HOW TO SAVCE HIGHER EDUCATION: A New Deal for America's sinking colleges.

• Author: Carey, Kevin

There has never been a crisis in American higher education like the one we are facing today. While fall enrollment numbers are still in flux as colleges scramble to deal with an out-of-control pandemic, there is no question that all but the wealthiest institutions are facing deep financial pain and potential catastrophe. Even relatively conservative estimates like those published by the college financial planning firm Edmit suggest that, thanks to declining revenue and investment returns, one-third of all private colleges are now on track to run out of money within six years--a nearly 50 percent increase in estimates from 2019--and many are vulnerable to bankruptcy much sooner. Public universities, meanwhile, are about to be hammered by steep cuts in government funding, forcing them to raise prices, cut services, and turn away students, including millions of newly unemployed workers.

The higher education system was weak before the coronavirus hit. Thanks to long-term enrollment declines, recent years have already seen a spate of small-college bankruptcies, each a minor tragedy of shocked students, heartsick alumni, and another town or city suddenly without a vital institution whose generational roots were somehow not deep enough. Many regional public universities had been steadily drained of vitality as state budget cuts accumulated, year after year.

But COVID-19 has turbocharged all of these trends, with serious consequences for America's most vulnerable. Low-income and first-generation students, immigrants, and people of color will be more likely to delay going to college or to drop out. Because colleges will charge more and families will have less, many more students will take out loans and, with diplomas or without, end up in default, widening economic inequality and the racial wealth gap. For many poorer communities, colleges have been like stubborn plants, protecting them from the erosion of globalization and economic disruption. When their schools close, it will further social decay.

The need for college won't go away, however, particularly with widespread unemployment. For-profit colleges backed by private equity will surge into the gap, using aggressive and deceptive marketing tactics to sign up naive students who will pay outsized tuition with no-questions-asked loans from the U.S. Department of Education. Much of that debt will never be repaid, ruining credit, wasting lives, and costing taxpayers billions.

Many of these calamities can and should be mitigated in the short run by a sufficiently large federal rescue package. But even that will leave the system significantly worse than it was pre-pandemic: diminished, sclerotic, and vulnerable to the next unforeseen disaster. A fundamentally different policy architecture is needed for American higher education, and the best time to build it is now. This essay describes how that plan would work.

The plan would change how the federal government supports colleges and universities, staving off immediate disaster, boosting resources for historically underfunded schools, and fundamentally realigning the financial incentives that drive many colleges to put money and status ahead of students. At the same time, the plan would usher in a new era of intercollegiate cooperation, transforming an archipelago of endangered, isolated institutions into a network of technology-enabled learning communities.

Not all colleges would choose to participate in such a network, preserving the American tradition of diversity and independence in higher learning. But those outside the system would mostly be rich colleges that mostly serve rich students, and we would tax them in a way that helps pay for everyone else.

The result would be a new higher education ecosystem that works for everyone, not just the chosen few, for a long time, the federal government did very little to fund higher learning. Until the mid-20th century, states paid the overwhelming majority of the costs for public colleges, students paid for private ones, and nobody paid that much. But after World War II, higher learning opened up to the masses as matriculation became a path to upward mobility for the burgeoning middle class, women entered the labor market, and the economy shifted toward white-collar work. The GI Bill set the precedent for the federal government's market-oriented, voucher-based method for supporting higher education institutions: Give or lend students money, and let them decide where to spend it.

This system, which persists to this day, has had its virtues. Collegiate learning and scholarship are complicated, sometimes esoteric, and not especially amenable to the kind of direct government regulation that often follows direct government subsidies. The market approach helped make American higher education uniquely large and diverse, encompassing thousands of institutions with different missions, philosophies, and student bodies. Nearly every existing college found a place in the new order. Elite research universities expanded spectacularly, attracting money and talent from around the world.

But the system rested on the strength of a few key assumptions that have steadily weakened over time. It presupposed that state governments would continue to sustain and expand public colleges and universities, as they had while building out regional public universities and community colleges in the 1950s, '60s, and '70s. That turned out to be deeply mistaken. Some states, like California, New York, and North Carolina, invested in their public universities and kept tuition low. But others, like Pennsylvania, Colorado, and New Hampshire, were stingy, letting students and parents foot the bill. And in every economic downturn since the 1980s, states have disproportionately cut college and university budgets.

The logic was always the same--unlike K-12 schools, prisons, and health care for the poor, higher education could raise prices to make up for lost revenue. So tuition increased during recessions to fill the budget gaps, backed by a federal loan program with bottomless...