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Unprecedented Era in Higher Education Financial Stability

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I recently read an article related to the “unprecedented” budget cuts facing the LSU System.  System President John Lombardi warned the Chancellors of the various campuses that the system is looking at a 23.28 percent cut across the board unless the projected state budget for 2011-2012 changes.  A primary reason for the heightened focus is the expiration of the Stimulus Act funding for higher education that provided nearly $300 million to the state colleges and universities in Louisiana alone.  According to the System’s press release, the System’s colleges and universities had already absorbed $150 million in cuts over the previous two years.  In the past, some of those cuts have been absorbed by tuition increases, but proposed state tuition increases must be approved by Louisiana’s legislature – a prospect that becomes unpredictable due to the current political environment.  Louisiana’s situation is not unique; their press release happened to be readily at hand, but there are equally challenging circumstances being dealt with by many state legislatures throughout America.

Against the backdrop of this news, and in light of the increasingly agitated discussions surrounding the funding of higher education, particularly in support of state colleges and universities, it seems an appropriate time to review the State Higher Education Finance report.  Issued on an annual basis by the State Higher Education Executive Officers (SHEEO), the latest report available is for FY 2009.  SHEEO’s goal in crafting this document is to provide a summary of how states finance higher education and for what purposes.  Ideally, policymakers, political leaders and educators can utilize these data to address broader questions about the funding of higher education.

Historically, states and local governments have provided the lion’s share of direct funding to public higher education.  Over the past 25 years, state and local direct support for general operating expenses of public higher education has increased from $25.7 billion in 1984 to $88.7 billion in 2008.  In 2009, state and local support was flat at $88.8 billion and that number included allocations from the states’ share of the American Recovery and Reinvestment Act (ARRA, or Stimulus Bill).  In addition, public colleges and universities collected net tuition revenue of $44.5 billion in 2009.  Thus, for every $1 in tuition collected, states contributed $2 toward the cost of higher education.

During the same period of time (1984-2009) that states increased their funding three fold, the full-time equivalent enrollment of students in higher education increased from 7.4 million to 10.8 million or a 46 percent increase in FTE enrollment.  Figure 3 of the report entitled Public FTE Enrollment and Educational Appropriations per FTE, U.S. Fiscal 1984-2009 shows the relative costs of public education over the past 25 years.  While the state and local funded dollars per FTE (calculated in constant dollars) have ranged from $6,621 in 1984 to $6,928 in 2009 (a very narrow band), the net tuition revenue per FTE has nearly doubled from $2,147 to $4,108 during the same period.  Net tuition as a percentage of total educational revenue increased to an all-time high of 37.3 percent in 2009.  Because higher education is not a mandated benefit/expenditure as K-12 education is, the states’ contribution varies.  Generally, during good economic times, the states increase funding and in recessions, the states decrease funding.

For those of us with a quantitative bent, the significance of the SHEEO report is not limited to averages; it also provides state specific data and figures that are very enlightening.  For example, Figure 5  shows the average change in FTE enrollment over the past five years (2004-2009) at 8.9 percent but it also displays the range of the change in FTE Enrollment over the same period with a low of -7.5 percent in Louisiana to a high of 26.9 percent in Maryland.  Hurricanes Katrina and Rita influenced Louisiana’s enrollment decrease.  Maryland’s enrollment increase was most likely influenced by a pledge by its current governor and the system president to hold tuition constant for in-state students as long as possible if funding from the legislature did not decrease over most of this period.

The report also notes that 15 states utilized a total of $2.3 billion in ARRA funds during 2009.  As those funds expire, either the states, the institutions, or the students will have to make up the shortfall, and that troubling series of choices is  what the LSU System has to prepare for in 2011-2012.

Table 5 in the report lists the Public Higher Education Appropriations per FTE over the same five-year period as the enrollment changes in Figure 5.  While the FY 2009 average appropriate per FTE was $6,928, the numbers vary widely from state to state.  Wyoming, the smallest population state in the U.S., provides the highest contribution per FTE at $15,391 and Vermont provides the lowest contribution per FTE at $2,654.  These figures contribute to the results outlined in Figure 7 that is entitled Net Tuition as a Percent of Public Higher Education Total Educational Revenue by State, Fiscal 2009.  While the U.S. average is 37.3 percent for 2009, Vermont receives the highest support from tuition at 83.9 percent and Wyoming receives the lowest support from tuition at 11.8 percent.  Vermont’s net tuition revenue per FTE averaged $12,025 in 2009, the only state with an average tuition cost per FTE over $10,000.

