someone who has never attended higher ed before. So, most freshmen are 18 years old, but you could have a 42-year-old freshman, you can have a 60-year-old freshman.

While overall community college enrollment is down 14.8 percent compared to 2019, freshmen enrollment is down 20.8 percent. Overall female freshmen enrollment is down slightly more than males. If you look at the freshmen data by age, you'll see that the largest declines are amongst 21- to 24-year-olds. The lowest declines or smallest declines are amongst those over age 29, so maybe some of those [are] adults that are going back to be reskilled.

One of the more concerning trends, in my opinion, is related to race. Black freshmen enrollment is down a staggering 32 percent over the past two years. White enrollment is down 23 percent, Hispanic down 20 percent, and Asian enrollment is down 16 percent. A closer look at the data indicates the declines have been the most severe amongst black male students.

The biggest question to me is "Why?" Why would black male enrollment specifically be falling so much more significantly than other demographic groups? Honestly, at this point, I don't feel like we have the answers yet. You can look and say communities of color have been disproportionately hit by COVID. That's true in many respects. But overall, I think it's hard to know exactly why this has happened.

Some of the community colleges in the Fifth District that have seen the biggest declines are very urban. I think this makes sense because, if you think about where you would attend school, you're likely to attend school either close to your home or close to your work, especially if you're a working adult and you're going back to school to go to a community college. You might go to classes after you get off work, right? Since fewer people been going into work, fewer people had been enrolled. Also, the urban cores have just been hit harder by COVID in general.

Declines in enrollment also vary across Fifth District states. Maryland and West Virginia have experienced larger declines — Maryland has declined by 15 percent and West Virginia has declined by 17 percent. North Carolina and Virginia both have seen declines [of] about 9 percent and South Carolina has had the smallest decline at 7 percent.

Gerena: Thank you for that perspective. Are there any colleges that have seen enrollment increase?

Ullrich: Some have bucked the trend. From what I've observed and the conversations I've had, there's a few things that I have learned.

There are some schools who are trying to do innovative things that have seen increases. For example, Spartanburg Technical College in South Carolina saw a pretty significant increase in enrollment this year. They chose to use some of the stimulus funds that they received to give all students free tuition for the school year. I think it's interesting in talking to other schools in the area, there isn't much evidence yet that this brought a lot of new students in. It's not necessarily students who wouldn't have attended school otherwise that are saying, "You know, I'm going to go to Spartanburg Tech this year." In fact, the largest impacts appear to have been declines in neighboring community colleges and four-year institutions. So, while Spartanburg Tech is up, some of their neighbors are down.

I've also talked to schools that really did an excellent job moving everything online very quickly, including student support systems. This would be things like advising or financial aid or student counseling. So, it wasn't just that students had to attend classes online. If they wanted to be advised, they also had to do that online. Some of the schools that I've talked to that did that very efficiently and very well and very quickly appear to have had an easier time retaining students, which has led to them having more steady or maybe even increased enrollment.

Gerena: Sounds like it's been a very challenging period, to say the least. What's been the impact on community colleges that have experienced those declines in enrollment? What has been their response to that?

Ullrich: For the schools that are seeing significant declines, this is really devastating. There really are both short-term and long-term concerns.

First of all, for all these community colleges funding is determined by enrollment. They are funded based on the number of students that they educate. So, as enrollment declines, so does funding from state and local governments.

Funding is not as much of an issue right now in the short run because community colleges have gotten significant funds from the federal government. These funds have come from the two main stimulus packages that were passed during the pandemic: the CARES Act and American Rescue Plan Act or ARPA. The CARES Act and ARPA funds will allow schools to bridge the gap. The ARPA funds have to be spent by 2024, so that's going to help a lot over the next two [or] three years, but then after that there will be longer term concerns.

As I mentioned, enrollments have been falling since 2011, so it's not like prior to COVID the schools were seeing enrollment booms and swimming in money that they were getting from state and local governments. They were already having enrollment challenges in many cases, not in all cases, of course, but in many cases. What's happened during COVID, it may just be an acceleration of a longer term trend that ARPA money won't necessarily fix. They can certainly spend it in ways that might help them over time with enrollment. But it's certainly not guaranteed that these funds are going to fix the longer term issues.

As I talk to community colleges, which I do on a regular basis, they do seem a little baffled about exactly how they should respond. It's difficult to know if this is just a COVID impact and they're going to see a bounce at some point, or if this is just an acceleration of the longer-term issues.

