The "High Tuition-High Aid" Model of
Public Higher Education Finance: The Case Against * D. Bruce JohnstoneBack to Dr. Johnstone's readings
From time to time, a proposal is made that direct public funding of state colleges and universities be drastically reduced, or eliminated altogether, with tuitions raised commen-surably to full or near-full cost, eliminating or greatly reducing what the proponents of this view call the "subsidy" to the students or families of students attending public colleges and universities. In place of direct state revenue, which currently supports anywhere from 60 to 90 percent of public four-year undergraduate instructional costs, the proponents of high tuition-high aid would substitute a very much expanded program of need-based grants, similar to the federal Pell grants or the New York State Tuition Assistance Program (TAP), or would simply and automatically link tuition to some index of financial need, such as the IRS-reported adjusted gross income. The expanded financial aid, whether in the form of a grant or a lower tuition, would cover all of the tuition costs for low-income families, but would diminish as parental or student incomes rise, phasing out entirely and leaving a full or near-full cost public tuition for the family or independent student whose income, by some "means test," was deemed sufficient to pay the full or near full cost public tuition in addition to all of the other expenses of college.
Since non tuition costs in 1995-96 for a year of full time, in-residence, higher education, with some travel expenses, come to about $8,000, and since undergraduate costs of instruction in the public sector, conservatively estimated, are in the range of $9,000-$10,000, such a proposal could raise the "sticker price" of a public comprehensive college or university to between $17,000 and $18,000, depending on the underlying cost of instruction and the proportion of that cost (up to 100 percent) that was to be borne, through tuition, by the student and his or her family. If the 1995-96 federal parental contribution schedules are used to calculate a reasonable parental contribution to the costs of the child's higher education, an annual family income of $97,000 or more would be required to be able to afford the full cost of a year at a public university, assuming tuition of $10,000 and non-tuition expenses of $8,000.
Clearly, enormous amounts of tax funds could be withdrawn from public higher education,
to be replaced by tuition paid by the middle, upper-middle, and upper-income students.
Access to higher education, at least in theory, would not have to diminish because parents
and students with financial need would receive tuition grants and would still pay, in
effect, a lower tuition. In fact, some of the public funds no longer needed to
"subsidize" the public higher education of the upper-middle class could be
returned in even more generous grants to the poor. Private colleges and universities would
be greatly strengthened as the price advantage of the public sector would substantially or
entirely disappear.
The High Tuition-High Aid Case
The high tuition-high aid model of public higher education finance has been advanced for many years, mainly by economists of varying ideological stripes, from Milton Friedman and Lee Hansen in the 1960s to Michael McPherson in the 1990s, who have attacked the prevailing practice of low public sector tuition as inefficient and inequitable. Less ideological and more self-serving, but drawing on the same theoretical assumptions, have been the arguments of private colleges and universities, which view low-tuition public higher education as unfair competition, and which see high tuition-high aid as a desirable public policy to shift middle and upper-middle income enrollment out of the public sector back into the private sector, where it substantially was, particularly in the Northeast, until the combination of widening tuition differentials and increasing quality and capacity in the public sector began in the 1980s to shift demand from private to public colleges and universities.
The high tuition-high aid model is based on claims of efficiency and equity. The efficiency claim begins with the tenet of public finance theory that any public subsidy of a good or a service that consumers are likely to purchase anyway, in the absence or diminution of the subsidy, is an inefficient use of public tax dollars. The tax dollars that could be released, were public sector tuitions allowed to rise, could supposedly go toward public needs of greater priority such as more need-based student aid, or to non higher educational needs such as health care or public infrastructure, or else to tax cuts or public deficit reduction. And if the demand for public higher education should decline as a result of the lower subsidies and higher prices, this too might be a move in the direction of a more efficient use of the nation's resources, since subsidies can generate overproduction of a good or service, beyond the socially optimal level, and a higher priced public higher education might discourage some of the ambivalent, ill-prepared students who are assumed by some of the high tuition-high aid advocates to be taking up space and wasting precious resources in our public colleges and universities.
A corollary of the efficiency claim is that there exists, at least in some states, underutilized capacity in the private higher education sector that could be filled at relatively low marginal cost. A shift of tax dollars from the direct support of public colleges and universities to need-based student aid, portable to the private sector, would presumably shift enrollments there and would enable the socially optimal level of enrollments to be supported more in the private sector, but at a lower additional net cost to the taxpayer.
The equity argument in favor of high tuition-high aid is based on two assumptions: first, that public higher education is actually partaken of disproportionately by students from upper-middle income and affluent families; and second, that the state taxes used to support public higher education tend to be proportionate or even regressive, and thus to be paid for by many lower-middle income and poor families who are unlikely to benefit. The high tuition-high aid model of public higher educational finance is thus claimed to be more equitable than across-the-board low tuition because it targets all public subsidy only on the needy and imposes full costs on students or families affluent enough to pay.
