Demographic Destiny?

This is Future youe with Jeff Salingo and Michael Horn.

Welcome to the latest episode of Future youe. I'm Michael Horne, the chief strategy Officer for the Entangled Group in Education Technology Studio and a distinguished fellow at the Christiansen Institute for Disruptive Innovation, joined by my colleague Jeff Salingo.

It's great to be here, Michael. I'm Jeff Selingo. I'm a special advisor at Arizona State University and I write for the Washington Post in the Atlantic along with a couple of other places, former editor of the Chronicle of Higher Education. And we're here in Washington D.C. at the street side studios of Arizona State University, their brand new Washington D.C. center. In fact, they literally just moved in recently and they're still doing some work on it. So you might hear a drill or a hammer once in a while or at least the horns of a beautiful day here in Washington dc. So we're joined on this episode of Future youe by Nathan Grah, who is an economics professor at Carl Carleton College and who wrote kind of a fascinating academic book, and I say that in a very nice way, an academic book called Demographics and the Demand for Higher Education. And he's joining us from beautiful, I'm assuming beautiful Minnesota. Nathan, it's great to have you here.

Thanks for having me.

So, Nathan, how does an economics professor at a great liberal arts college like Carleton College end up writing a book about demographics in higher education?

So I served as Carleton's associate dean of the college for a few years a little bit ago. And during that time we went through a strategic planning exercise. And it began with a data presentation, all the data that might set the context for our planning and our admissions. VP shared data from the Western Interstate Commission for Higher Education that projected the number of high school graduates over the next 20 or so years. And I saw this gift gaping, bleeding red northeastern quadrant of the country. My first thought was, wow, maybe I should get my resume together. This does not look good for higher education in general or Carleton or any other higher ed institution because that's where we get a lot of our students. But my second thought was I have no idea if this has anything to do with us. We're not recruiting the average student in the United States, the average high school student. We're recruiting, as every institution does, a sliver. And so I was just left with this weird mix of emotions of boy, this seems like demographic change that's coming could be really important or maybe not. And I think a lot of higher ed institutional leaders are in that spot where we hear the stories about the headcount data, it's enough to get our anxieties up, but it's not data that's actionable. It's so clear that we don't recruit the average student and that we're recruiting a sliver. And so I started thinking, how can we do better than this? How can we somehow account for the differences in the probability of attendance in general attendance at institutions of particular types?

And so you ended up doing this thing called the Higher Education Demand Index in the book where you kind of really take a deeper dive on these numbers that Witchy, as you mentioned, comes out with on a regular basis. And there's these incredible maps in the book which kind of show growth of high school student, of high school, of students who will actually attend universities, not just high school graduates, but students will actually attend. And you break it down by essentially the, the national universities, those are like the top rated 50 universities in US news and world Report. And then everyone else, in other words, the students will go to more of the regional private and public colleges. Tell us a little bit about this demand index because I kind of find it fascinating and it really takes a deeper dive than those witchy numbers do.

Yeah, so the idea is pretty simple. The Department of Education has longitudinal surveys that track students and their college going behaviors. And it has demographic markers and it has location markers. And so from that data we can actually figure out whether this student attended an institution, a college or University ranked in U.S. news and World Report's top 50, or if they went to a school in the next tier ranked 51 to 100, or if they went to a two year college. And so what I did was simply create probability estimates as a function of the demographic characteristics that we can observe. And then I can use those probability models and apply them to the, the broader census data sets that we have that have the head counts. And so instead of an individual student just counting as one, no matter who they are, all of a sudden it's well, this, this kid represents a 30% probability that they'll attend an elite college or a 15% chance that they'll attend a two year college or whatever the case may be.

And so your bottom. Right, go ahead. So your bottom line is that, you know, the top 50 are probably okay in this demographic wave no matter where they're located, but everyone else is. The numbers are depending on where they're located.

Yeah, and that was the sort of one of the big takeaways that differentiated from the dominant narrative of oh my gosh, everything's falling apart. It comes from two things. There's an increasing number of Asian Americans. They attend elite colleges with an incredibly high propensity. And then we've also seen in the last several decades an increase in educational acquisition. Those people are now in their 30s and over the next 20 years they'll become the parents of the college going generation. And people who have gone to college are more likely to send their kids to college in general. Four year colleges in particular and elite four year colleges even more so. Those two trends of the shifting in the demographic population toward Asians and the increasing educational attainment of parents will support the upper end of the industry. Now, the Northeast is still a pretty tough place. So if you're a school that's like Bates and Bowdoin say, that are drawing about two thirds of their students from the Mid Atlantic and New England, they're going to face some challenges. And as a result the Carletons of the world may face challenges because I don't expect Bates and Bowdoin to just sit there and take it. They're going to start looking where we've been recruiting. So there are going to be some interesting things at the top. But it's a much, much easier picture than when you look for the regional four year colleges where you've got some growth in California and some growth in the Mountain west, but basically the country is just tough all around.

