Increased Higher Education Spending Benefits Construction

March 12, 2013

Education spending has risen substantially over the last decade as federal loans and grants have encouraged more students than ever to seek a college degree. Increases in spending and enrollment have benefited the construction industry, which makes a looming education bubble more likely to burst, says Douglas French of the Foundation for Economic Education.

  • Hundreds of millions of dollars are being spent building dormitories and gymnasiums, despite continuingly decreasing state funding levels.
  • Major homebuilding companies are viewing dormitory construction as the next boom and have used the new business as a means of weathering the recession.
  • In 2012, $3.7 billion worth of student housing projects traded hands, which was double the previous year's total.
  • Though tuition has increased 440 percent of inflation over the 25 years, developers, who are counting on enrollment trends to continue, are continuing to expand construction.

Between 2013 and 2022, 3 million students will graduate from high school and head off to college. The prospects of a college degree are changing, though, as most college graduates cannot find a job requiring a degree.

  • In 2007, 54.1 percent of 20-to-24-year-olds were employed at jobs requiring a college degree.
  • By 2012, this percentage shrank to 43 percent.

For graduates who cannot make use of their degree following graduation, mountains of student debt create serious challenges. Deferred loans now represent more than 40 percent of all student loan balances.

  • As students and parents continue to pursue the skills that accompany a college degree, government and finance continue to shed jobs.
  • Banks now employ 100,000 fewer workers than at the end of 2007 and the government has shed 580,000 jobs since the end of the recession.
  • Many universities are now offering massive open online classes and online universities are growing in popularity.

Despite these trends, developers continue to build dormitories in hopes of reducing an estimated 1.5 million to 2.15 million bed shortage. Cash-strapped universities cannot front the funds and are instead counting on the private sector and Freddie Mac to continue supporting construction.

Source: Douglas French, "The Dorm Boom: Higher Education's Fellow Traveler," Foundation for Economic Education, March 6, 2013.

 

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