From my perspective, it's important to recognize two realities that are going on right now. First, you go into the communities within the Fifth District and talk to the community colleges and talk to the community at large, you learn that these schools play a crucial role in local workforce development as well as economic development, attracting new companies to the area. They are beloved institutions and they're important institutions. But the second reality is that these institutions are very worried right now. They're all trying their very best to serve students in the way that is best for the local economy and for the students themselves.

This includes a whole array of students. I think this is something that we might not pay attention to or think about much. Community colleges [are] educating high schoolers, they're doing dual enrollment. They're serving students that want to transfer to four-year institutions. They're serving more traditional community college students that are there for associate's degrees. And, they're also serving people that are there for short-term training and non-credit programs.

But there is reason, I think, for these schools to be concerned from a longer -term perspective. If schools didn't have the funds from the stimulus packages right now, some of them would be in real trouble as their enrollments have fallen.

Gerena: Laura, you bring up a good point about the economic importance of community colleges. Urvi, can you talk a little bit about that, especially the role of these institutions in labor markets?

Neelakantan: Sure.

Laura has already talked about the role of community colleges in retooling people who are in the labor force but have lost their jobs during a recession. Community colleges also facilitate entry into the labor market in the first place. They do this in a number of ways and I'll talk about a few – a couple of direct things that they do and one that's more indirect.

First, community colleges offer a number of credentials and licenses. There isn't much research on this, but what I've seen suggests that those with a credential or a license earn more than those working in the same occupation without one.

In a recent paper economist Peter Blair — who, by the way, was one of our inaugural CORE Week visitors – finds that these credentials and licenses serve as a job market signal to employers. One particularly interesting thing that he found is that credentials and licenses can reduce the wage gap for women and minorities because employers are using the credentials and licenses directly to determine whether the employee is the right fit for the job, rather than trying to make inferences based on age or race or gender or some other factors that are not directly related to the job at hand.

The other direct thing that community colleges do is that they are particularly good at keeping an eye out for occupations in demand and adapting their training to meet employers needs so that the students that they train can be ready for the jobs of today and tomorrow.

The last thing I mention is more indirect, which is that community colleges can help students decide whether four-year college is for them and prepare them to transfer up to one if it is. Our colleague, Nico Trachter, describes community colleges as "stepping stones" for this reason and he has a published paper on the topic. And it's a more indirect role because they're facilitating entry into the labor market through the four-year college path. But it's well known that labor market outcomes are on average, very good for those who complete a four-year degree.

Gerena: You touched on something interesting about [community colleges], that they're really good at keeping an eye on occupations and demand. Why is that? There are four-year institutions that are out there and they are trade programs and so forth. But what positions community colleges to be particularly adept at this?

Neelakantan: I think it's because they see that as one of their central roles, particularly in their local communities. Let's say a new car manufacturing plant moves into a county. The community college in that area is going to work to make sure that people are actually trained to be able to work in that plant.

Gerena: That's a good point. Oftentimes, the whole reason that they were created was to be this flexible institution that would be very in touch with the business community and respond to the changes that are taking place.

Neelakantan: I think the four-year colleges offer more of a broad based general education. To be honest, there's a trade-off.

If you go through a four-year college program, I think you are automatically more agile. You see very low unemployment rates, for example, among those with a four-year degree and I think that's because the retooling is a little bit easier. Students who've gone through four-year colleges have already got this more general training that makes them more adaptable to different jobs.

For a variety of reasons, people are not able to [or] choose not to go to a four-year college. I think that's the case where the community colleges really have a role in helping people find jobs that they wouldn't have got with just a high school diploma, with the understanding that you are trading off some flexibility in the future because you're really training yourself for a particular job today. We have some older work that shows that although community colleges may be doing really well in preparing you for jobs today, that does put you in a little bit of a box if that job, for whatever reason, goes away.

Gerena: That's a good point. There may be a reason why you make that trade-off. Going to a four-year college is a significant time investment. You may find yourself in a situation – particularly the way the economy has been going – that you're suddenly unemployed. So, you're looking around to see what job opportunities are out there and you may not have time to go to a four-year institution, if you haven't been to one already, to put yourself in this more flexible position. You're just saying, "I just need to get to the next job" and community college can help you facilitate that quick glide path to another job.

Neelakantan: I think that's exactly right.

