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Challenges Facing Public Higher Education Thomas J. Kane (UCLA) Peter R. Orszag (Brookings) Presentation to Commission of 125 UT-Austin September 11, 2003 Trends in state appropriations and tuition levels State appropriations for higher education have fallen relative to personal income

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Challenges Facing Public Higher Education

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Challenges facing public higher education l.jpg

Challenges Facing Public Higher Education

Thomas J. Kane (UCLA)

Peter R. Orszag (Brookings)

Presentation to Commission of 125

UT-Austin

September 11, 2003

The Brookings Institution, Washington, D.C.www.brookings.edu


Trends in state appropriations and tuition levels l.jpg

Trends in state appropriations and tuition levels

The Brookings Institution, Washington, D.C.www.brookings.edu


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State appropriations for higher education have fallen relative to personal income

“State support” defined as appropriations for higher education from the Grapevine database. Personal income based on data from the Bureau of Economic Analysis.

The Brookings Institution, Washington, D.C.www.brookings.edu


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…and relative to total state spending

“State support” defined as appropriations for higher education from the Grapevine database. State expenses based on data from the Bureau of the Census, State Government Finances.

The Brookings Institution, Washington, D.C.www.brookings.edu


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..while tuition accounts for an increasing share of public university revenue

Source: U.S. data are from NCES. Texas data are authors’ calculations based on IPEDs.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Explaining the trends

The Brookings Institution, Washington, D.C.www.brookings.edu


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Business cycle effects

Source: Authors’ calculations based on Bureau of Labor Statistics data

The Brookings Institution, Washington, D.C.www.brookings.edu


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State appropriations per student

“State support” defined as appropriations for higher education from the Grapevine database. Enrollment from IPEDs. Figures are expressed in constant fiscal-year 1996 dollars.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Cutbacks during the early 1980s recession

Texas

Source: Authors’ calculations based on Grapevine, Bureau of Census, and Bureau of Labor Statistics data

The Brookings Institution, Washington, D.C.www.brookings.edu


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…are balanced by expansions during the subsequent recovery

Texas

Source: Authors’ calculations based on Grapevine, Bureau of Census, and Bureau of Labor Statistics data

The Brookings Institution, Washington, D.C.www.brookings.edu


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But cutbacks during the early 1990srecession

Texas

Source: Authors’ calculations based on Grapevine, Bureau of Census, and Bureau of Labor Statistics data

The Brookings Institution, Washington, D.C.www.brookings.edu


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…are not offset during most of the 1990s recovery

Texas

Source: Authors’ calculations based on Grapevine, Bureau of Census, and Bureau of Labor Statistics data

The Brookings Institution, Washington, D.C.www.brookings.edu


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The cycle once again?

Texas

The Brookings Institution, Washington, D.C.www.brookings.edu


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What changed?Medicaid’s Share of State Spending

Source: Authors’ calculations based on State Health Expenditure Accounts and Bureau of Census, State Government Finances data

The Brookings Institution, Washington, D.C.www.brookings.edu


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Medicaid crowds out higher education appropriations

Texas

Source: Authors’ calculations based on Grapvine, State Health Expenditure Accounts, and Bureau of Census

The Brookings Institution, Washington, D.C.www.brookings.edu


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“Quality” concerns

The Brookings Institution, Washington, D.C.www.brookings.edu


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Spending per student at public institutions has not kept pace with spending at private institutions

Source: Authors’ calculations based on NCES.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Salaries for professors at public research universities relative to private research universities

Source: Authors’ calculations based on IPEDS data

The Brookings Institution, Washington, D.C.www.brookings.edu


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Tenured faculty salaries at research and doctoral universities

Source: Authors’ calculations based on National Survey of Post-secondary Faculty, 1993 and 1999

The Brookings Institution, Washington, D.C.www.brookings.edu


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Student-faculty ratios at research universities

Source: Authors’ calculations based on HEGIS/IPEDS database.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Incoming student body

Among public and private institutions with similar students in 1986:

  • The 75th percentile of Math SAT scores declined by 12 to 13 percentage points between 1986 and 2000 at public universities relative to private universities;

  • The 25th percentile of Math SAT scores declined by 12 to 18 percentage points between 1986 and 2000 at public universities relative to private universities

  • The 75th percentile of Verbal SAT scores declined by 16 to 23 percentage points between 1986 and 2000 at public universities relative to private universities;

  • The 25th percentile of Math SAT scores declined by 17 to 23 percentage points between 1986 and 2000 at public universities relative to private universities.