So let's dive in to those implications for those regional colleges. You make the point. I've read you make the point in several places now that this doesn't have to be destiny for a college just because we see the demographics rolling out the way they are, they can actually do something to shape that future. So I'm curious, a double click on the Bates Bowdoin. What do you expect them to do? And then what would you recommend an institution maybe further down the line or pecking order, so to speak, in those regions to do as well so that they don't, don't get swept away by these demographics that we see coming down the pipeline.

First, I would say in general being nimble, agile, adaptable is going to be important. We're going to see some dramatic demographic change. And if institutions even right now are looking toward that future and taking a passive approach, that's what's going to lead to some really, really disruptive change. But if instead we are preparing ourselves for a future that is not only going to be different but it's going to be evolving, then it increases the odds that we get some less unhappy outcomes. I'm expecting people like Bates and Bowdoin, because they have a national reach, to be expanding recruitment elsewhere outside the Northeast. I also anticipate that because they do have a regional feel that they're not going to want to give up. They're going to be competing harder for students who are currently going to some of the regional schools. And so there's going to be a change in the landscape both within the Northeast but also throughout the country. If we move down, eventually demographics do sort of become destiny. There just aren't that many students. The book also plays around with questions like what if we were to dramatically increase the college going rates among lower income kids or among underrepresented racial groups? The answer is you can increase that attendance rate a lot and you're still not going to reverse the effects of the birth dearth that kicked off with the financial crisis.

Is that because. Is that because those students wouldn't necessarily travel hundreds of miles to go away to college? Is that part of the problem?

Well, I'm saying even if they would be willing to, you can dramatically increase the recruitment rate. But the demographic shifts that are coming are big enough that the industry as a whole is going to see fewer students with almost certainty. So some schools are going to have to face responses that are retrenchment. I write in the book that this doesn't have to be all bad. If we've expanded the number of adjunct faculty, cutting back on those positions will save money, and that might actually be a positive thing, but it will still be a very painful thing. Other schools are going to find ways to tap into different markets. You might see schools who are moving toward an online platform. Of course, not everybody can succeed in that. I've talked to one school in the Northeast that is thinking about the fact that in the Northeast they still have industry that needs workers. And as the number of students coming through the pipeline goes down, those industries are really going to be starved. So might there be a role for public policy to subsidize the student loan repayment of people who move to the region from outside? So they're hoping to recruit outside the Northeast. I think there are going to be a lot of different paths forward for institutions, some of which will be in retrenchment and some of which will be creative moves forward.

So I'm curious about that retrenchment. Just to double click on that again, you said the adjunct faculty that's obviously grown significantly over the last several years. But really what you're diving into is this issue of fixed costs versus variable Costs in an institution. As you sat at Carleton, how did you think about what is actually cuttable and what is getting, you know, into the bone of what makes Carleton Carlton or anywhere else what it is?

Yeah, well, certainly there are things that you can't cut, like buildings that exist. And that suggests in the next decade or so we shouldn't be making additional fixed cost investments in many parts of the country because you're just going to wish that you hadn't made them. But yes, there are going to be places where there are going to be tough calls to make. With fewer students, you can maintain the same level of state funding or even cut state funding in aggregate and have sufficient per pupil expenditures. So I don't know whether it will cut to the bone in terms of the individual student's experience. But on the other hand, if you're the staff member who's being cut because we just don't have as many students, that's pretty painful. Another place I think schools will want to look again, not that they haven't been looking, is with retention. A student who doesn't leave is as good as a student who's recruited. And it might be cheaper to come up with new solutions as much as we've looked at the retention issue to retention than it is to recruit a new student. And when the, when the available prospective pool is big and growing, it's easy to say, well, boy, that, that next step on retention is expensive and I can just replace this lost student with another one. But when we get to a situation where that's not going on, people might look again at retention and try to figure out how can we make the value proposition of what we're doing strong enough that these students stay.

