Saturday, February 7, 2009

The Hidden Shift in Higher Education Funding

I recently took a look at the Factbook for the PA State System for Higher Education. As an economist and an employee of a state university, I was interested in the breakdown of funding over time. I noticed that the data regarding state funding and tuition reveune were not adjusted for inflation. After adjusting for inflation, this is what I found:

Click on graph to view

The graph above shows how there has been a significant shift in pushing more of the cost of a college education in the state's "true" public university system on to the student. The magnitude of this "hidden" shift can only be seen once the data are adjusted for inflation.
Educational and General revenue (E&G) per full time student (FTE) is based on tuition and fees. From 1983-1991, the amount of revenue coming from students increased but remained consistent with the rate of inflation. Then in 1992, the amount of revenue from tuition and fees began to rise faster than the rate of inflation. Explanations for the increase in tuition and fees might include the rising costs of higher education (faster than the rate of inflation) and the expansion of the state system. However based on the data regarding the state's appropriation, another explanation emerges - a change in political philosophy resulting in more of the cost burden being borne by students and less by taxpayers.

If, as many in the state legislature have claimed over the years, the reason for increasing tuition and fees ABOVE the rate of inflation is due to the rising cost of a college education, then why not attempt to split the burden between students and taxpayers? After all, the idea of a public higher education system is to provide the state's residents with a more educated and productive labor force (positive externalities) as well as a government solution to the market failure in credit markets for educational loans. But after looking at the inflation adjusted data, it's clear that the cost burden has shifted on to students.

From 1992-2001, the state's budget appropriation per student remained consistent with the rate of inflation. Yet, at the same time, revenue from student tuition and fees was approximately $2000 more than the inflation adjusted amount. Thus for almost a decade, students continued to contribute more to the state system's operations while taxpayers saw no change.

Then, after keeping pace with the rate of inflation from 1984-2000, the inflation adjusted appropriation per full time student began to fall short. Coincidentally, this was the first year for the new Chancellor, Judy Hample. With tuition and fees running above the rate of inflation and appropriations running below, a gap has opened up and the student is falling through.

By the end of the 2008 school year, students were contributing over $12,700 in tuition and fees while the inflation adjusted amount was just over $9800 and they were receiving approximately $4600 in state funding while the inflation adjusted amount was $6200. On an inflation adjusted basis, they were over paying by almost $3000 and under funded almost $1600 in the 07-08 academic year - the hidden shift that has significantly burdened students.

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