Communities and businesses play a crucial role in shaping the Federal Reserve’s monetary policy. To inform our decision-making, the San Francisco Fed hosts discussions with the people we serve so we can hear their stories and perspectives on how economic data translates into real impacts in the Twelfth District. Our “Beyond the Numbers” series shares some of those insights with you.
The individual economic benefits of a post-secondary education are well documented. People with a post-secondary degree have a higher chance of becoming top earners during their professional lives. A degree also helps insulate individuals against the ups and downs of the labor market. With a degree in hand, individuals are less likely to face unemployment and when there is an economic downturn, they are also less likely to lose their jobs.
Beyond these individual benefits, higher education is a fundamental piece of the economy’s human capital infrastructure. By providing people with the training and experience that they need to flourish in their careers, the higher education system supports a skilled labor force and drives the economy’s growth potential.
To fulfill its mandate to achieve maximum employment, along with price stability, it is critical that the SF Fed understand key contributors to the health of the labor force like higher education. To deepen this understanding, Mary Daly, President and CEO of the SF Fed, sat down with Twelfth District higher education leaders in February to hear how they were managing the lingering effects of pandemic disruptions and how they saw the near-term future of their institutions. The participants lead public universities and community colleges in Arizona, California, Washington, and Utah that are designated or emerging Hispanic Serving Institutions. Roughly one third of the Twelfth District’s population is Hispanic, according to the U.S. Census Bureau, and trends among Hispanic students have important implications for the future of the labor force.
Like so many other American institutions, higher education faced severe disruptions related to the pandemic. To keep students, faculty and staff safe, colleges and universities altered their basic operations almost overnight, introducing widespread testing and community health surveillance and integrating remote learning options into the curriculum. The pandemic also caused enrollment declines. Some institutions, facing precipitous drops in students, were forced to close.
Enrollment and Budget Trends
With these effects in mind, President Daly began the conversation by asking roundtable participants whether the negative pandemic trends on enrollment had continued or had started to reverse.
Across the board, the education leaders emphasized the unprecedented loss of students their campuses experienced because of Covid-19. While enrollment declines have slowed recently, falling from above 20% to decreases in the high single digits, the participants noted that the overall trend remains negative.
The schools represented on the panel all had significant numbers of students of color and first-generation students. The leaders noted that declines in enrollment had affected these groups especially hard. The challenges for these specific groups also extended to retention where it was more difficult to ensure that these students stayed in school and finished their degrees.
The continuing negative enrollment trend at the schools has a significant spillover effect for their budget situations. Many of the institutions represented in the roundtable depend to a significant extent on student tuition to fund their operations. The enrollment drops of the last years have already forced leaders to make tough budget choices. As they noted, the continuing negative trend portends a continuation of this budget hardship.
A Challenging Environment Spurs New Thinking around Policy and Financial Aid
To keep more students on campus, leaders said they are re-thinking long-standing policies related to grading, workplace learning, curriculum, and other aspects of campus operations. The pandemic opened new opportunities to rethink existing approaches as the colleges and universities suspended or changed many rules and policies to adapt their operations to the demands of pandemic-learning.
Apart from the lingering pandemic-related challenges, President Daly and the participants also discussed how current economic conditions, particularly higher costs associated with inflation and the strong labor market, are impacting their institutions.
The education leaders noted that the tight labor market has made it difficult to retain faculty and staff. This is especially true for subject areas such as computer programming, cyber-security, artificial intelligence, and nursing. The colleges and universities shared that they cannot compete with the salaries and benefits offered in the private sector.
The general rise in wages and higher costs have also changed the institutions’ approach to campus jobs and financial aid. The roundtable participants observed that they have had to raise wages for campus jobs to be competitive for student workers. Furthermore, the leaders noted that inflation has been particularly hard on students from low-income households. Even with free or reduced tuition, these students find it difficult to stay in school and many have had to work to cover basic living expenses. To support these students, the institutions have supplemented their financial aid packages and increased the availability of wrap-around services such as access to affordable housing.
The Strong Labor Market and the Long-term Benefits of Higher Education
Finally, the leaders discussed the connection between the strong labor market and the continuing downward pressure on enrollments. It is well-documented that pursuing post-secondary education leads to long-term economic gains for graduates. This investment does entail an economic sacrifice in the short-term, however, as many students forgo earnings during their studies. A strong labor market with plentiful and high-paying jobs makes this trade-off seem less attractive. Roundtable participants have seen this dynamic in action, noting that young people were choosing the short-term benefits of immediate employment instead of enrolling in school.
Insights like these confirmed the importance of the Federal Reserve’s community engagement efforts. The conversation with the education leaders underscored the importance of the Federal Reserve’s efforts to tame inflation and pursue maximum employment. Using its monetary policy tools to bring stability to prices will have a positive impact on both the short-term and long-term health of the Twelfth District’s higher education sector. The San Francisco Fed is dedicated to meeting the needs of the people we serve, and we will continue to listen to and learn from our communities.
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The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.