The Perfect Storm and the Privatization of Public Higher Education
Published on: Aug 17, 2006

Ronald G. Ehrenberg is Irving M. Ives Professor of Industrial and Labor Relations and Economics at Cornell University and director of the Cornell Higher Education Research Institute (CHERI). CHERI is financially supported by the Andrew W. Mellon Foundation, the Atlantic Philanthropies (USA) Inc., and the TIAA-CREF Institute. However, the views expressed here are solely his own.

This essay first appeared in Change Jan/Feb. 2006. Vol. 38, No. 1, pg. 46. New Rochelle: Heldref Publications.

During the last quarter of a century, public higher education institutions have found themselves buffeted by a perfect storm (a term I owe to Pat Callan). This storm has led to discussions about the privatization of those institutions, which has implications for their ability to improve, or at least maintain, their quality and their accessibility to students from all socioeconomic backgrounds. A weakening of our public higher education system along either the quality or accessibility dimension would have serious consequences for our nation's future.

What are the factors that led to this perfect storm? Following the Reagan revolution in the 1980s, which reduced the value of the state income tax deduction on federal income tax returns, taxpayers clamored for state income tax cuts. But since then, increased state-funding needs for Medicaid, elementary and secondary education, and the criminal justice system have put increasing pressure on state tax revenues. The consequence has been structural deficits in many state budgets. There simply have not been sufficient revenues available to generously fund public higher education—instead, there have been dramatic reductions in the share of state budgets devoted to higher education.

Since these pressures on state coffers were mounting just when enrollments in public higher education institutions were rapidly increasing (from less than 8 million in 1974 to more than 12 million in 2004), it is perhaps remarkable that average state appropriations per full-time equivalent student at public higher education institutions have increased, on average, at an annual rate that has exceeded the rate of increase in consumer prices by about 0.6 percent a year (or remained almost flat if inflation is calculated not by the Consumer Price Index but according to the more realistic Higher Education Price Index). Given that state support for public higher education is one of the few real discretionary categories in state budgets and higher education is one of the few state agencies that charges for its services, policymakers seem to have concluded that flat funding is all that public higher education can expect from the state. Real increases will have to be provided by tuition.

Traditionally, public higher education has been viewed as a social good that yields benefits to the nation as a whole. But as earnings differences between highly educated and less educated individuals have widened—and the private economic return higher education provides its students has grown—policymakers have concluded that those students and their families should pay a greater share of the costs of public higher education. (See David Longanecker's article in Change, Jan/Feb 2006, for a more extensive discussion of policymakers' attitudes.)

During the same period, however, private colleges and universities were raising their tuitions at a rate of over 3 percent above inflation. In an effort to remain competitive, public higher education institutions raised their tuitions annually at roughly equivalent rates. But because public tuitions started at a much lower level, the actual dollar increases the publics netted from these increases have been much less. Moreover, privates with large endowments benefited greatly from the run-up in stock-market prices that took place during the 1990s.

As a result, expenditures per student at the publics have fallen relative to those at the privates. During the 20 years ending in 1995-1996, expenditures per student (adjusted for inflation) rose by 52 percent at private four-year institutions and by 40 percent at public four-year institutions. Average expenditures at public four-year institutions that were about 78 percent of the level at their private counterparts in 1975-1976 fell to 72 percent by 1995-1996. Due to changes in accounting rules, expenditure-per-student data have not been published for private colleges and universities since 1995-1996, but the percentage is undoubtedly much lower today.

As a result, faculty salaries at public universities have fallen relative to those at private universities. Data from the American Association of University Professors' (AAUP) annual survey indicate that between 1978-1979 and 2003-2004, the average salary of full professors in public doctoral institutions fell from 91 percent to 78 percent of the average salary of full professors in the privates. This has made it difficult for the publics to attract and retain top faculty. During that same period, student/faculty ratios at public universities rose relative to those at private universities. Using data from the Integrated Postsecondary Education Data System (IPED), Thomas Kane and Peter Orzag calculate that between 1971 and 1997, the number of full-time equivalent students per faculty member fell at private research universities from 17.3 to 15.7 while it rose slightly at public research universities from 21.1 to 21.7.

Resource constraints have led public colleges and universities, more than their private counterparts, to substitute part-time and full-time non-tenure-track faculty for tenured and tenure-track faculty. For example, during the 1990s alone, the percentage of undergraduate credit hours taught by tenured and tenure-track faculty fell by over 22 percentage points at the four State University of New York campuses. Research that I conducted with Liang Zhang of the University of Minnesota suggests that these types of substitutions have a negative effect on undergraduate students' graduation rates and first-year drop-out rates, with the largest impacts at the four-year public comprehensive institutions. We found that for those institutions, a 10 percent increase in part-time faculty is associated with a 3 percent reduction in the five-year graduation rate, while a 10 percent increase in full-time faculty in non-tenure-track positions is associated with a reduction of 4.4 percent in the graduation rate, all things being equal.

As public tuition levels have increased and a greater proportion of public higher education costs have been shifted to students and their families, states and the federal government have responded to political pressure from the middle class by shifting financial assistance away from need-based aid. At the state level, a greater share of funding is now in the form of grant aid to students rather than appropriations to public institutions to support their operations. And that aid is increasingly based on merit, which privileges educationally advantaged students.

By 2003, 13 states-mostly Southern-had introduced broad-based merit-aid programs modeled on Georgia's Hope Scholarship, which was designed to encourage high school graduates to attend in-state academic institutions. Susan Dynarski calculates that in many of these states, the 30 percent or more of high school graduates who qualify for these awards are disproportionately white and middle- or upper-income. Hence the growth of these programs can be understood primarily as a response to large voting blocs concerned about rising college tuitions, not as an effort to increase access for underrepresented groups.