If Financing Higher Education Was Only that Simple

I read an editorial from the Pasadena, California Star News entitled “Higher Ed Needs a Redo.”  The article discusses the premises, philosophy, and outcomes of California’s Master Plan issued in 1960 and states that it’s time for a revision to a document that is approaching 50 years old.  The article mentions the 30+ percent tuition increase at the University of California and the tuition increases at the California State University System (CSU) that have reached the point where students pay more in tuition than the state pays.  The writer notes that this is a long way from the original Master Plan which guaranteed a free education to anyone qualified for admission.   The editorial notes that during the recession of the 1990’s, CSU’s enrollment decreased by 50,000 and it took the state years to recover.  Lastly, the California House and Senate have agreed to meet to discuss a revision of the Master Plan on its 50th anniversary.  The timing is fortuitous given the budget crisis.

As I read this article, seemingly the 500th that I’ve read about California’s crisis in higher education funding, it reminded me of the data available through the annual State Higher Education Finance report issued by the State Higher Education Executive Officers (SHEEO).  On August 9, 2009, SHEEO issued their sixth report which is for FY 2008.  I highly recommend this report for anyone interested in understanding the funding of public higher education in America.  What’s important to note about this report is that it shows positive progress in higher education (since it’s for the 2007-2008 funding year) but notes that 2009 and 2010 will probably be different given the impact of the recession.  Supplementary tables are maintained by the State Higher Education Executive Officers (SHEEO) on their website at www.sheeo.org.

The introduction to the report provides a couple of data snapshots.  State and local governments provide the bulk of the funding for public institutions in the U.S.  In 1982, state and local governments provided $23.5 billion in direct support.  By 2008, this number had increased to $89.1 billion which was 5.8 percent above the previous year.  FTE enrollment at all public institutions increased from 7.5 million in 1983 to 10.5 million in 2008.  State and local support per FTE student was $7,059 in 2008 which was substantially higher than the 25 year constant dollar low of $6,445 in 2005.  The share of total educational revenue derived from tuition increased from 24 percent in 1983 to 36.3 percent in 2008.

The report explains some of the methodologies that it uses to make data comparable across states.  It also explains that despite tweaking the financial data, some of the data can be dramatically different due to the size of institutions in a state, the number of private institutions, state tax base, etc.  The authors state that the goal of their report is to provide data so that educators and policymakers can work together to answer questions such as:
• What kind of higher education system do we want?
• What will it take to obtain and sustain such a system?
• Are we making effective use of our current investments?
• What can we afford to invest in order to meet our goals?

The first of several tables and charts that I found useful was Figure 3 – Public FTE Enrollment and Educational Appropriations per FTE, U.S., Fiscal 1983-2008.  In this chart, the dollars contributed per FTE from the state and from net tuition revenue are in constant dollars.  The chart shows the increase per FTE from approximately $8,400 per student in 1983 to over $11,000 per student in 2008 while the FTE’s increased from 7.5 million to 10.5 million over the same period.  My first thoughts were:  evidently, higher education exhibits no signs of scalability.

Figure 4 – Net Tuition as a Percent of Public Higher Education Total Educational Revenue, U.S., Fiscal 1983-2008 is also an interesting chart.  It shows the wavy, but steadily increasing line going from net tuition at 23.5 percent of revenue in 1983 to 36.3 percent of revenue in 2008.  My first thought after examining this chart was:  as the costs per FTE increased for the state over the 25 year period, the percentage of costs covered by net tuition revenue increased as well.  Evidently, the state policymakers believed over time that students and families should pick up more of the cost of college.  It is important to note that net tuition revenue does not include federal grants such as Pell Grants so the net tuition revenue is not the same as net price to the student.

Interstate comparisons are interesting as well.  SHEEO states that the numbers are adjusted for differences in cost of living which means that many states are drawn to the mean.  Despite that disclosure, there are dramatic differences between the end points and that data provides me with enough evidence for a thoughtful dialogue.  Figure 5 – FTE Enrollment in Public Higher Education Percent Change by State, Fiscal 2003-2008 is interesting.  The national average for the five year period was 7.5 percent.  The highest increase in FTE enrollment was in Maryland with 22.5 percent growth.  The lowest was in Louisiana with a negative 6.5 percent.  Louisiana’s numbers were obviously influenced by the damage to its colleges during Hurricane Katrina.  My first thoughts after viewing this chart were:  How are the states going to finance their growth when their FTE’s increase higher than the average?  Will it be through tuition, state contribution, or equally?  Figure 6 gave me the answer to my questions.  Of the 12 states with the highest FTE increase above the national average, seven states decreased their educational appropriations per FTE during the same period.  The only states with an increase in funding per FTE over the same period were Nevada, North Carolina, Arkansas, Florida, and New Mexico.  Based on Florida’s and Nevada’s proposed budget cuts, I think it’s safe to say that those two states will change over the course of the next two reports.

Table 5 provides a snapshot of the Public Higher Education Educational Appropriations per FTE in FY 2003, FY 2007 and FY 2008 thus providing a comparison of the one year increase and the five year increase.  Since the report is in constant dollars and adjusted for cost of living, it also provides some insight as to differences between states. Naturally, smaller population states such as Alaska and Wyoming provide much higher appropriations per FTE with Wyoming at $14,705 in FY2008 and Alaska at $12,173 in FY2008.  States that are well below the average (like New Hampshire and Colorado) can be explained if you look at the next chart, Figure 7 – Net Tuition as a Percent of Public Higher Education Total Educational Revenue by State, Fiscal 2008.  Sure enough, net tuition as a percent of revenue is 69.9 percent for New Hampshire (the top) and Colorado’s is over 50 percent.  In Wyoming the percentage of net tuition is only 13.0 percent, reflecting perhaps the low population and the contribution of oil and gas revenue to its state coffers.

Table 7 represents the Total Educational Revenue per FTE.  It is the last table that I will discuss in this writing.  The report combines the educational contribution from the state with the net tuition revenue to derive this number which theoretically represents most of the support for public institutions’ operations except that received for research funding.  The U.S. average in 2008 was $11,026.  California’s is one of the lowest at $8,684.

The California data in the last table brings me back full circle to my reason for looking at the SHEEO report.  California has increased its tuition and fees substantially this year and last which is FY 2009 and FY 2010.  Those reports aren’t available yet, but the state lawmakers should be able to create them.  With tuition increasing, the total educational revenue per FTE may exceed the average of $11,026 or it may not, depending on the level of cuts in expenditures made elsewhere.  What should the student/family contribution be to higher education?  What should the state contribute?  What should the federal government contribute beyond Pell Grants, subsidized loans, and tax breaks for the middle class?  Should the lawmakers evaluate the mix between the lower cost two year colleges, four year colleges and research universities?  Should they encourage the development of distance learning platforms, particularly if the institutions are able to scale and leverage their costs?   Solid data is available from reliable researchers such as the staff at SHEEO.  It will be interesting to see how many states act rationally versus politically.

Subjects of Interest


Higher Education

Independent Schools


Student Persistence