As the risk of recession rises, don’t expect a repeat in 2008 (Opinions)
A few months after the second Trump administration, clear trends are reshaping the situation in higher education. Economic uncertainty arising from inconsistent tariff policies has put businesses and consumers in unpredictable efforts. Meanwhile, efforts by government and congressional leaders have overhauled federal higher education funding, including cuts in research grants and proposed cuts in Pell grants and student loans, posed a major challenge to the industry.
The U.S. economy contracted slightly in the first quarter of 2025, with government instability and unpredictable policies amplifying the risk of recession. These fluctuations have brought some to comparisons with the Great Depression of 2008, especially in public higher education. Although some lessons about the recession of higher education, such as those related to state funding, may not apply due to the unique policies and priorities of the government.
Since the 1980s, economic downturns have increasingly affected public higher education, mainly due to national budget cuts. During the 1980 recession, state education grants for each full-time equivalent student fell 6%, but returned to a recession level by 1985. In contrast, in the Great Recession of 2008, funds fell by nearly 26%, and most states never fully recovered funds, thus reducing the recession budget, which is constantly lowering, which is constantly lowering, which is constantly lowering, which is constantly lowering, which is constantly lowering, which is constantly lowering, which is constantly lowering. student.
For more than a decade in the Great Depression, public institutions worked hard to restore the level of national funding they once received. This extended rehabilitation has seriously affected student loan borrowing. The Great Depression weakened the higher education system as states moved funds to mandatory fees and relied on federal student loan systems and Pell grants to pay for the education of more and more students. As a result, when the state reduces funds, students and their families assume more financial responsibility, resulting in greater student loan debt.
During the Great Depression, funding and shrinking of public institutions decreased, even if unemployed people rose, drove more people to attend college. Prior to 2008, the total enrollment of degree-granting institutions was approximately 18.3 million, but by 2011-12, it exceeded 21 million. This period marked the emergence of a modern student loan crisis. Public institutions are already tightened by reduced funding and face the dual challenge of accommodating more students while maintaining quality. For many students, especially those pursuing a graduate degree, lending becomes necessary. The economic downturn has exacerbated these trends and further consolidated the reliance on debt to fund education.
Future recession may have a more obvious impact on public higher education, especially in terms of state funding. The recently passed House Budget Bill proposes massive cuts to higher education and Medicaid, exacerbating this risk by forcing states to prioritize these funding shortages. As a result, states and students may find themselves unable to rely on federal aid to support education as the legislature shifts resources to more direct needs. Long-term research shows that states will prioritize healthcare funding over higher education. This pattern suggests that recent state investment in higher education can be reversed or significantly reduced even before the recession takes over.
Financial pressures in public institutions are already obvious. Some systems are considering closing branch campuses, while others are cutting plans, laying off employees or struggling to cope with a decline in enrollment. Furthermore, public regional institutions are particularly at risk because they depend heavily on state funding and serve many of the students most vulnerable to financial challenges. In the event of a recession, these institutions may face severe and rapid reductions.
After shrinking, the key consideration is whether a future recession will lead to a registered rebound, similar to what was seen during the Great Recession. This issue can be analyzed through two key factors: (1) the severity of unemployment and (2) the availability of grants, scholarships and loans and the repayment structure of these loans.
During the 2008 crisis, the unemployment rate was 10%, twice as high as before the recession, and 8.6 million jobs were lost. Historically higher unemployment benefits from higher education as individuals try to improve their skills during a downturn. Economists predict that under the current government, the unemployment rate could rise from 4.1% to between 4.7% and 7.5% despite uncertain forecasts due to volatility policies. While higher unemployment rates may lead to more people considering attending colleges, proposed changes to financial aid policies could significantly undermine this trend.
A large bill for the house introduces stricter eligibility requirements for Pell grants, such as linking awards to the threshold for minimum credit hours. Students are required to register at least 30 credits per year to receive the highest award and at least 15 credits per year to be eligible. Additionally, the bill eliminates subsidized student loans, which means students will develop interest when they are still in school. This change could increase the estimated $6,000 debt per undergraduate borrower, increasing the financial burden on students and potentially blocking enrollment.
In terms of repayment, the proposed repayment assistance program will replace existing income-driven repayment options. Unlike the current plan, the rap base is adjusted total income rather than disposable income payments, thus providing higher monthly payments for low-income borrowers. While rap ensures that borrowers do not face negative amortization (which is important for borrowers’ financial and mental distress), this 30-year forgiveness schedule is longer than the current IDR plan, and the lack of inflation adjustments makes it more attractive than the current IDR plan. Together, these changes may deter potential students, especially those from low-income or disadvantaged backgrounds, and reduce graduate enrollment.
The bill also introduces a risk sharing framework that requires institutions to repay a portion of the federal government that has not paid student loans. The framework is based on factors such as student retention and default rates, which may affect admission decisions. Institutions may avoid students who acknowledge that poses financial risks, such as students with low income backgrounds, low precursor performance or non-white students, thereby limiting access and permanent inequality. Additionally, some institutions may opt out of the student loan system altogether, which further limits the opportunities for those who rely on federal aid.
The latest administrative action to suspend international student visa interviews will hinder the ability to recruit international students and eliminate the potential of these students to help subsidize students from low-income families. As a result, institutions have fewer resources to support key groups in the government’s electoral base without burdening U.S. taxpayers. These actions not only increase the cost of higher education, but also seem to be inconsistent with the fiscally conservative ideology.
The massive layoffs by the Ministry of Education delayed financial aid processing and compliance and hindered institutions’ ability to support more low-income students during a downturn. These personnel play a key role in ensuring that the state higher education system receives the funds needed to expand access to low-income students. Their efforts were crucial to promoting student success during the last recession, but the federal government remains an unreliable partner in the current administration.
While the lessons of the Great Recession may provide some insight into public higher education during future recessions, the priorities of the administration and Congressional majority leadership are distinct. Unlike the Great Recession, the next economic downturn may not lead to a surge in higher education enrollment. No positive measures were taken to protect funds, expand financial aid and increase opportunities, and public higher education risks reduced capacity and student outcomes. These changes may undermine the role of higher education as a pathway to economic mobility and social progress.