Gerena: Given what you've said about the value of community colleges, is that why students are racking up debt to attend them? After all, most economists would say that such a financial decision makes sense only if students expect to boost their earnings potential with the additional education.

Neelakantan: Yeah, I think that's right. Whether or not it makes sense for an individual to take on debt to attend community college or any college really is a highly individual calculation.

Let's say that I'm the kind of person who's very likely to complete the degree program I sign up for, based on my academic preparedness, how well my high school trained me, my interests, my ability and willingness to put in long hours. If I'm assured of a big premium in earnings relative to what I would have made if I hadn't gone to college, then it probably makes sense for me financially to borrow to finance that program.

Now, that's a lot of ifs. So, I'd encourage anyone thinking about what to do after high school, making this decision for themselves or their dependents, to get help in making this calculation. By the way, our Bank offers a great tool called Invest in What's Next — it's at investinwhatsnext.org – that can help people with exactly this type of decision making.

Gerena: Thanks for mentioning that.

Given that which four-year college, two-year college, to go to college at all, is such an individual decision, why has there been so much discussion among policymakers about making community colleges tuition free? Does affordability matter if there are financing mechanisms already in place to gain those returns in the future in exchange for some sacrifices in the short term?

Neelakantan: The short answer is that it can matter for some people.

I have work in progress with our colleague Kartik Athreya and a couple of other co-authors up at the Board of Governors that suggests that there are three groups of students. Affordability matters to one of those groups, so I'll say a little bit about each of those.

There's one group of students who are very well positioned to succeed in college for all the reasons that I've mentioned earlier – they were really well trained through high school, so their preparedness, their interests, all of that has just sort of fallen into place for them. It doesn't make sense to subsidize tuition for this group because they would enroll and complete at high rates even if there were no subsidy. As you described, the returns for them are worth the cost at present even without the subsidy.

At the opposite end, there's a group of students who choose not to attend college, even though it's heavily subsidized. In large part, it's because they would be very unlikely to finish, and I think students know this about themselves. They would lose time that they can otherwise spend earning in the labor market and have very little benefit to show for it. For this group, too, the subsidy doesn't matter because, as a practical matter, they are not availing of it.

Then there's a group in the middle for whom the subsidy actually changes the calculation. They would choose to attend college if it were subsidized or not if it wasn't. I think we'd get more bang for the buck if we could find a way to identify these students who rely on the subsidy and target subsidies to them, rather than making the blanket for everyone. And again, everything I've said so far applies to all colleges and not just community colleges.

Ullrich: I just wanted to add that in the Fifth District, two of our states already have "free" community college programs: Maryland and West Virginia. West Virginia has West Virginia Invest and Maryland has Maryland Promise that provide students with tuition-free programs at community colleges. The programs differ a bit by state, but they already have those. In most other states, even across the country and certainly in the Fifth District, there are grant programs that do allow most students to already attend community colleges tuition free.

One thing I think a lot of people don't realize is that students of need, if they qualify for the Pell Grant, it will cover tuition at almost all in-state community colleges. There are other grants that can help students as well. So, a lot of the schools I've talked to regularly say [that] covering tuition is not a problem for a student of need. If there's a student that comes in and wants to get a degree or wants to get a certificate, we can help them with tuition.

Gerena: Thank you for mentioning that because, in a way, it sort of reinforces what he was saying to you about. You can have the subsidies in place, but it matters more to some people than it does to others.

Looking forward, what opportunities do you see for community colleges to prepare students for a post-pandemic economy, which is kind of hard to visualize at this moment? Is there anything that they can do to help reverse the declines in labor force participation, and the current worker shortage is a certain sector of sectors that we're seeing right now?

Ullrich: When entering the Fed almost three years ago, I honestly knew very little about community colleges. My background prior to coming to the Fed was in higher education, but I myself have always attended and worked in four-year institutions.

Now that I've spent some time researching [community colleges] and interacting with both leaders and students at institutions, I really have a strong appreciation for the role that these colleges play in their local communities. They train students in such a wide array of fields, I really had no idea – honestly, everything from culinary arts to law enforcement to high end technology, right? We need people being trained to be firemen or to be a plumber or to be a mechanic. These are essential services that we need.

I believe these are the institutions in local communities that can reverse declines in employment in certain sectors. I think community colleges have to play a role in dealing with that as well as worker shortages. But I also strongly believe that they can't do it alone.