The Case Against the High Tuition-High Aid Model
The case against the high tuition-high aid model rests partly on flaws in the oversimplified and politically naïve case made on its behalf, summarized above, and partly on the ideological, or even philosophical, importance ascribed to the very existence of a public sector. The case against high tuition-high aid may be summarized by the following six points.
1. A "sticker price" of $15,000-$18,000 for a full-time year at a public college or university would almost certainly discourage many from applying, or even aspiring, to high education, even with the prospect of financial aid or a lower tuition for those in need. The tuitions that are already posted for many public four-year colleges and universities--from $2,500 to $4,500--in addition to the non-tuition expense of approximately $8,000, make even public higher education today a relatively heavy financial lift for most families and for nearly all dependent students. This fact does not alone fully negate the more theoretical arguments of "efficiency" and "equity" presented on behalf of full or near full-cost pricing for public higher education, as summarized above. But we begin in the United States with a tradition of "shared costs," between parents, students, and taxpayers, that places more of the burden on students and parents, and less on the state taxpayer, than in any other industrialized country. Higher Education, even in the so-called low cost public sector, already seems financially unreachable to many, and is burdensome to nearly all. Although the price elasticity of demand for higher education is extremely difficult to demonstrate, it is clearly plausible that a doubling or tripling of higher education in the public sector would discourage some, perhaps many, who are now benefiting both themselves and society by their postsecondary education. Furthermore, there can be little doubt but that those who will be thus discouraged will be overwhelmingly from disadvantaged and minority families.
2. A high tuition-high aid policy would lessen the quality of public colleges and universities. The purpose of high tuition-high aid plans is to reduce the state tax revenues currently going to the public colleges and universities--even though some proponents claim that this revenue loss can and would be made up by an increased revenue flow from the much higher tuitions paid by the more well-to-do. Private sector proponents of high tuition-high aid, however, make no secret of their aim to shift enrollments and tuition dollars of middle- and upper-middle income students (or at least the most attractive and able ones) from the public sector to the private sector. With little or no price advantage left in the public sector; with the resource advantage of large endowments, wealthy alumni, and the tradition of philanthropic support in the private sector; and with the patina of elitism and selectivity that is associated with private colleges and universities (especially in the Northeast), this shift would probably come about, and the nation's 1,600 public colleges and universities would increasingly become places for students whom the private colleges, priced the same to the students as the public ones, did not wish to accept. Such an erosion in the status and quality of public colleges and universities does not seem to be in the nation's public interest.
3. High tuition-high aid is politically unacceptable in most states. Most states have found great political resistance even to moderate levels of tuition in their public colleges and universities. Full-cost or near full-cost tuition -- in effect, the elimination of any subsidy or "break" for the middle- and upper-middle class who pay most of the taxes -- has been politically unattractive in most states in which it has been advanced. Financially accessible, public higher education is one of the widely shared and supported benefits from state taxes. Public finance theories about "efficiency" and "equity" notwithstanding, voters are taxpayers, and they want something for the taxes they are paying other than transfer payments to the poor.
4. High tuition does not guarantee high aid. A corollary to the political proposition above is that voters and legislators, continually pressed by more public needs than there are available resources, are likely to support a part of the public sector in which they perceive that they or their children have a stake. They are much less likely to maintain the financial aid, or "tuition discount," portion of the public higher educational budget when it is devoted almost exclusively to the poor. The erosion of the real purchasing power of state and federal need-based aid over the last decade is evidence of this phenomenon. Not-unlikely consequences of an attempted policy of high tuition-high aid, rather than the purported enhancements of efficiency and equity, are high tuition, lower taxes, inadequate aid, diminished access, and deteriorating public colleges and universities.
5. The high tuition-high aid approach has great operational complexities and technical difficulties. The current link between family income and tuition, whether in the public or private sectors, is through the "tuition discounting" effect of means-tested student financial aid, which is packaged and balanced with other grants, loans, and work by the professional financial aid officers to achieve the greatest possible access for the greatest number of students. Some proposals have been made to establish a single schedule of tuitions linked to family income. Public sector tuition linked clearly and directly to family income would eliminate much of the professional judgment of the aid officer, and would instead link all aid to a single, frequently complex and volatile, annual family income. But would it be on the basis of this year's estimated income, or last year's actual...and what if these incomes differ sharply? Would it be state net taxable income, federal adjusted gross income, or some other measure of ability to pay? Do assets matter...or does an extremely wealthy family with a more modest current taxable income get the benefits of a low public tuition while the family with little net worth but a relatively high current income does not? Are there to be allowances for other children, for children in college, or for other extraordinary expenses? Whose income are we counting: the parent’s, we must suppose, but until what age of the student? How about parents who refuse to pay, or students who claim to be, and by all reasonable criteria are, financially independent? Or, how about parents who are separated or divorced, or divorced but still living together...etc., etc.