The Brookings Institution, Washington, D.C.www.brookings.edu


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U.S. News Rankings

The Brookings Institution, Washington, D.C.www.brookings.edu


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Survey of tenured faculty

Source: Authors’ calculations based on National Survey of Post-secondary Faculty, 1999

The Brookings Institution, Washington, D.C.www.brookings.edu


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A Look into the Future

The Brookings Institution, Washington, D.C.www.brookings.edu


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Two pressures on university and state finances

  • Pressure from state Medicaid obligations will continue to mount.

  • Growth in the size of the college-age population will present additional challenges.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Medicaid expenses are expected to continue growing rapidly

Source: Congressional Budget Office, A 125-Year Picture of the Federal Government's Share of the Economy, 1950 to 2075 (July 2002)

The Brookings Institution, Washington, D.C.www.brookings.edu


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Enrollment rate increases partially offset by population declines in past...

The Brookings Institution, Washington, D.C.www.brookings.edu


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…but the college-age population is now expected to expand rapidly

Source: Authors’ calculations based on Bureau of Census, Population Projections

The Brookings Institution, Washington, D.C.www.brookings.edu


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Policy Responses

The Brookings Institution, Washington, D.C.www.brookings.edu


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State budgets

  • Medicaid reform that slows growth of state commitments would ease pressure on higher education funding. However, Medicaid reform is substantively and politically complicated.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Higher Education Trust Funds

  • In many states, substantial tuition increases occur only during recessions.

  • Rather than gradually increasing, tuition spikes occur precisely when families have a difficult time adjusting plans.

  • To smooth funding, states could create dedicated trust funds. The funds would build up during economic booms and then be drawn down during recessions.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Better targeted aid

  • Researchers have long been concerned that state appropriations for higher education are not well-targeted.

  • California has created program for low-income students with good grades. They receive grant covering full tuition and required fees at public universities.

  • During the next recovery, states should consider creating a similar entitlement for needy students.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Federal incentive

  • To encourage states to expand means-tested grant aid, the federal government could offer matching funds to states based on their funding for such programs.

  • The purpose would be to encourage states to retain and expand means-tested grant aid.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Frontloading Grant Aid

  • Concentrate state grant aid for students in their first two years of college.

  • Low-income students who learn that they are “college material” may be more willing to borrow during their last years in college.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Loan Forgiveness for Those who Remain in State

  • Many graduates leave the state.

  • To preserve quality, states could allow tuition increases

  • Resulting loan burden could then be partially forgiven for students who subsequently work in the state, with the share forgiven depending on how long the student remains in the state.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Federal Policy Changes

  • Borrowing under the subsidized federal programs is subject to annual limits (e.g., dependent students can currently borrow $2,625 during their first year)

  • States could be allowed to “buy” more loan eligibility for their residents, by raising the limits that students can borrow under the subsidized loans and reimbursing the federal government for the additional costs.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Conclusions

  • Large state operating subsidies to public higher education have traditionally kept tuition low for students, regardless of need.

  • Over the past two decades, state budgets have come under increasing pressure in part because of greater state financial obligations to programs like Medicaid.

  • The most visible result has been an increase in tuition. A less visible result has been a slow deterioration in the quality of public higher education, relative to private higher education.

The Brookings Institution, Washington, D.C.www.brookings.edu


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Conclusions, continued

  • Since roughly three-quarters of college students are enrolled at public institutions, implications could be substantial

  • A public debate on the structure of financing higher education in the United States is in order.

  • The traditional financing approach—low public tuition financed by state government subsidies, while modest federal means-tested aid programs fill in the gaps for low-income students—seems increasingly untenable.

The Brookings Institution, Washington, D.C.www.brookings.edu


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