The recession continues to create challenges for higher education in the US. Appropriate responses depend on expectations for the economy in the future, and whether the shocks we have experienced are short- or longer-term trends. Moody’s US Higher Education Outlook Negative in 2013 report does little to address these issues.
The optimal response to a cyclical change is to not allow significant changes to the structure of the colleges and universities. But if a change is permanent, adjustments are warranted. Of course, it is difficult to know whether shocks are permanent or temporary – there is a tendency to assume positive shocks are permanent and negative ones temporary, leading to inappropriate policy responses when wrong. This explains some of the problems facing many colleges and universities.
One of the most important developments in the US economy is the growth of real incomes. In the past decade, real incomes have suffered, putting downward pressure on tuition increases at many institutions. If real income growth picks up, so will the ability of some institutions to increase tuition.