17 December 2012

The De Facto Privatization of State Universities

Writing in the Wall Street Journal over the weekend, Scott Thurm took an in-depth look at the University of Colorado, where I am a professor, as an case study in how state governments are moving out of the business of subsidizing university attendance for their residents.

Thurm writes:
For generations of Americans, public colleges and universities offered an affordable option for earning a college degree. Now, cash-strapped states across the country are cutting funding for colleges and directing scarce resources to primary and secondary schooling, Medicaid and prisons. That is shifting more of the cost of higher education to students and their families.

Public higher education in the U.S. dates to the 1795 establishment of the University of North Carolina. In 1862, Congress passed the Morrill Act, which gave land to the states to establish colleges "to promote the liberal and practical education of the industrial classes." The 108 so-called land-grant colleges still form the backbone of the U.S. public higher-education system.

Public-college enrollment exploded after World War II and the adoption of the GI Bill. As recently as 1951, more Americans were enrolled in private universities than public ones. Sixty years later, more than 15 million students were enrolled at the nation's 678 public colleges and universities, nearly three times the number attending private ones, according to the Education Department.
The article points to a recent PhD dissertation  by Brian Burnett, a vice chancellor at the University of Colorado-Colorado Springs. Burnett writes in his dissertation that there has been a reversal of roles between the state and students over the past four decades (here in PDF at p. 152; the graph above is mine, and comes from this blog post):
These data clearly illustrate that over the past 40 years, the costs of a college education in Colorado for resident undergraduate students has fundamentally shifted from the majority of the expenses funded by taxpayers to the majority now funded by students. As Colorado State University System‘s Chief Financial Officer Richard Schweigert pointed out, "We are cost shifting to students—that is all we are doing due to the state basically ignoring its 'economic engine‘—higher education." This shift has occurred not only due to increasing costs to provide postsecondary educational services but also due to limits of the state‘s general fund to support student growth and other demands on the state‘s general fund. Such a change has had a profound impact on the equation of public funding and the state policy that was in place in 1980 when the student was expected to pay 25% of the cost of an undergraduate education while the state covered 75%. This equation, for many public institutions in Colorado looks more like the equation in Figure 4.14 than it did in 1980, where in some cases today, students are paying approximately75% of the cost of their education while the state support has declined to just 25% of the cost.
What is happening here in Colorado is not unique. Thurm writes:
State subsidies for these public colleges and universities fell 21%, on a per-student, inflation-adjusted basis between 2000-01 and 2010-11, according to the State Higher Education Executive Officers Association, a national research and advocacy group. Over that same period, tuition at two- and four-year public colleges rose an inflation-adjusted 45% to $4,774 in 2010-11, according to the association. At public four-year colleges this year, tuition averages $8,655, according to the College Board.

But education experts say wrenching decisions on the state level about how to allocate limited public resources are having a very big effect.
The results are a more market-oriented campus which has both positives and negatives. On the positive side, the market incentives help to motivate innovation and performance, with a focus on meeting the demands of students. On the negative side, the push for pure economic value leads to what arguably pathological responses, such as the emphasis on "cash cows" in the form of international or out-of-state students willing to pay extra to attend a state school.

Thurm explains:
CU has long attracted lots of out-of-state students, who pay higher tuition. Non-Coloradans currently pay $31,559 for tuition, not counting room and board. The higher nonresident fees go "a long way toward keeping the lights on," says Mr. Gleeson.

In 2010, officials persuaded lawmakers to exclude foreign students from the cap on out-of-staters—currently 45% of freshmen—arguing that the foreigners would add more global perspective. But they also covet the additional revenue, which officials estimate at $30 million a year. This year, CU is dispatching recruiters to more than a dozen countries, from Latin America to the Middle East.

Others are pursuing the same strategy. At Purdue University, 17% of undergraduates are from outside the U.S., mostly from China, up from 9% in 2009. At the University at Illinois, 13% of this year's freshmen are foreign students.
None of these various arguments will be news to long-time readers of this blog. If we are smart, then the end result of this wrenching process will be to do away with the two-tiered in-state/out-of-state tuition system -- which is a fiction -- and move to a market-based approach. The state subsidy for in-state students need not go away, as the state government could still cut a check for in-state students and send it to them directly. Further, a levelized tuition model might not make sense for every state university, but it almost certainly does for flagship campuses.

The de facto privatization of state universities is likely to continue. Profound changes are likely to be coming down the road, as business as usual is no longer an option.


  1. "For generations of Americans, public colleges and universities offered an affordable option for earning a college degree..."

    Putting aside the use of the nebulous 'affordable,' we're left with a literally-true but disingenuous construction 'generations.' If by the plural usage the author means two, then yes, (two) generations of Americans got a deal. Before the end of WWII and the G.I. Bill, few Americans went to college - most people couldn't afford to spend their first four adult earning years making no money.

