Why falling college enrollment is a good sign for the U.S. economy

The number of American college students has fallen below 20 million for the first time since the late recession. Is this the first wave of the threatened collapse in traditional college attendance that is supposed to drive small private colleges out of business? Maybe not, writes analyst Sameer Gokhale of Janney Capital Markets:

"College and graduate school enrollment data from the Census Bureau showed a combined decline to 19.9 million students in 2012 from 20.4 million in 2011 and 20.3 million in 2010. The decline in 2011 was primarily the result of lower enrollments among students age 25 and older," and confirms an earlier drop recorded by the US Department of Education, which counts a little differently, according to Gokhale, who covers student lender Sallie Mae and other consumer credit companies.

Isn't lower attendance bad for the scholarly-industrial complex, one of the few fast-growing and price-inflating industries of the past few years? Gokhale sees  "no need to panic:" While it was the first drop since 2006, enrollments also fell in 1998 and 1994 for example -- years that coincided with "increased job creation," he writes.

"We believe there has historically been an inverse relationship between enrollments and the health of the economy. When the economy weakens and there are fewer jobs available, more people tend to go back to college or graduate school and vice versa. It is possible that some of the decline in enrollments is attributable to this. The fact that older students are the ones contributing the most to the decline in enrollments seems to support this hypothesis."

So the stronger economy, plus a drop in government loans to high-dropout for-profit schools, is mostly likely responsible for the "near-term decline in enrollments." Take that away and college attendance will likely continue to rise by 1% to 1.5% a year, in line with DoE forecasts and the expected national growth in Grades 1-12 enrollment from around 55 million last year to 58 million by 2020, Gokhale concludes.