So two quick things, Nathan. First of all, we're not only talking about states here, but one of the things that's interesting about your demand index is you even at specific city markets, city based metropolitan areas. And this kind of fascinated me because I'm a trustee at Ithaca College, where I got my undergrad degree. And you know, Ithaca in upstate New York, 6,000 undergraduates, they actually draw a lot from the northeast, but particularly in cities like Boston and New York City. And when I looked at that, I was like, wow, just going deeper into those markets is not going to help. So that's number one. But number two, and just on a personal note, you really note the downturn in the end of next decade between 2026 approximately and 2030. And I noted that because I have a six year old and an eight year old at home. And one will be going to college maybe in 2028 and the other in 2030. So does that mean it's going to be just easier for them to get in?

I think in general it does. So the 2026 date is tied to 18 years after the onset of the financial crisis when the birth rate decreased by about 13% over just a few years and we still haven't rebounded. So if you're a parent of a student who's going to be going to college in 2028, probably you're going to have schools, especially in the Northeast, who are looking more carefully to attract smart kids who are from that area because they just don't have as many to pick from anymore. So maybe you don't need 17 extracurriculars and be fluent in five languages and save the world to get in anymore. So it might get a little bit easier. There's actually an economic literature looking at if you're part of a smaller birth cohort, do you have an easier time of it? Not only do we seem to see an easier time at the early parts of students career, but even decades after, it seems to be if you come out in a time with a small birth cohort where your supplied skills are scarce, things go better for you in the initial job market placement. And we can still see evidence of that for decades beyond. So kids who come of age in that time period might have a better road ahead.

Just fascinating. Appreciate you coming on again, Nathan Graw, with the new book Demographics and the Demand for Higher Education. I'm particularly appreciative you had that oh wow, what's going on here moment at Carleton so you could write this book for us and learn and a lot more to dig in on in the future. And thank you for joining us on Future youe.

Thank you for having me.

Welcome back to Future you.

I'm Michael Horne. Just finished up our interview with Nathan Groen. Fascinating conversation, Jeff. I thought he actually made demographics really come alive in a way that was both tantalizing and a little scary, I suspect for some colleges and universities. But, but the point that one point that jumped out to me, he made this point, the top 50 colleges will be fine. They can recruit nationwide and so forth. And yet I remember in your book Life After College you made this point that struck with me as well, which is that this notion of a national college of colleges not just recruiting from their region, is actually a new phenomenon around 1990 or something like that, 1980,

essentially, because there were a couple things that happened One was it was become much cheaper to fly after deregulation and the rise of discount airlines. So you could get cross country a lot easier. Discount communication was much easier. You didn't have to wait until after 11 o' clock to make a long distance phone call home. So those two things happened. But then in the 1980s also marketing became much easier to reach people across the country. And the big thing was also the US News and World Report rankings, which now gave people in different parts of the country a better sense of what the national market was like. So this idea of going away to college is really kind of a recent phenomenon. And it really started in the 80s and really grew then in the 90s and in last decade where people going a couple states away was not a big thing. And I think what Nathan brings up is that yes, the top 50 could continue to do that, but a lot of other colleges think that's going to be their solution. So if you're a college in Massachusetts or Ohio and you're looking at the local demographics and maybe you're attracting students from a couple of states away, you're now thinking, oh, I'll just go to California or Arizona or Texas or Florida and I'll get more students. And it's just not that easy. You know, I did a case study for the Chronicle of Higher Education last year and I looked at Saint Louis University, which really started this like a decade ago, where they started looking in new markets because, you know, the Midwest is not a great market to be in either. And they had. It took them like five years to start really yielding more students from places like California and Texas. And the other thing is, not only do you have to attract them with boatloads of money to get them to travel a couple states away if you're not a national.

So there's a huge sustainable question.

Yeah. Question. But also when you start to get these students from far away, what happens to them at Thanksgiving break or even a fall break? Then you have to start thinking of retention issues as well.

So something you asked him about, he didn't bite on, but was basically because he had modeled it, you know, either way, I think was the point, but was some of these students come from families and cultures where going away to college isn't something that is going to be prized or will be looked fondly on. Can you dig a little bit deeper in what you were getting at there?

