In an August 30, 2021, Wall Street Journal opinion piece, Aaron Klein writes that America’s public universities have been engaged in a “student swap.” More specifically, the highest rated public universities in each state (also known as flagship universities) have increased their enrollment of students from other states in terms of percentages and raw numbers, despite their mission of providing an education to their respective states’ residents.
The primary reason for the swap is that out-of-state students are charged much more tuition than in-state students. Mr. Klein cites a Brookings Institution research paper in which he and co-author Ariel Shiro found that 48 out of 50 flagship universities increased their share of out-of-state freshmen from 2002-2018 by an average of 55%. Two flagships, the University of California at Berkeley and the University of Alabama, increased their share of out-of-state freshmen by more than 150% during the same time period.
Klein and Shiro focused their analysis on flagship universities because they educate approximately 11% of all college undergraduate students. They cite a study that indicates that attending a flagship university can increase lifetime earnings by 20%. They also note that many flagships offer programs that can help lower-income students succeed.
In Figure 1 below, the percentage change in share of out-of-state students at flagships is highlighted by state.
While the average growth of out-of-state students was 55% during this period, 33 flagships increased their average growth by more than 20%. The University of California at Berkeley had the largest increase at 197%. The University of North Carolina at Chapel Hill maintained a consistent 82% in-state students during this period, thanks to a legal mandate from the state legislature. The University of Delaware increased its lower than average in-state student percentage from 39.0 to 39.3%.
Klein and Shiro used flagships from states beginning with the letters M and N to perform their detailed analysis of tuition, appropriations, and student debt. In these 16 states, the in-state student share declined from 75% to 64%, while the out-of-state share increased during the same period. Cleverly, most of the state flagships maintained the same number of in-state students, but they increased the number of out-of-state students for an overall enrollment increase and a share increase in out-of-state students.
The largest share decreases in in-state students in the authors’ analysis group occurred at the University of Maine, whose in-state student percentage decreased from 80% in 2002 to 54% in 2018.
A “back of the envelope” calculation by the authors indicates that the swap in student mix may have increased the total tuition costs of the colleges by $57 billion. Expert extrapolation of these results with all 50 states would likely indicate that the swap accounted for a higher percentage of the aggregate increases in student loan debt than anyone has reported. In fact, in 2018 the average out-of-state tuition in the sample was nearly three times as high as the average in-state tuition.
The authors write that as state schools become more focused on out-of-state students, they may undermine political support for their state funding. During the period under their analysis, state and local funding substantially declined by 19% as the percentage of out-of-state students increased.
As tuition became a more important focus for flagships during the 2002-2018 period, the financial burden of added costs impacted Black and Latino families disproportionately. The average net price of attendance at a public institution as a percentage of median household income is 22% for white families, 35% for Black families, and 29% for Latino families.
The authors cite the positive outcomes the University of North Carolina at Chapel Hill has had in recruiting competitive students even with an 82% of freshman required percentage of in-state students. Their acceptance rate has remained a relatively low 23% with high student test scores.
The state of Texas passed legislation guaranteeing admission to every Texas public university for every Texas high school senior graduating in the top 10% of their high school class. During the 2002-2018 period, the freshman class at UT-Austin shrunk slightly from 91% in-state to 89% in-state, even as the institution negotiated a lowering of the percentage of Texas high school graduates it accepted to 6%. Approximately 33% of Texans’ applications are accepted while less than 15% of out-of-state students’ applications are accepted.
The states of North Carolina and Texas have created a structure that works to keep the percentage of in-state students educated by their public institutions at a rate that fulfills their missions. At the same time, they are able to maintain their high rankings and elite status.
The University of Nevada at Las Vegas was the only school in the sample that significantly increased its share of in-state students over the last 20 years with an increase from 70% in-state to 81% in-state. This increase came at a cost. According to the authors, UNLV would have collected more than $29 million per year more in tuition had the percentage of in-state students remained the same as it was in 2002.