When the state and local contribution is added to the net tuition revenue per FTE, the total educational revenue per FTE is derived.  Table 7 of the report entitled Public Higher Education Total Educational Revenue per FTE shows the variability among states in 2009.  While the average total educational revenue per FTE was $10,998, the total ranged from lows of $8,426 in California and $8,660 in South Dakota to highs of $17,460 in Wyoming and $17,317 in Alaska.

The data in the SHEEO report are enlightening for several reasons.  First, they show the gradually increasing reliance on tuition revenues by all states.  Second, they demonstrate the variance in the range of financial support for higher education by state.  Not included in the SHEEO report are the non-tuition costs of room and board, transportation, books, and incidentals that SHEEO documents as adding another $10,000 to tuition costs.  Adding $10,000 of non-tuition costs to tuition that ranges from $1,528 in California to $12,025 in Vermont makes a tremendous difference in the affordability of a state-supported institution, particularly for a person who is in the lower income bracket and who is eligible for a Pell Grant.  In evaluating the cost of higher education, the relative costs of state and local support as well as federal support (typically Federal Student Aid and research grants) need to be aggregated along with the net tuition costs and non-tuition costs.  In the case of academic institutions that are not exempt from state and federal taxes, the taxes should be subtracted from other costs in order to compare the costs of higher education equally.  As we continue to strive to find affordable ways in which to educate more of America’s citizens, we cannot choose to ignore the very real, but easily overlooked expenses of higher education beyond the cost of tuition.

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Wally Boston Dr. Wallace E. Boston was appointed President and Chief Executive Officer of American Public University System (APUS) and its parent company, American Public Education, Inc. (APEI) in July 2004. He joined APUS as its Executive Vice President and Chief Financial Officer in 2002. In September 2019, Dr. Boston retired as CEO of APEI and retired as APUS President in August 2020. Dr. Boston guided APUS through its successful initial accreditation with the Higher Learning Commission of the North Central Association in 2006 and ten-year reaccreditation in 2011. In November 2007, he led APEI to an initial public offering on the NASDAQ Exchange. For four years from 2009 through 2012, APEI was ranked in Forbes' Top 10 list of America's Best Small Public Companies. During his tenure as president, APUS grew to over 85,000 students, 200 degree and certificate programs, and approximately 100,000 alumni. While serving as APEI CEO and APUS President, Dr. Boston was a board member of APEI, APUS, Hondros College of Nursing, and Fidelis, Inc. Dr. Boston continues to serve as a member of the Board of Advisors of the National Institute for Learning Outcomes Assessment (NILOA), a member of the Board of Overseers of the University of Pennsylvania’s Graduate School of Education, and as a member of the board of New Horizons Worldwide. He has authored and co-authored papers on the topic of online post-secondary student retention, and is a frequent speaker on the impact of technology on higher education. Dr. Boston is a past Treasurer of the Board of Trustees of the McDonogh School, a private K-12 school in Baltimore. In his career prior to APEI and APUS, Dr. Boston served as either CFO, COO, or CEO of Meridian Healthcare, Manor Healthcare, Neighborcare Pharmacies, and Sun Healthcare Group. Dr. Boston is a Certified Public Accountant, Certified Management Accountant, and Chartered Global Management Accountant. He earned an A.B. degree in History from Duke University, an MBA in Marketing and Accounting from Tulane University’s Freeman School of Business Administration, and a Doctorate in Higher Education Management from the University of Pennsylvania’s Graduate School of Education. In 2008, the Board of Trustees of APUS awarded him a Doctorate in Business Administration, honoris causa, and, in April 2017, also bestowed him with the title President Emeritus. In August 2020, the Board of Trustees of APUS appointed him Trustee Emeritus. In November 2020, the Board of Trustees announced that the APUS School of Business would be renamed the Dr. Wallace E Boston School of Business in recognition of Dr. Boston's service to the university. Dr. Boston lives with his family in Austin, Texas.

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