I mean, so Texas is a great example of this. Everybody looks at the population boom in Texas and over the next 10 years they are going to provide a lot of high school graduates, huge Hispanic population. And historically Latinos and Latinas just have not traveled far to college. They like to stay close to home, they like to stay close to their family. There's a lot of research on this. So the fact that we think we're just going to go into Texas and start to attract students who will go four or five states away, especially to, you know, the cold weather Northeast, I think is a fool's errand on parts of many colleges. The other thing is this idea of state funding. And you know, many states, you know, taking students away from California has been attractive because they haven't been able to be served by Cal State or uc. Well, what happens when California, if California gets its ACT together or Texas or Florida and they start to say, hey, we don't want this brain drain, we don't want all these students leaving, we're going to do more things to keep them in state. Suddenly a public college in Texas or Florida or California is going to look a lot more attractive than an out of state private institution or public institution at that.

So I was struck by this because we think a lot about how the per pupil funding in higher ed from public sources has declined over many, many years now. The absolute number has actually gone up in terms of absolute funding. The point is just there's a lot more students in higher education than there were 30 years ago. And so on a per pupil basis, it's lower. But what's interesting and I never thought about is we keep saying, oh, pensions and health care costs and retirees going to take even more of the state budget and it's going to be even less for higher ed. But if there's fewer students and we can just maintain higher ed levels, per pupil funding might actually go up over the next 20 years, which might be this odd countervailing trend that is really helpful for public institutions and actually extremely damaging, I would think, for private institutions.

Yeah, not only private institutions, but out of state publics. Right. So there are more freshmen now from outside of Alabama at the University of Alabama than there are from in state. Right. So we've also seen some state public institutions take advantage of these issues in the states to try to attract them. You know, I was interested in Michael and what he was talking how do colleges, universities, especially in the Midwest and Northeast, react to this? Right. And he talked about them becoming more nimble and agile. You know, you're from Massachusetts. And when he. When I look at the demographics of a state like Massachusetts, it's pretty grim in terms of its 18 to 24 year old population over the next decade. And we also know there are a lot of colleges in Massachusetts. So what do those institutions do given these numbers?

You know, nimble and agile, I think is an easy thing to say. It's a really, really hard thing to do. And it gets at the core of business model reinvention. I know that's not a term higher ed loves to use, but it's something that they need to think about. How do you create sustainable revenue sources to support the missions that they play and for their community and stakeholders? And that's when we say business model, that's all we really mean. And how do we do it in a way that doesn't upset the current students and alumni at the same time? And so, you know, I think this example, LaSalle College in Mount Ida, potentially merging in Newton, which is part of the greater Boston area, is really a harbinger of things to come. My read of it is those are actually two healthy small colleges. They've both been growing over the last many years. Yes, they have small endowments and so forth, but they basically read the tea leaves and said it doesn't make sense to stay apart. We've started sharing all these services. We're going to merge and get ahead of this from a position of strength. At the same time, you see things like Wheelock College a effectively being bought by Boston University, or you might say being saved by Boston University to preserve some historical tradition in place for the alumni.

So do you see a lot more mergers in the future? Do you see some of these institutions? You know, Clay talks a lot about, you know, the bottom 25% of every tier of institutions going out of business in the next decade. Plus it's really hard to put a college out of business. Just look, you know, we're Here in Washington D.C. one state over in Virginia and the Sweetbria kicking, still kicking. The governor got involved, the AG got involved and they have 700 students there. Right. So what do you see happening in a place like Massachusetts, for example? Let's just look at one state.

So I think there are going to be some closures because just quite frankly, a lot of these institutions to maintain enrollment right now are giving huge tuition discounting. Right. And they're drawing down from the endowment. And if you're spending 10% from your endowment, you're going to not have an endowment in, you know, 20 years or something like that if you give some compounding and assume the markets are reasonable. So it's just going to really hurt These institutions, and they are huge fixed costs, not just of buildings, but also tenured faculty and things of that nature. And so some of these places I just don't think will be sustainable. And you will see some closures. And that's what will also drive some of the M and A activity as well. And I think those institutions that are most nimble will get ahead of those partnerships. Not necessarily full mergers and acquisitions, but different types of partnerships where they're maybe sharing. You have a great curriculum program in certain field that's in high demand in healthcare, which is a huge area in Boston with an aging population, also a great biotechnology sector, you know, healthcare in a variety of ways will be something that is in demand. And in the Massachusetts area, how do we leverage your expertise in this particular space and then also share it with my campus? Maybe that's much further west with a declining population of 18 to 24 year olds, but need for healthcare workers in these communities to support an aging population and so creativity around that. The other thing I would say is fundamentally, you know, what Paul LeBlanc did at Southern New Hampshire University and what Michael Crow has done at Arizona State University, where we get to record in Washington D.C. no less. This podcast is, is they were really good about creating independent divisions with the freedom to rethink what does this higher education model look like, who are we serving and how are we doing it and how are we financing it? And that autonomy from, dare I say it, shared governance and the ability to say we're going to figure this out and by the way, it'll support the existing institution if we do it right, I think is really important. So part of being nimble and agile is being creative about creating new programs and new programs that look different from what you've always had.

