The Agenda

A Few Thoughts on Public Higher Education

Vance Fried and I have just published an article in National Review arguing that college tuition has increased over the last 30 years because colleges have become more “profitable.” Suffice it to say, this view is not universally shared. Recently, the New York Times published an article suggesting that declining public support for higher education is to blame, and it is a safe bet that many in the higher education industry will enthusiastically embrace this conclusion.

Catherine Rampell of the New York Times attributes the dramatic rise in public college tuition to “state’s long term divestment form public higher education.” As her evidence she presents a chart showing tuition and state subsidy per student over 25 years.

A couple of quick observations:

1. If you look at Rampell’s chart, you’ll actually see the story it tells is of state subsidies going up and down with economic cycles and tuition constantly going up. Tuition increases are justified by a drop in state subsidy, but when state subsidy is restored tuition does not go down.

2. The chart is based on data provided by SHEEO (State Higher Education Executive Officers) a higher education trade association and includes adjustment for something called the Higher Education Cost Adjustment. For those who are interested in the details, here’s a link to the report the chart is based on. 

For the rest of you, just take a look at what the chart shows as average net tuition costs. SHEOO defines net tuition revenues as follows:

the gross amount of tuition and fees, less state and institutional financial aid, tuition waivers or discounts, and medical student tuition and fees. This is a measure of the resources available through tuition and fees to support instruction and related operations at public higher education institutions. Net tuition revenue generally reflects the share of instructional support received from students and their families, although it is not the same and does not take into account many factors that need to be considered in analyzing the “net price” students pay for higher education.

Note that net tuition costs shouldn’t be mistaken for the “net price,” as the report cautions:

SHEF does not provide a measure of “net price,” a term that generally refers to the cost of attending college after deducting assistance provided by federal, state, and institutional grants. SHEF does not deduct federal grant assistance (primarily from Pell Grants) from gross tuition revenue, since these are non‐state funds that substitute, at least in part, for non‐tuition costs borne by students. Non‐tuition costs (room and board, transportation, books, and incidentals) typically total $10,000 or more in addition to tuition costs. This requires students with a low expected family contribution (most Pell recipients) to augment federal grants with a substantial contribution from part‐time work or loans, even at a comparatively low‐tuition public institution. In addition, the availability of federal tuition tax credits since 1999 has helped reduce “net price” for middle‐ and lower‐middle‐income students. While these tax credits have no impact on the net tuition revenue received by institutions, they do reduce the “net price” paid by students. SHEF’s net tuition revenue statistic is not a measure of “net price,” but a measure of the revenues institutions received from tuition. It is a straightforward measure of the proportion of public institution instructional costs borne by students and families. Measures of net price to the student need to include non‐tuition costs and all forms of aid. [Emphasis added]

Let’s appreciate for a moment that if the SHEEO isn’t factoring in federal grant assistance or federal tuition tax credits, it’s not giving us a very complete picture. 

According to SHEEO, the national average net tuition revenue per full-time equivalent enrollee (FTE) for 2010 is $4,321. Students attending public colleges and universities in California appear to make the second lowest contribution in the nation at only $1,777 (on page 31). This number seems strikingly low. In Vermont, in contrast, the number is $12,046, and in New York state it is $3,785. 

Can the SHEEO be telling us the whole story? Consider the following story from The Bay Citizen:

“I want to have enough money to pay for school,” Daniel Seman, a junior majoring in English and music, said as he waited to see a financial aid counselor last Wednesday. “My mom is really worried.”

Mr. Seman, 23, said he had already spent an emergency loan of $500 from the university on books and food. But faced with about $7,230 for tuition and fees this semester, roughly $1,000 more than the fall semester last year, he was back in line trying to get another loan.

Faced with drastic cutbacks in state financing, U.C. tuition increased 18 percent this school year, and the university’s Board of Regents is expected to vote on a plan to raise tuition 8 percent to 16 percent a year through 2015-16. With the cost of rent, food and books also soaring, more students like Mr. Seman are scrambling to be able to afford their education.

The financial aid department is hustling to meet the increased demand, and some officials and students worry that the situation could undercut the university’s reputation as one of the nation’s foremost low-cost public education systems.

One potential solution to the puzzle appears later in the article:

Systemwide, roughly three-quarters of undergraduates applied for financial aid this year, up from two-thirds three years ago. With demand expected to grow, the university is considering new measures, including outsourcing some financial aid services, boosting corporate fund-raising and expanding aid for needy students.

Among the proposals is a plan to cover all tuition for students from families with incomes of less than $90,000 a year. Currently, students’ families must earn less than $80,000 to qualify.

Could it be that all of the stories involving California students experiencing sticker shock come from households earning $80,000 a year or more? That seems unlikely, particularly since households earning less than $80,000 a year represent a large majority of California households, though perhaps a smaller majority of California households with family members currently enrolled in public colleges and universities.

