Coronavirus Will End the Golden Age for College Towns - Bloomberg

Coronavirus Will End the Golden Age for College Towns - Bloomberg

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.

By Noah Smith

May 16, 2020, 1:00 PM GMT+1

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.

This column does not necessarily reflect the opinion of the
editorial board or Bloomberg LP and its owners.

To contact the author of this story:

Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:

James Greiff at jgreiff@bloomberg.net