Well, and I think that's an important point. As you know, I just fit finished a paper for Entangled Solutions on Chief Innovation Officers and Entangled supporting us in this podcast as well. And part of what we learned from that paper was that it's really creating this space for innovation. You don't necessarily need to create a chief Innovation officer position. It could be an associate provost or something, but it needs to have somebody who is focused on this area of innovation and in some cases may even go off campus. Just down the road here at Georgetown University, Randy Bass, who is an associate provost there, has a little skunk works operation that's called the Little Red House. It's literally a little red house, 18th century house across the street from the main campus in Georgetown. They're doing all of their innovation work where he has the freedom to do that. And so I think it's really important for colleges and universities as they think about becoming more agile and more nimble, is that they have to really create space outside of the traditional university to do this.

Yeah. If I recommended one book about this, it would be Dual Transformation by Scott Anthony Clark Gilbert, who was president of BYU Idaho, now president of byu. I'm going to mess up the name, but Pathways Worldwide or whatever they call it, it's their Pathways program, an online program, terrifically innovative and it's a great book about how do you continue to do the core of what you you've done and improve that simultaneously launching these new entities that have the freedom to rethink and set up what they call a capabilities exchange. Basically this thing that sits in the middle of the existing and the new and helps the new get what it needs, but doesn't impose old values and old processes on it to burden it. And I think really getting that balance right at an institution of higher education is really important from a mission perspective, a why perspective as well as a what are we doing and how do we do it in a respectful way that doesn't tell a faculty member your jobs change tomorrow, which is just a non starter.

You know, the other thing that Nathan and he didn't bite at the end there when I was asking him about kind of cities, that's kind of really what fascinated me about his hire a demand index was that as I mentioned to him, you know, I'm on the board at Ithaca College and you know, 6,000 undergrads at a tuition dependent institution, largely regional place that mostly, you know, mid Atlantic and northeast, they go deep into places like New York City and in Boston in particular. And really what I found from his book that fascinated me, I always thought this was a rural problem in particularly in the northeast and the mid Atlantic, but really it's also a city problem.

Right.

We're not going to have a lot of these graduates even from city. And also the other point that he brought up that I thought was interesting was about the college going rate. Right. So he thinks that it might go up a little bit because more parents will be college educated. But you know, colleges and universities have really depended about that rate continuing to go up. You know, it's around 70% of high school graduates now go right on to college three months after a high school graduation. But for this to work, that number either has to stay the same or keep going because if it starts going down or even remains flat. Given the demographics, we're going to see big time drops in higher education enrollment.

Yeah, I think it's a terrific point. I'm just curious and this is a speculation question for you, which is, as you wrote about in Life After College, again, that if you're in a city, if you're an institution in a city, you're probably well positioned because there are jobs there and you can attract people from outside of the region. Based on what you've read in the book about some of these cities actually having declining populations, do you still.

No, I still think that. I think that they're going to be, I think they're going to be positions of strength like in this city. We're here in Washington, D.C. and you know, we have George Washington University down the street, American University up the street, you know, Catholic and Trinity. I think they're going to be in great positions. I do worry about those institutions that are kind of out in the middle of nowhere and trying to pull from the cities. Trying to pull from the cities.

Right.

Because if you have a declining, if you have a declining population base of high school graduates, that's going to be, that's be going to, going to be really tough.

Well, another great conversation and a great opportunity to explore it on the campus of Arizona State University in Washington, D.C. thanks for joining us at Future youe. And again, if you want to reach Jeff Salingo on the web, you can get him@jeffsalingo.com or on Twitter Salingo. And I'm Michael Horn. You can get me at michaelbhorn.com or ichaelbhorn on Twitter. And again, a reminder to rate us and subscribe to us on itunes. That helps us find more listeners and more listeners means we get more good ideas and more interesting conversations. So thanks so much for joining us. We'll see you next time.

And it's great to be here from Washington, D.C. and Arizona State street side studios here at 18th and I. And thanks from Michael and I and we'll see you soon.