ARBOR OUTLOOK: Hard times for colleges and college towns
Margaret R. McDowell
"So be true to your school now; Just like you would to your girl or guy ... Be true to your school now; And let your colors fly." — "Be True to Your School" as performed by The Beach Boys The future of many businesses and institutions are now at risk, primarily due to the Covid-19 virus. Those that were struggling prior to the virus are in an even more vulnerable position now. These include many colleges and the communities that surround them. One of the fallouts from the Great Recession was that recent graduates carrying significant loan debt were, in many cases, not making enough to pay back those loans with any degree of efficacy. Forbes reports that 2019 student loan debt includes some 45 million borrowers with more than $1.5 trillion in loans to be repaid. This makes student loan debt "the second highest consumer debt category-behind only mortgage debt-and higher than both credit cards and auto loans." Over 11% of student loans are in default. So even before the spread of Covid-19, the obvious question being asked by families all over the country was: if a college degree does not lead to a high-paying job or a bright economic future, why saddle yourself with large loans to attend? The corollary question is, of course, why attend college at all? A recent Georgetown University study reveals that college graduates earn $1 million more than their counterparts with high school degrees over their lifetimes. The disparity is greater in some places, like Washington, D.C., New York and California, and lesser in others. So, over time, earning a college degree still pays off financially. But many of the colleges offering those degrees are in trouble. And so are the surrounding towns that depend on them. California has already declared that their state colleges will offer only online courses this fall. So those colleges will lose housing and other on-campus revenue. Applications and enrollment are expected to decrease throughout the country this fall. As a result, the towns around these schools will be negatively affected by the lack of spending. A recent Wall Street Journal article details the financial difficulties surrounding Virginia Tech University and the town of Blacksburg, Virginia. “The fall is an opportunity for us to bring the campus back to life to some degree,” Virginia Tech's president, Tim Sands, said recently. “We're really hoping and planning that it will be an in-person fall, but with caveats – and there are still some major decisions to be made.” Meanwhile, local businesses dependent upon student spending are holding their breath. Virginia Tech creates some $1.2 billion in local income, about half of Blacksburg's economy. And the relationship there is not unique. Towns across the country will suffer grave economic loss if students, faculty and campus employees do not return for the fall semester. Joshua Roseberry, who manages a bed and breakfast in Blacksburg, says of his hostel's dependence on the university: “It's similar to a beach community ... You take away the beach, and there's nothing else.” Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a fiduciary, “fee-only” registered investment advisory firm located near Destin, FL. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.