Challenges Facing Public Higher Education

1. 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

2. Trends in state appropriations and tuition levels The Brookings Institution, Washington, D.C.www.brookings.edu

3. 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

4. …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

5. ..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

6. Explaining the trends The Brookings Institution, Washington, D.C.www.brookings.edu

7. Business cycle effects Source: Authors’ calculations based on Bureau of Labor Statistics data The Brookings Institution, Washington, D.C.www.brookings.edu

8. 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

9. 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

10. …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

11. 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

12. …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

13. The cycle once again? Texas The Brookings Institution, Washington, D.C.www.brookings.edu

14. 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

15. 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

16. “Quality” concerns The Brookings Institution, Washington, D.C.www.brookings.edu

17. 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

18. 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

19. 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

20. Student-faculty ratios at research universities Source: Authors’ calculations based on HEGIS/IPEDS database. The Brookings Institution, Washington, D.C.www.brookings.edu

21. 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

22. U.S. News Rankings The Brookings Institution, Washington, D.C.www.brookings.edu

23. 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

24. A Look into the Future The Brookings Institution, Washington, D.C.www.brookings.edu

25. 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

26. 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

27. Enrollment rate increases partially offset by population declines in past... The Brookings Institution, Washington, D.C.www.brookings.edu

28. …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

29. Policy Responses The Brookings Institution, Washington, D.C.www.brookings.edu

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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