    And then there's the always-ignored question, where did the money go? That is, if states had money in their budget to pay for subsidizing higher education, and they don't now, what is the money being spent on now? State budgets certainly haven't shrunk since 1960. Of course, the truth is that the money is being spent on social welfare programs that those who write these articles typically support. The money states now spend on handicap access in facilities didn't exist during the post-war years, and that spending had to come out of someone else's budget. Anyone who has the patience can go back to the time when state spending on higher education was at its peak, and count up the new spending for worthy causes that were enacted since then. That's where your money went, folks. If you think the old (higher education) spending had more value than the new spending, then call your state representative and ask him/her to roll back the less worthy programs.

  2. The same thing has happened over here in the UK.

    Blair stated his aim of 50% university attendance. To do that, you must

    1) Get the customers to pay for it themselves. The government can't afford to subsidise it.

    2) Dumb the system right down

    3) Tell university teaching operatives that they ain't nothing special. They work in an education factory. Like any other workers, they should do what they are told and shut their complaining mouths. Maybe not such a terrible thing in some respects.

    Students attend as little as 2 days a week and many basically work almost full time. That blurs the distinction between work and education and may be the silver lining some of us were looking for.

    The dumbing down means that degrees have little inherent value as a universal passport to a better lifestyle. Maybe that is good too. It prevents students moving from university into a life of well paid boredom and sterility, having expected more.

    It also lead to my cruel joke, which isn't nearly as cruel as some of the things done to students.

    My dog enjoyed his sociology degree so much, he started another course. Unfortunately he had to drop out. He just isn't smart enough to fetch a stick.

  3. Rather than more market based reform, just make get the state out of the business of higher education.
    Most "state colleges" would be one hell of a bargain fully funded by tuition and endowments, and we would no longer have to question why tax payers were funding Big 10 football teams. A private college gets to make its own decisions based on its perception of the needs of its market. A public college is by definition a misallocation of resources, responding to politics rather students needs

  4. Hi, Roger. I am a fan of your blog and read it often. However, I have never really understood your arguments for doing away with the in-state/out-of-state tuition distinction. I think you want to avoid "leaving money on the table," by charging in-state students more. But you also talk about charging out-of-state students less, which would leave money on the table.

    You talk about the dangerous incentives that the two-tier tuition rates creates, that puts pressure to accept more out-of-state students. But there is a cap on out-of-state students exactly for this purpose. Are you saying the cap isn't working? Surely you see that, if the cap and tiered tuition are both removed, this would dramatically reduce the number of in-state students.

    Then you mention that if the state legislature wants to subsidize in-state students, it could do so with direct payments to students. That is fine, but I fail to see how it is different than payments to the university on a per-student basis. Maybe your university doesn't get funding on a per-student basis? (If it did, this would remove the incentive towards out-of-state students. And would help explain your complaint. I believe our state funding - in NC - is largely a per-student basis.)

    I do understand your arguments for more money, making the university stronger and driving up quality. But I don't understand why the state should do this at the cost of removing any benefit for those living in the state. Prestige alone is not an incentive for a strong university system. It also has to benefit the state directly ... otherwise it is just vanity.

    Of course, you say the state could just give money to in-state students directly. But you imply that this is extra funding that doesn't currently exist. (Because if in-state students end up paying the same amount, then out-of-state students get cheaper tuition, and where does that money come from?) Then you have the same funding problem as currently. Or, if in-state students pay more - even with the direct scholarships - then they are then subsidizing out-of-state students who will pay less under your scheme.

    Having a world-class university system is great. But if it ends up being mostly for out-of-state students, then it's just vanity, and doesn't help the state's economic engine. Subsidizing tuition for in-state students - those who are more likely to keep living in the state - is the best way to gain a direct state-level benefit from a world-class university. Under your scheme - leveling tuition and providing scholarships - this would cost the state more AND reduce the number of in-state students (because out-of-state tuition would be cheaper). Or, it would cost the same and DRAMATICALLY reduce the number of in-state students.

    So I get why you want more funding for the university. But I don't get why you want to charge in-state student more. (Or do you?) And I particularly don't understand why you want to charge out-of-state students less. This makes no sense to me.

  5. "Subsidizing tuition for in-state students - those who are more likely to keep living in the state - is the best way to gain a direct state-level benefit from a world-class university."


    This is part of the problem. States have long used "in-state student" as a proxy for "will stay in state after graduation." In other words, the main state interest in supporting a university is to have a supply of well-educated workers in the state. But this proxy is outdated. In a high-mobility society such as ours, where employment information from all over the country is easily available, all students, whether in state or out, are likely to go where the bets jobs are. If the state wants to encourage students to stay, they could offer things like student-loan forgiveness for those who attend state colleges and then remain in state. Why subsidize those who leave? And why not reward out-of-staters who decide to stay?

