Why Public Universities Are Getting Shortchanged
(Bloomberg Opinion) -- Over the past decade, state government funding of higher education in the U.S. has fallen by $7 billion after inflation. The implications include increased tuition, which has received much public attention, but also a reduction in the relative quality of public higher education, which has gone largely unnoticed.
Surprisingly, the most important driver of these trends at public institutions has little to do with education directly: it is instead the rising cost of health care.
State support for public colleges and universities has been on the wane for a few decades (the precise peak depends on how the measurement is done). The trend, though, shows no sign of slowing: Since 2008, state government outlays have fallen by more than $1,400, or 16 percent, per student on an inflation-adjusted basis. Over that period, the only states with increases in spending were California, Hawaii, North Dakota and Wyoming. In nine states, spending fell by more than 30 percent in real terms.
The much-discussed consequence: More than 30 percent increases in tuition at both four-year and two-year public institutions since 2008, again after accounting for inflation. Historically, state appropriations were much more important than tuition in funding higher education, but the cumulative effect of the constraints in government spending and rises in tuition have flipped that pattern. For the first time, the majority of states now rely more on tuition than educational appropriations as funding sources.
Although the tuition increases have been painful for many families, the trends have also obscured a deeper and more problematic trend. In particular, the impact of a reduction in government support per student is only partially channeled through higher tuition. The rest typically shows up in total spending per student, which, in turn, affects the quality of public universities and colleges. And that matters a lot, because the vast majority of college students in the U.S. attend public schools.
A recent study found that reductions in state funding have disproportionate effects at public community colleges on tutoring, advising and mentoring -- and therefore impair student persistence and degree completion. That study suggests the impact on students occurs primarily through “informal capacity constraints such as course wait lists and inadequate advising.”
Flagship public universities are not exempt from similar challenges. As one imperfect indication of the issue, in 1987, eight public universities were in the top 25 in the nation, according to U.S. News and World Report. This year, only three public universities make the cut, and the top-ranked one (the University of California, Los Angeles) barely makes the top 20. A wide variety of other indicators -- from SAT scores to faculty salaries -- suggests public universities have been increasingly falling behind their private competitors.
Which brings us back to the question of why states have been constraining higher education support and what we can do about in the future. Tom Kane of Harvard University and I documented the evidence on the key underlying and possibly surprising cause: the cost of health care. In particular, the rising share of health-care expenditures in state budgets has crowded out appropriations for higher education over time. (The historical pattern is implemented through significant reductions in state spending on education during an economic downturn, to meet balanced budget requirements, and then insufficient catch-up during the subsequent recovery to restore the previous levels of per-student spending after inflation. But the overall pattern of these rachets was driven by the rising share of budgets devoted to healthcare across states.)
Consistent with this overall pattern, tuition increases have decelerated over the past few years, just when health-care cost increases have also slowed. So it may seem far afield from concerns about tuition and the quality of public universities, but the ongoing effort to increase health-care value would likely have significant benefits for public higher education. Recent experience in the health sector is, furthermore, highlighting where we should focus: on what the doctor orders, since in most cases that is the health care delivered. When our doctors are focused on health-care value for us, we benefit not only from improved health and higher take-home pay -- but future college students also enjoy better educational opportunities.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Peter R. Orszag is a Bloomberg Opinion columnist. He is a vice chairman of investment banking at Lazard. He was director of the Office of Management and Budget from 2009 to 2010, and director of the Congressional Budget Office from 2007 to 2008.
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