The Higher Education Conundrum – Part 1

Budget problems at public colleges and universities have been published in the press for the past year and a half.  Approximately a year or so ago, I decided to collect articles about the situation and organized them on this blog by state under the title Higher Ed’s Economic Challenges.  As the recession continues to impact the value of residential and commercial real estate (or was it the real estate that impacted the recession?), many states’ tax collections are below the level of three or four years ago. 

Unlike the federal government that is allowed to print money, most state constitutions have a balanced budget requirement.  When taxes decrease, expenditures must decrease as well.  K-12 education and Medicaid are two of the largest mandated expenditures at the state level.  Higher education has never been a mandated expenditure at the state level, so when state budgets have to be cut, higher education has usually been one of the first areas impacted.  Some states in some years increase student tuition rather than cut their higher education expense budgets.

The State Higher Education Executive Officers (SHEEO) publish an annual report entitled State Higher Education Finance that provides overall information on the costs of public higher education as well as the state and local tax subsidies and net tuition contribution by students and their families.  For example, in fiscal year 2008, the net tuition average for the United States as a percentage of public higher education revenue was 36.3 percent.  However, net tuition revenue ranged from a low of 13.0 percent for Wyoming to a high of 69.9 percent for New Hampshire.  Those averages typically reflect the ability and desire of a state to subsidize its higher education institutions.  Wyoming, the state with the lowest population in the U.S., benefits from a state budget subsidized by oil and gas revenues.  New Hampshire’s population is small also and the state does not have oil and gas to subsidize taxes.  However, it is located in the middle of the New England ski area and its public institutions utilize that geographic location advantage to enroll out-of-state students paying unsubsidized tuition rates.

The American Recovery and Reinvestment Act of 2009 provided $53.6 billion  to the states to cover shortfalls to K-12 and higher education and another $30 billion to students and parents through increased Pell grants and tax credits for higher education to low income families.  Those two-year stimulus grants are expiring and many states’ budgets have not recovered to their pre-2008/2009 levels.  The shift of the majority in the U.S. House of Representatives to the Republicans is likely to lead to no chance for additional funds to be allocated to the states for higher education.  With continuing state budget shortfalls, public institutions are increasing tuition and cutting expenses.  While the tuition increases exacerbate the decreasing affordability of higher education (see The National Center for Public Policy and Higher Education’s report, Measuring Up 2008), the expense reductions in many cases eliminate low enrollment degree programs, reduce the availability of selected courses in the remaining degree programs, cancel construction projects, defer facility maintenance, reduce the number of students enrolled, and impact faculty pay and workload.  Interestingly, I haven’t seen a state legislature propose the closure of a public institution yet, but a continued recession may instigate evaluations of the efficiency of capacity.

Historically, public institutions have enrolled nearly 80 percent of all college students.  In an economy where nearly 10 percent of the workforce is unemployed, higher tuition at the lower cost alternative doesn’t bode well for future student enrollments.  As tuitions at public institutions increase, the percentage of students who utilize federal student loans as well as the total loans outstanding per student will increase.  With calls for greater accountability of higher education institutions going back to the Spellings Commission and others, increased federal funding of a sector that was traditionally funded by state legislatures will add to the scrutiny of the higher education sector.

Subjects of Interest


Higher Education

Independent Schools


Student Persistence