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End Note

Time to Rethink Public Higher Education

Strategic investing in education could help save revenue-starved institutions.
University Business, Feb 2006

U.S. Secretary of Education Margaret Spellings' commission on the Future of Higher Education should acknowledge that the historical business model for public higher education is irreparably broken.

The days are long gone when generous government subsidies allowed public colleges to keep tuition low. Now that a public degree costs more than $50,000, middle-income citizens either must saddle themselves with debt or scale back college aspirations. There is not a shred of evidence to suggest this trend will reverse.

Furthermore, the compact between public universities and state governments has degenerated into a shouting match of accusations and finger-pointing.

As a result, public colleges are increasingly staring into the abyss. In Ohio, deferred maintenance is a $5 billion problem. Elsewhere, public professor salaries lag $30,000 behind comparable private salaries. At many schools, public funding has fallen below 20 percent of revenues. With state cutbacks driving up tuition, public higher ed is moving down the track toward privatization, and the train is not coming back.

Furthermore, efforts to slow it with price controls have been a disaster. Revenue-starved campuses cannot endure the double whammy of state cutbacks and government-imposed tuition caps. Unless a different course is charted, the campuses that historically have educated 80 percent of America's college graduates will become like failed inner-city schools.

One problem is that state higher education budgets are not targeted efficiently. By way of comparison, consider the Food Stamp Program, which in 2004 paid out $27 billion directly to 24 million low-income Americans. Imagine instead a food-subsidy program where the government paid the $27 billion directly to supermarkets. Now, needy families would benefit little because most of the savings would be passed on to customers who did not need help.

This is precisely what happens in public higher education. When states pay universities to hold down tuition, they indirectly subsidize wealthy and poor students alike.

Furthermore, as state subsidies dwindle, government regulation grows. This year, Ohio will spend about $1.2 billion subsidizing instruction at its 13 public four-year universities, a five-year decline of 15.5 percent per student. Toss in ever-expanding regulations, reporting requirements, and tuition controls, and a bleak future seems certain for the state's beleaguered public colleges.

But states could break the cycle by investing dollars strategically.

First, turn all or part of each public four-year school into a private, nonprofit corporation. Then phase out each school's subsidy gradually, to enable campuses to grandfather in current students and adjust to the new environment. Finally, reallocate the freed-up subsidy dollars to scholarships; valid at any accredited four-year college in the state, they would go primarily to middle- and low-income students, with some reserved for other groups meeting state needs.

Mid- and low-income students would see a big decrease in the cost of a college degree; others would pay a larger share of costs.

Colleges would scramble to attract scholarship-holding students. Students would choose schools with the highest quality programs, the most value, and a competitive tuition. Colleges that lost market share would either improve their offerings, lower their prices, or risk going out of business.

Lacking a pricing advantage, formerly public colleges would raise tuition to make up their revenue shortfall, but no more than the market would allow.

Competition would force campuses to become lean, efficient, and strategic.

With social forces driving higher ed toward privatization, Spellings' commission should focus on smoothing the transition. Doing so would ameliorate the college affordability problem and advance the fairness and social good that lies at the heart of a stable democracy.

James Garland has been president of Miami University, a public institution in Ohio, since 1996. He will be retiring in June 2006 after 36 years in higher education in the state.

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