There’s a growing narrative promoted by some boosters of public universities that a decline in state taxpayer funding explains the rising cost of tuition at four-year institutions across America.
The latest offering along this theme asserts that only no more than a quarter of the increased cost of tuition at public universities can be attributed to “to rising faculty salaries, improved amenities and administrative bloat” while “the decline in state support accounts for about three-quarters of the rising cost of college.”
Interestingly, the author, an assistant professor of economics at Temple University, admits that private universities have also “…seen substantial tuition increases” as have for-profit institutions.
Unfortunately, the author buries his money quote near the end of his piece: “Some institutions may be raising tuition in order to capture as much government-backed money as possible.” Though he appears to ascribe the federal dollar capture incentive only to for-profit colleges.
But economics alone is inadequate to explain rising college tuition.
Serving as a legislator in California for six years provides a perspective that extends beyond the bounds of a purely economic, ledger-based analysis. Simply put, political science has as much to say about tuition as does economics.
In a report published last year, Pew showed that since 2000—a high-point for state government spending, coming as it did at the height of a tech bubble-driven tax revenue boom—direct federal spending on higher education grew by 92 percent while state spending declined by 9 percent.
But, direct federal assistance to universities is only part of the equation.
The federal government also guarantees student loans, with the annual, inflation-adjusted value of new loans per student rising from about $2,900 to a little more than $5,000 from 2000 to 2013.
In addition, the federal tax code also acts to subsidize higher education via the Hope Tax Credit in 1999 followed by the American Opportunity Tax Credit in 2010. Thus, through IRS tax deductions, the U.S. Department of the Treasury underwrites higher education, with support of about $260 per student in 1998 jumping to almost $900 in 1999 then steeply rising again to hit a little more than $1,500 per student by 2013 (inflation-adjusted numbers).
Add up the increased federal support via direct payments to universities, subsidized loans, and the tax code, and annual per student federal aid available to college students rose from about $6,000 in 1998 to almost $10,700 in 2013, an increase of almost $4,700.
Returning to Pennsylvania, average tuition at the state’s four public research universities increased by $5,880 from 2000-01 to 2013-14 (adjusted for inflation) while state taxpayer support declined by $3,850, according to Prof. Doug Webber. But, during this time federal support went up by more than $4,000 per student, erasing the drop in state expenditures.
Thus, state lawmakers, faced with limited resources (unlike the federal government’s virtually unlimited ability to print money, Article I, Section 10 of the Constitution takes a dim view of states doing the same) are prone to account for the steady increase in federal dollars to higher education and then adjust their budget priorities accordingly.
If universities are getting more federal money while students and parents are getting more subsidized loans and more generous federal tax deductions, their household cash flows remain fairly constant as federal dollars replace state dollars to universities. This relieves the potential for intense political pressure on state lawmakers to boost state higher education budgets against other priorities, such as tax cuts or hikes, paying for rising Medicaid costs, K-12 public education, public safety, and transportation, among many others.
Federal spending on higher education has increased substantially since 2000 through direct support of universities, student loans, and tax deductions.
There’s another unexamined aspect to state funding of higher education at work as well, one of unintended consequences. When the federal government rains money down on public universities, it does so with very little in the way of direct oversight. A far off unelected bureaucrat doesn’t hold the same sway over university officials as does an elected representative of the people. Thus, university leadership has become increasingly untethered from the legislature that nominally controls their governance via statute and the power of the purse as they become more financially independent from the state. This likely exacerbates relations between lawmakers and public university administrators, which further complicates the funding picture.
Returning to Prof. Weber’s analysis, Preston Cooper at the Manhattan Institute for Policy Research recently published a piece in Forbes that employed a substantially more rigorous statistical analysis than simply correlating 50 state averages for university tuition and state support for them. Cooper examined tuition costs at 537 four-year universities from 2006 to 2013 and found that, instead of Weber’s decline in state support explaining 75 percent of tuition increases, the correlation was 2.3 percent, noting, “…we cannot rule out that budget cuts have an effect on tuition. But are they the primary factor, or even a major one? Not even close.”
The bottom line is that state lawmakers respond to financial incentives the same as university administrators. Substantially increased federal support to higher education has encouraged two things: a corresponding decline in state spending concomitant with an erosion of higher education’s accountability to lawmakers, taxpayers, and students .
Chuck DeVore is Vice President of National Initiatives at the Texas Public Policy Foundation. He was a California Assemblyman and is a Lt. Colonel in the U.S. Army Retired Reserve.