The widening education gap may tear the economy apart

It's no secret that in this economy the well off, or "haves," have done very well at the expense of everyone else. We see it in the record-high stock market, the expiration of extra jobless benefits and the higher death rates among Black people from Covid-19, to name just a few examples. The return to schools will drive these inequities further part, with long lasting economic effects.

The haves get the bulk of the attention. Harvard University made news when it decided to make classes classes largely online, and again when many freshman deferred enrollment. With its immense endowment, Harvard will be fine. So, too, will the school's typical student, who comes from a household with an income that is three times the national median. Privilege for the privileged.

The "have nots" are the ones we need to worry about. Among the 19.7 million undergraduates who were expected to enroll this year, less than half a percent will attend an Ivy League school, while millions will go to college part time and to two-year institutions. Moreover, when the have nots attend college, they get less out of it than the haves. Individuals who drop out of college are half as likely as those who complete a bachelor's degree to say that the benefits exceeded the costs. It is even worse for those who attend private for-profit colleges, are the first in their families to go to college or are people of color.

The Covid-19 pandemic will exacerbate the disparities in educational outcomes, much as the Great Recession did. In 2008, attendance shot up at private for-profit colleges, and total student loan debt climbed, reaching $1.7 trillion this year. Delinquencies rose, too, especially among low-income students. The adverse effects were wide ranging and long lasting, with many young adults held back from starting families and buying homes. A repeat in 2020 will hold the next generation back.

Education remains the main path for the less privileged to attain advancement and financial security. Juan Salgado, Chancellor of the City Colleges of Chicago, spoke at a Federal Reserve conference in 2019 on ways to strengthen the pathway. He shared a powerful video in which Sam Villalobos, Class of 2018, described the middle class as the "classic American dream." Chloe Caston-Sanders, a current student, noted that "not everyone is okay with a minimum wage job" and we need "pathway programs to doctors or careers that aren't easily accessible." They spoke with urgency in the best labor market in decades but are now living in the worst.

The outlook is grim. The City Colleges and other public institutions depend heavily on state government funding, which is insufficient even in good times. They have no multi-billion-dollar endowment or wealthy alumni to rely on in bad times. We saw this train wreck of inequality and underfunding of education after the Great Recession. But policy makers have learned nothing, and as a result, the next generation of low- and moderate-income adults will again suffer. Indeed, all will suffer when the millions who received a low-quality education are unable to contribute fully to the labor force. Less college education means lower productivity, which can keep all boats from rising.

Back to school this month need not worsen our disparities. A vigorous, immediate policy response from the federal government would greatly soften the blow. Above all, Congress must send money to state and local governments. As stay-at-home orders were issued to keep us safe and keep hospitals from being overwhelmed, states—the primary source of education funding—saw revenues plunge and expenses soar. The resulting budget shortfalls are crushing state governments. According to the Center on Budget and Policy Priorities, states face a shocking 20% budget shortfall in the current fiscal year. Without at least $1 trillion from Congress, both primary and post-secondary educations are endangered.

States have already laid off million of teachers, and without federal relief, that damaging trend will continue. Covid-19 is not under control and measures to keep students safe are costly. At a recent Urban Institute event, Robin Lake, director at the bi-partisan Center on Reinventing Public Education, shared troubling statistics on back to school at several large, urban school districts. By late July, 60% had decided to take their classes fully online. However, she described the plans as "pretty vague," especially in terms of how they will support vulnerable populations, including English-as-a-second-language students and those without access to high-speed Internet.

How has Washington reacted? Funding for states is mired in partisan squabbling. House Democrats passed a $3 trillion relief package in May with $500 billion in aid to state governments, along with help for student loans and financial aid. The bill was dead on arrival in the Senate. The money for states was a key sticking point. The Senate recessed in early August with no new relief for states, the unemployed, families or small businesses. September offers a narrow window for a new package, but Republicans are pushing for trillions of dollars less than Democrats.  

Political bickering in Washington is crushing state and local governments. Students, especially those struggling before the crisis, will feel the brunt of that inaction as inequality surges.

Claudia Sahm is a former Federal Reserve economist and creator of the Sahm rule, a recession indicator.

Disclaimer: This article first appeared on bloomberg.com, and is published by special syndication arrangement.