Attaining higher education is inextricably tied to one’s future earnings capacity and increases the nation’s productivity as a whole. Alas, tuition levels at historic highs present financial challenges to many families and lead to an average of $26,000 of debt per student for successful graduates.
There are, however, value-oriented paths to higher education available in the form of state colleges and universities whose tuition levels are considerably less than that of private and out-of-state institutions.
However, they typically receive insufficient attention as viable options. But, with President Obama’s recently outlined higher education reform plan focusing exclusively on “value,” a platform is being created that may curtail the tuition spiral and incentivize institutions to operate more efficiently.
More than 70 percent of college students in the U.S. attend public colleges and universities. The federal government provides more than $150 billion each year in student financial aid while states collectively provide less than half as much.
This disparity is exacerbated by the recent mindless and draconian across-the-board cuts to state budgets associated with the economic sequester.
Consequently, revenue sources have shifted from state and local governments to tuition. Public colleges and universities have witnessed the greatest increase in tuition per student, up 50 percent from 2000 and up 4.3 percent last year alone.
This is greater than the 40 and 20 percent increases in tuition at community colleges and private schools, respectively, over the previous decade. Additionally, state and local funding decreased 28 percent last year to $5,896 per student, its lowest level in 25 years.
In level terms, total costs at four-year state schools are still substantially less than their private school counterparts.
In its 2012 article on higher education costs, the College Board reported that the net price per student of higher education, that is, after scholarships, grants and aid, is $5,750 per year compared to $15,680 for that of a private institution.
The traditional model of state funding for public institutions hinges on enrollment numbers, or “seat time.” But, since institutions of higher education function much like the airline industry — think high fixed costs associated with operating activity and low marginal costs for each additional customer — the incentive structure for procuring additional funding becomes distorted.
It is telling that enrollment at public institutions has increased 30 percent over the last 10 years.
Contrary to this incentive structure, Obama’s proposed higher education plan posits that federal funding be allocated on a “value-based” ratings system. By design, Congress would tie the flow of federal student aid, generated in large part through taxpayer dollars, to institutions contingent on their “bang for the buck” performance with the hopes of increasing competition, transparency, accountability and thoughtful innovation.
This is no easy task, and such a system may have unintended consequences. It is already difficult to measure, let alone compare, academic standards and performance across both institution and region. Will it create the same kind of race-to-the-bottom effect as the No Child Left Behind policy?
The criteria for what “value” means will be determined partly through numerous public forums encouraging engagement and insight from state officials, administrators, parents and students. How effective such roundtable discussions turn out to be by the proposed deadline of the pre-2015 academic year, however, remains an open question.
The underlining theme of the plan rests on ultimatums for both the institutions and the students themselves.
For example, to increase college completion rates and increase educational access to students from economically challenged backgrounds, the plan awards bonuses to colleges based on the number of Pell grantees who graduate.
What’s more, the plan would deliver funding to Pell Grant recipients in a stream of payments over the course of a semester under the condition that they complete a certain percentage of classes before funding continues. If they drop out of school, funding is curtailed.
This is in contrast to the current system whereby a lump sum of aid is provided to the student at the beginning of the year.
The dynamism of the global economy dictates that there is no one-size-fits-all approach to developing an applicable skill set for today’s labor markets. A collegiate path may not be the answer for everyone’s own well-being.
However, families should be empowered with the transparency and knowledge to make the decisions that they feel best suited to make. The administration’s plan may be a step in that direction.
Dr. Nicholas J. Mangee is an assistant professor of economics at Armstrong Atlantic State University and can be reached at Nicholas.mangee@armstrong.edu.