The authors conclude that state universities need to focus on serving students from their own state. Legislatures can do this by mandating the percentage of accepted students (the UNC method) or by requiring acceptance for a certain percentage of top graduates from in-state public high schools (the UT-Austin method). At the same time, legislators need to recognize that unwinding the great swap in students will require an increase in the state higher education budget.
I found another paper published in the Journal of Postsecondary Student Success written by Robert Kelchen, a professor at the University of Tennessee. Professor Kelchen’s paper examines the increases in the share of out-of-state students at all public institutions to see if those share increases positively influenced institutional revenues, if the share increases influenced an increase in institutional expenditures, and if there is a difference between the increases in revenues and expenditures by institutional selectivity or research focus.
Professor Kelchen’s study used freshmen student data from the 2003-2004 academic year to the 2015-2016 academic year and excluded primarily community colleges. He also excluded the six public universities in Nebraska due to their unique non-partisan, unicameral legislature. Notably, Professor Kelchen stated that there was no way to differentiate the in-state vs. out-of-state tuition revenue at institutions in his study. When I reread the Klein and Shiro paper, I noted that they used the list price of tuition for in-state and out-of-state students and wrote that it was possible that their results could be skewed by tuition discounting.
Professor Kelchen’s study found that there was a slight decrease in overall revenue in the three years after out-of-state freshmen enrollment increased. He noted that his finding was not what would have been predicted, given that the tuition differential between in-state and out-of-state students is substantial. My perspective is that his sample essentially included all four-year public universities, not just flagship universities and limited to a subsample of 16 flagship universities.
Professor Kelchen writes that a further analysis of tuition discounting by in-state student vs. out-of-state student is warranted. That analysis could be used to determine if the tuition discounts are being offered to out-of-state students to attract them or if increased discounts are given to in-state students to benefit from the out-of-state increases. I agree. Dr. Kelchen’s study parses selective institutions (which may or may not represent most flagship universities) and might add additional insights to the Klein and Shiro study.
Professor Kelchen also cites the possibility of utilization of regional tuition exchanges as influencing the total revenues per full-time equivalency (FTE). Professor Kelchen also found that expenditures decreased in years following increases in the percentage share of out-of-state students.
He wrote that it may be the case that all public universities are pursuing out-of-state students to shore up their finances during a period of declining state support, and the decline in expenditures is due to expense cutting because of the funding environment. Professor Kelchen further adds that there are areas where more research should be conducted to refine some of his findings.
It’s clear from reading both reports that more research is required to further refine the data or to confirm it. At the same time, I believe it’s important to note that the increase in out-of-state freshmen at 48 of the 50 state flagships (as well as the majority of all states’ public institutions) while holding their in-state student enrollment at the same number is indicative of the decline in states’ funding for their public institutions.
Public institutions should have a primary obligation to serve the residents of their state. The North Carolina and Texas examples in the Klein and Shiro report demonstrate how two state flagships have continued to thrive, despite state mandates to accept a certain percentage of state residents. Kelchen’s research indicates a decline in expenditures as well as a decline in revenues, and he provides a possible explanation that it’s related to declines in state funding.
Despite a possible increase in funding for public institutions due to the COVID stimulus package and a potential support for free community college in the Biden administration and Congress, the long-term business models for public colleges are not good. Public colleges contend with constitutional requirements for states to balance their budgets, a projected decline in the number of high school graduates, and an increasing awareness by the public that the return on investment for college borrowing may not be worth it.
If higher education funding models can’t support the current business models, the business models must change or there must be fewer public colleges and universities. Offering more affordable online classes and degree programs is an option, but it must be accompanied by a reduction in the fixed costs located in the states’ systems. Reducing fixed costs is difficult, particularly for multiple incumbent institutions. Increasing education alternatives like apprenticeships and training certificates are other options but are radically different in terms of overall revenue per student.
As the numbers of students opting for alternate educational options increase, the students attending traditional colleges will decrease. In order to survive, many colleges will have to employ the services of strategists and innovators in addition to cost cutters, enrollment specialists, and lobbyists. The future of higher education looks to be very turbulent for institutions not prepared for more change. Publicly funded institutions are not immune.