Increasing State Subsidies to Education

The Problem of Student-Funded Education

As both Grant and David point out, over the last generation the cost of higher education has been substantially shifted from the public to the individual student. For a nation that prides itself on equality of opportunity, this is really a scandalous development, for reasons I articulated in a previous post.

From a political-economic standpoint this is about the worst way to achieve actual cost-savings. By shifting the cost to individual students we have placed the incentive for keeping costs down squarely on the shoulders of those least able to act on that incentive. In the context of the university, students are by definition given a subservient status as dependents and consumers. Consequently, they are excluded from participating in the kind of governance decisions that would have a real impact on overall cost. In the political sphere, university-age citizens have very little power – they constitute a relatively small group with little in the way of disposable time or income, low voter turnout rates, and high barriers to coordinated effort.


A Better Cost-Cutting Actor

There was a time, not that long ago, when states took the primary responsibility for providing post-secondary education to their residents. California led this charge, with a master plan that included tiered educational institutions designed to meet the needs of everyone at the lowest possible cost to individual students. Unfortunately, the state legislature didn’t stick to that plan, finding it easier to shift costs to students than to actually make the innovative and difficult decisions that would curtail the rising underlying costs.

To finally address the underlying cost dynamic, we need to shift the primary responsibility for funding back to state governments. I’ll address how to actually curtail the costs in my subsequent posts. But the point here is that shifting the fiscal burden back to the state government will reincentivize cost-cutting efforts by a broad swath of the population (taxpayers), making actual progress more likely.

I expect doing so would, in most states, require a constitutional amendment binding the state to funding university education, much as most states are bound to provide K-12 education. I’m not opposed to some cost being born by students – it seems as though there were benefits gained by having young adults contribute to their education by “working their way through school.” So an amendment could require the state to pay, say, 80% of the total cost of post-secondary education. Or, alternately, it could guarantee that no resident would be required to provide more than 20% of their own educational costs, at whatever public institution they enrolled.


Why Not The Federal Government?

The practical answer should be obvious at this point. Federal intervention would mean totally upending the current education system in ways that, even if constitutional, would constitute an unacceptable deviation from educational tradition in this country.

From a philosophical perspective, I also think this is an area where state government experimentation would be not only appropriate but welcome. Students are relatively mobile and I imagine the first state to enact this kind of law would see a boost in enrollment interest. Assuming a relatively competitive economy, at least some significant portion of those students would remain in the state after graduation. States should be able to experiment with the exact proportions of funding they provide, what steps they take to curtail rising costs, and how broadly they want to provide access to post-secondary education for their residents.


Changing the Educational Marketplace

Shifting the cost of public post-secondary education from students to state governments (and thus to the broad pool of tax payers) would have a huge, indirect impact on private and for-profit universities. Because each compete in the broader educational marketplace, their price must on some level be linked to those of the public institutions.

For example, as the cost to the student of attending Ohio State University falls dramatically in comparison to the cost of an Ivy League degree, the tipping point for choosing between them shifts in favor of the former. More bright, capable students from Ohio (and elsewhere) will decided that the cost savings of a degree from OSU outweigh the prestige of the Ivy League degree. Private universities, and in particular less-prestigious private colleges, will have choose between developing their own cost-cutting plans, finding ways to maximize their financial aid (amounting to the same thing), or catering to the wealthy. (Good luck to them in maintaining the tax-exempt status of their endowments if they choose the third path.)

For-profits are a bit trickier. Mostly they thrive in the under-capacity of the system. If states decided to deal with cost by diminishing capacity of public universities, expect greater activity by the for-profit sector. But as the cost-to-student diminishes, I expect more students will be willing to wait out long registration and enrollment lines than pay the exorbitant costs of for-profit education. When the state is guaranteeing a large proportion of the cost of your education, why pay all of it yourself to a for-profit institution? For-profits that find a way to survive in that atmosphere will have to become their own innovators of cost-cutting, potentially providing models for the public institutions.

Public post-secondary educational institutions are far and away the largest part of the education market. If state governments can retake primary responsibility for their funding and actually attack the underlying cost issues (instead of shifting them to students), they could reshape the entire educational marketplace.


This is the first of a series of posts on keeping education costs down. More to come on both internal and external changes that could change the underlying cost dynamics. You’ll find the introduction to the series here

One Response to Increasing State Subsidies to Education
  1. David LaBau
    February 20, 2012 | 4:18 pm

    I’m not much of a fan of the guarantee of the % of cost approach in that it really opens a can of worms in terms of defining cost. Does a large public research institution like the OSU calculate all of the costs associated with that research (not much of which particularly benefits the undergraduate student)or not? If so how? What about colleges that offer degrees that simply have more cost associated with them eg. nursing and some other sciences compared to those that do not? What about the “extra” programs that are often expensive eg. intercollegiate athletics, robust arts programs? However, I do think that legislators and regents working together can agree on a funding formula that will work for their particular state and work to ensure that the significant majority of their college aged students can obtain a degree while working and with a reasonable degree of debt. However, the legislators and taxpayers need to acknowledge the benefit to the state from such an approach and then also figure out how to get through tough economic times like most states are in now without the gigantic cost increases many students are currently dealing with.