The point is not that these questions are insurmountable. The financial aid profession and federal and state laws and regulations have created complex but by-and-large workable policies and instruments to measure financial need with sensitivity and judgment and to distribute grants and subsidized loans accordingly. But there is no way to take into consideration these very real complications and still to publish a simple schedule of "tuition-by-income" that replicates the entire set of tools of the financial aid profession.
6. Most fundamentally, the high tuition-high aid model is a denial of the appropriate-ness of higher education as public good. The nation's public colleges and universities have been built and supported over the last century and one-half not merely to provide a valuable service at a modest price to the student and family. Rather, voters and elected officials wanted public colleges and universities for certain purposes, in certain parts of the state, built in certain styles, featuring certain programs of study.
The high tuition-high aid model essentially denies all of these public purposes
to public higher education. It substitutes only a public subsidy for those who are too
poor to afford what would become an otherwise unsubsidized, expensive, essentially
privatized, product. Since public colleges and universities have proven to be rigorous in
quality, responsive to public needs, diverse, efficient, and innovative, it is difficult
to understand a public purpose -- other than some relief to the state's budget or to
certain private colleges and universities -- to the privatization of public higher
education. (Indeed, if the only public expenditures to our supposedly public colleges and
universities were to be need-based grants or tuition discounts for students from poor
families, one might question these grants as well and suggest that the federal and state
governments merely transfer income from the upper-middle class and affluent to the poor,
some of whom may choose to spend this income on higher education.) In short, we must
decide whether we truly want public colleges and universities directly accountable to the
state, or whether we merely want to get some poor students into college, in which case
privatization, or high tuition-high aid, is almost certainly, as public finance
theory correctly states, cheaper to the taxpayer.
Toward a Rational Policy of Public Sector Tuition
The argument presented above is meant to counter the claims that public college and university tuition should be priced at or near full cost, or at least very much higher than it is today, with more generous state programs of financial aid to make up the difference for low-income students and families. The case against high tuition-high aid is not, however, meant to be a case for zero or even very low public tuitions, and most certainly not for frozen or declining tuitions.
All students, if only through part-time work and loans, and most parents, can pay some tuition--some portion of the underlying costs of education. The average tuition at four-year public institutions in 1994-95 was $2686; for two-year institutions, it was $1298.Y There is considerable geographic disparity in these public sector tuitions: those in the Northeast and Mid-Atlantic states tend to be high--$2,500 to $4,000 is a general range for the baccalaureate campuses--while public tuitions in the South and West tend to be lower.
But assuming most public tuitions in a broad range of, say, one quarter to one third of underlying instructional costs--or about $2300 to $3000--the most important principle is probably stability as a percent of underlying costs. That is, whatever a state's political process has determined that tuition should be in some generally-acceptable base year, that tuition should be assumed to increase in most years as costs inevitably rise. If tuition is not allowed to rise with costs, there must be commensurably greater increase in tax funds to make up the difference, or there must be countervailing cuts, either in institutional support or student aid. Both of these absolutely critical public expenditures--need-based financial aid, and the maintenance of the underlying quality of the institution--would, to most observers, be of higher priority than actually lowering the effective cost of public higher education to all parents or students. Thus, a political decision to maintain very low or frozen tuitions at a time when tax revenues are also declining and when public college and university budgets and state financial aid programs are being slashed is a public policy misjudgment, ultimately injurious to the best interests of the students, who will lose both opportunity and quality.
At the same time, those states that have seen low or modest public tuitions as a
"cash cow" to be driven up while the taxpayer contributions plummet are also
making a public policy error, risking the dangers associated with high tuition-high aid
without any assurance of the high aid and without a consistent principle of sharing
the cost burden among parents, students, and taxpayers.
A wise public tuition policy, rather, would feature principles such as:
Public higher education has served the states and this nation brilliantly. At this
time, in the mid-1990s, as the nation and most of the states continue to struggle with
slow growth in tax revenues, declining federal revenue sharing, and competing public
sector needs, it is tempting to seek "solutions" that would relieve the states
of much of the financial burden of direct support of their colleges and universities. But
the cost of public higher education is already shared by students and parents, along with
taxpayers. The combined costs of tuition and all other expenses are already burdens to
many, perhaps most, students and their families. Public higher education, supported by the
states, is a great American success story and will continue to be a wise public
investment. Let us not unwisely throw it away to the lures of privatization or high
tuition-high aid.
*This paper was a discussion paper for the 1993 Annual Meeting of the National
Association of System Heads in New Orleans.
8/8/96
| Back to Dr. Johnstone's readings |