It seems safe to say that the rising burden of non-tuition costs is part of the picture. This, in turn, relates to broader issues relating to land use restrictions, etc. Why is rental housing in and around California’s public colleges and universities so expensive? While this is certainly a profound problem, it’s not merely or primarily a higher education policy problem. The textbook market is another domain ripe for disruption. If we want to tackle the cost of getting a high-quality education in the U.S., is increasing subsidies the right approach? Or might we be better served by attacking rising non-tuition costs? 

(3) The SHEEO report contained the following caveat: 

Relationships between state support and tuition revenue receive substantial public attention. Some observers have suggested that states are abandoning their historical commitment to public higher education. National data and more careful attention to variable state conditions strongly suggest that such a broad observation is not justified by the available data. It also is not consistent with the stated intentions of state policymakers. But the steady increase in tuition rates and growing reliance on this source of revenue have the potential of reducing opportunity and decreasing the educational attainment of the American people.

This may well be true. But if net tuition revenues per FTE are $1,777 in California and $12,046 in Vermont, the implicit suggestion (“growing reliance on this source of revenue,” i.e., net tuition, might “have the potential of reducing opportunity,” etc.) seems to be that public colleges and universities should shift to California’s approach rather than Vermont’s. Given that California’s public higher education system is reportedly in crisis, this would seem ill-advised. 

It’s not clear to me that Rampell appreciates the extent to which California is unusual. (I should stress that there are many experts on higher education in California who take a view very different from the view Vance and I advance in our article.) 

For example, Rampell writes the following:

Since 1985, the average amount that public institutions spend on teaching each full-time student over the course of a year has barely budged, hovering around an inflation-adjusted $10,000, according to a State Higher Education Executive Officers report. But in the same period, the share of instruction costs paid for by actual tuition — not the sticker price, but the amount students actually pay after financial aid — has nearly doubled, to 40 percent from 23 percent.

“I understand why students are angry,” said George R. Blumenthal, the chancellor of the University of California, Santa Cruz, where student protests have erupted. “They have to write bigger checks every year, and they can’t get into the classes they want. The reality is they’re paying more and getting less.”

Notice that she refers to “the share of instruction costs paid for by actual tuition.” The number that has nearly doubled from 23 percent to 40 percent since 1985 in the report, however, is not tuition as a share of instruction costs. Rather, it is net tuition as a share of public higher education revenue. To be sure, the report is focused on what it calls educational appropriations, defined as follows:

that part of state and local support available for public higher education operating expenses, defined to exclude spending for research, agricultural, and medical education, as well as support for independent institutions or students attending them. Since funding for medical education and other major non‐instructional purposes varies substantially across states, excluding these funding components helps to improve the comparability of data on per student funding.

So when the report tallies up “public higher education operating expenses,” the number presumably includes instruction costs and it excludes research and the training of graduate students (hard to see how they’d do this cleanly, but we’ll bracket that question for now). “Educational appropriations” presumably includes expenses that notionally support instruction yet that might or might not be essential to the instructional mission. That is the crucial wedge we discuss in our article. Vance has written extensively on the wedge between instruction costs and public higher education revenue. For example, schools might divert resources to the administration of instructional programs. 

Consider this possibility: while public higher education revenues have remained relatively flat, might more resources have been devoted from the core instructional mission to other non-research support functions? If this did indeed happen, we would expect that the quality of instruction would deteriorate over time while costs remain flat or even rise. What might this look like? In California’s public colleges and universities, we might see more rationing by queue, e.g., it could become harder and harder to complete all course requirements in a four-year period in popular majors while at the same time the range of labor-intensive support services might expand. I’d be interested to know if this reflects reality. Has there been rationing by queue? Have expenditures devoted to non-core functions increased at all since 1985? 

When we go from the general case — the national average of net tuition as a share of public higher education revenue — to the specific case — net tuition revenues as a share of public higher education revenue in California — we get a completely different picture. Why would massive protests be breaking out at UC Santa Cruz rather than, say, UVM in Burlington, Vermont? On page 30 of the SHEEO report, we see that 40 percent is the U.S. average. In California, net tuition as a share of public higher education revenue is still around 23 percent. In Vermont, in contrast, net tuition is 83.7 percent

To be clear, it seems that California has held steady at 23 percent of net tuition as a share of public higher education revenue, yet its system of public colleges and universities is in crisis. Why would making Vermont, and indeed all states apart from Wyoming, New Mexico, North Carolina, and Georgia (the only states where net tuition as a share of public higher education revenue is lower than in California), more like California make the national higher education landscape look better rather than worse?

Another alternative is that as a trade association, SHEEO is offering a less-than-accurate portrait of what is happening on the ground or its numbers are being seriously misinterpreted. I don’t have any conclusive answers to these questions, but I’d be eager to hear from those who have some insight.  

(I would be particularly eager to hear from Gabriel Rossman of Code and Culture and Kevin Carey of Education Sector.)

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