    The traditional model of the state university is likely to expire for other reasons as well. The original intent was "to promote the liberal and practical education of the industrial classes." On a practical level, this meant that the state subsidized colege education for those who traditionaly couldn't afford it or who were less inclined to go. But state universities have long since abandoned their role of providing education for the middle class. In the push to increase academic quality, state universities have increasingly enrolled more affluent students, yet they are still getting the advantage of the subsidy. In some states, and perhaps nationally as well, the average family income of students at state universities is HIGHER than the average family income of those at private colleges. The state system, then, has devolved into a welfare system for the wealthy. Little wonder, then, that subsidies have been falling--the students can largely afford to pay their own way.

    Ultimately, good governance requires using subsidies to support good outcomes, not perverse ones. Direct subsidy of state colleges increasingly supports perverse incentives, and is therefore unlikely to continue in its present form.

  6. Hmm. If this were about hurricanes, floods and landfalls, I think you would have presented more information.

    What has happened to college costs during this period? What percentage of costs have been allocated to administration?

    How much of the funding you allocate to students and their families is in fact provided by grants?

    I think mashing together different sources of information might give us a clearer picture of both the origins of the present and our future options...

  7. Keep in mind some factors that probably make state legislators less eager to fund their state universities.

    1. Elitism. I was told just that by a legislator. Many are happy with helping someone get an ordinary degree but resent funding advanced programs whose graduates will make a lot of money. That's especially true with universities that seem indifferent with undergraduate education, placing students in huge classrooms.

    2. Lush campuses. Yes, not all of them, but certainly more than those the post-war generation attended. When I started college in 1966, half my classrooms weren't air-conditioned. Now many campuses have spa-like amenities.

    3. Student loans. This is a big one. If students can borrow to cover all their college costs, why should people who don't attend college be taxed to subsidize those who do?

  8. Hi, Brian. I absolutely agree that subsidizing in-state students is a very crude way to help student who plan to stay in the state. (Especially considering the lack of transparency and certainty in bestowing "in-state" status.) I think it is definitely worth talking about alternative methods.

    There may be a couple of problems with forgiving school loans. There is uncertainty, in that the law can change anytime, such as after graduation. Also, school loans tend to be federal, so it would be difficult to implement a method for states to forgive them.

    I think part of the issue is that there are a couple different goals tied up in the state subsidized in-state tuition system. Part of it is to encourage a more educated state population. Part of it is to support a strong university system in and of itself. Part is to reduce emigration and to make the state more attractive for people (and firms) to move there. Part is simply to benefit state residents - a sort of state-level nationalism.

    There are probably others I haven't thought of. But they all tie together into a single policy. If the policy goal were solely to, for example, get more PhD's, then the question becomes, why not give tax credits to those with more education, encourage them to relocate? But by mixing multiple, indistinct goals, there is enough political power to keep the policy (which, at the end of the day, is pro-education) in place.

  9. This post touches on a number of important issues, the most important to me being the non-sustainable cost of a college education. There appears to be few really effective means of ensuring that the costs of college are supported by the value of what a college education provides. To me, it verges on fraud, for someone to graduate in art history and come out owing $100,000 or $150,000 from loans. If college educators were sensitive to the economic utility of their product, they would be thinking of creative means to substantially reduce the costs of their product. Instead, they are profligate.

    I recently saw an article where the University of Cincinnati plans to raise $60,000,000 for a new law school.
    There is no way to justify that expense. So long as the roof doesn’t leak at a law school and the building is properly heated and cooled, spending large amounts of money is not a significant factor in the education of law students. Large expenditures for a building only magnify the high cost of law school education. The whole worldview of those running the law school is skewered.


  10. 55c80da8-4986-11e2-af18-000bcdcb8a73

    "To me, it verges on fraud, for someone to graduate in art history and come out owing $100,000 or $150,000 from loans."

    That was my cruel point above. I saw this article a few minutes ago. This is the most deprived area in Scotland (Ferguslie Park in Paisley). It was built to house Roll Royce workers, now it is a true post industrial wasteland. It produces only misery and unemployed social science graduates. Yes, these people are graduating from university. One of the reasons is that they can cheat really easily.

    I am sure the guy in this picture is real, but he looks like a model compared with others and he has been well scrubbed up.


    P.S. I once heard an American DJ describe us as the substance abuse capital of the galaxy. He claimed to have been everywhere, but kept coming back here. So, it's not all doom and gloom !

  11. State subsidies are one issue, but another issue is that overall tuition is still increasing far faster than inflation.

    The 75/25 to 25/75 state vs. private funding dynamic noted fails to also mention that tuition in 1980 was far, far lower than tuition today, even adjusting for inflation.

    Yes, state budgets are squeezed. But then again, one reason they are squeezed is that tuition costs per student have been increasing so much far than inflation.

  12. I should briefly say that I live in Paisley, but not in Ferguslie Park. I wasn't designed for that. The DJ was talking about Glasgow, a legendary place for live gigs.