Fed Reserve Study Suggests Many Public Colleges Have Cut to the Bone

Critics of public higher education often allege that state colleges and universities are raising tuition and fees in order to support non-essential research and supposedly lazy professors who do not want to teach more classes.  But a recent report by the New York Federal Reserve provides evidence that a lot of public institutions made it through most of the last decade by cutting expenses as state funding declined, though many have now reached the point where tuition and private donations must offset the costs of educating increasing numbers of students.

The report also finds that the public funding cuts have caused tuition to rise at a faster rate at state colleges than at public colleges.  The severe recession is the main culprit.

“Before 2007,” the study reports, “changes in public institution tuition do not appear to vary closely with public funding. In fact, over the 2000-07 period, a 10 percent decline in state higher educational funding is associated with a 0.5 percent increase in public institution tuition. However, after 2007, the group of states with the most funding cuts…also has the highest growth in tuition in each year, with an average annual growth rate of 3.4 percent in tuition. Our analysis suggests that over this period, a 10 percent decline in public funding for [this group] is associated with an average annual increase of 3.1 percent in tuition at public institutions. This compares with an increase of 1.2 percent in public institution tuition for a 10 percent decline in public funding in our full sample over the same period (2007-11). That is, we observe an economically meaningful relationship between public funding and public institution tuition changes but mainly since the recession began and especially for the group of states with larger higher education funding cuts.”

The fact that public institutions raised tuition only 0.5 percent during a seven-year period when public funding declined by 10 percent and enrollment was increasing shows that most schools were able to offset the cuts with layoffs and other cost-saving measures.  But after seven years, the schools in states that cut funding the most no longer could look to efficiencies and still handle increasing enrollment.

“In the public discourse, federal funding is often blamed for driving up tuition,” the report says. “However, our analysis suggests that public schools are increasing tuition as a way to make up for decreasing state and local appropriations for higher education, and that deeper cuts in public funding may be associated with correspondingly greater tuition hikes. How much change in public institution tuition is caused by a 1 percent change in public funding is a question that is much harder to answer. The reason is that public institutions can make up for the shortfall in revenues from the states in many ways aside from raising the tuition price: they can lay off instructional, administrative, or other types of staff; or they may even eliminate specific programs from their academic curriculum. Finally, a state school may be inclined to accept a greater proportion of out-of-state students, who pay more in tuition than in-state students; however, additional analysis we conducted fails to find evidence of this over the years 2001-10.”

Although the authors–Rajashri Chakrabarti, Maricar Mabutas, and Basit Zafar–found no evidence that schools were accepting more out-of-state students during the decade covered by the study, it is a fact that by now many public colleges are forced to accept more of-of-state students in order to make up for funding shortfalls.

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