the most overlooked trend in U.S. higher education

State defunding of public higher education has received a lot of attention in recent years. And budget cuts like the $250 million one Scott Walker made this year to the University of Wisconsin mean this trend continues to get media play.

Less visible in the media, but still well known, is that as public funding has eroded, colleges have become more dependent on tuition dollars for revenue. For public institutions, this has meant both tuition increases for in-state students and, where possible, a greater percentage of out-of-state and international students. While the net price of college hasn’t increased nearly as much as the sticker price, it’s still beat the cost of inflation year after year.

Both of these narratives are completely true. Yet this story of a shift from public to private funding overlooks one critical factor: the expansion of federal student aid.

During the past two decades, as state appropriations per postsecondary student flattened then declined, federally supported financial aid made massive gains. In 2002 its volume passed that of state appropriations, and by 2010 it was twice as large.


Stunning, right? This suggests a very different story than the one about the privatization of public universities we hear so much about. Instead, it looks like there’s been a shift from state funding of higher ed to federal funding. So what’s going on here?

Well, a couple of things. First, the federal aid figures include both grants and loans. Data sources like the College Board and the Delta Cost Project include loans as part of net tuition, not as federal funding. That makes sense, if you’re interested in the financial burden of college on students and their families. And the loans don’t cost the government anything like their face value.

But counting this way downplays the fact that those loans ultimately exist because the federal government makes them possible. Colleges are doubly dependent in this scenario: on students’ choices about where to attend, but also on the feds to make them available in the first place. And if you’re coming at this from an organizational perspective, we should expect resource dependence — whether on students, on the feds, or both — to have effects.

Second, this chart collapses public, private non-profit, and for-profit institutions together. The state appropriations are only going to publics (which also enroll about three-quarters of the students). But as of 2010, more than a quarter of student aid was going to the 10% of students enrolled in for-profit institutions. Moreover, because private colleges are so much more expensive than public colleges, they also receive a disproportionate fraction of federal loans. I haven’t pulled these numbers apart by institution type. But if we just compared state appropriations and federal aid to students at public institutions, the chart would surely be less dramatic.

It would be misrepresenting reality to say that public institutions have experienced a substantial shift from state to federal dependence (at least without substantially more number crunching). And it would be similarly wrong to argue that schools haven’t become more tuition dependent (since loans do come to schools via individual students).

But you can absolutely make the case that at the field level, higher education has increased its dependence on the federal government relative to state governments. And this makes colleges susceptible to a whole wave of federal demands that simply weren’t there before. The college ratings system Obama proposed and then abandoned is one example of this. Education Secretary Arne Duncan’s drumbeating for accountability is another.

Colleges have a lot of political clout and are well-organized. They ground the ratings proposal into a shadow of its former self. And it will take a lot of doing before we see No College Student Left Behind.

Nevertheless, if organization theory tells us anything, it’s that resource dependence matters. When, five years down the road, we get a Race to the Top rewarding colleges that meet completion and job placement goals at a given tuition cost, I know where I’ll be looking: at that point in 2002 where higher ed waved goodbye to the states and hello to the feds.

[Data from the College Board’s Trends in Student Aid 2014 and Grapevine reports, various years, deflated with BLS CPI.]

Written by epopp

August 31, 2015 at 12:34 pm

9 Responses

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  1. […] Source: the most overlooked trend in U.S. higher education […]


  2. Althought anywhat everybody can say, with me, US education is still really higher and what is yours is our dream.



    August 31, 2015 at 4:35 pm

  3. I had wondered why Congress had not imposed a fixed dollar amount to colleges while requiring colleges to take that rate or lose federal support altogether (something akin to Medicare’s negotiated rates). But the federal government makes money nets a profit on loans. This would, of course, irritate the powerful higher ed lobby while simultaneously diminishing the return on loans (not to mention, do a number on finances at private institutions like my own), so that might be why. In this light, your warning is apt because it seems like the government could actually wield more power than it does.

    The plateaus on the graph also trouble me. It looks like states reduce funding of higher education during recessions and do not reestablish previous funding levels. It seems like it might behoove of state universities to demonstrate that higher education actually offers a counter-cyclical weight against economic downturns by absorbing more students and paying the related staff (and, to a lesser degree, faculty). That might help stave off cuts during recessions that seem to become permanent.



    August 31, 2015 at 6:04 pm

  4. Mike, you mean a fixed tuition level to remain eligible for federal student aid? Yes, in theory they could. Since in practice they can’t even effectively enforce the 90-10 rule (which requires that for-profits receive at least 10% — yes, 10% — of their income from sources other than federal aid), I think that dog won’t hunt. But yeah, lots of potential power to be exercised should political will emerge.

    The whole making money on loans thing is relatively new and quite possibly temporary. Income-based repayment means that the Education Department may potentially be losing big in the future: A lot depends on the assumptions you make.

    And for states, yep, that’s exactly what happens. Until we come up with a way to solve prison, pension, and Medicaid costs, though, I don’t see higher ed becoming a priority again, counter-cyclical weight or no.



    August 31, 2015 at 11:43 pm

  5. Hmmm…this is an interesting way to think about the question of privatization. Ordinarily, when we talk about privatization in higher ed we are talking about either (a) the shifting of the tuition burden from the state to the individual or (b) the move of some flagship state universities–or their professional schools–to a low-state-support model which comes with somewhat increased autonomy. But this data suggests something else: that higher ed is shifting into a voucher-like system, where instead of publicly-funded institutions we have increasingly only money that moves with students to institutions. While the impact is a bit different in higher ed, since the wealthiest are not eligible for the “vouchers,” such a system does have the potential to further exacerbate individual and organizational inequalities.



    September 1, 2015 at 12:27 am

  6. Mikaila — I would say yes and no. The expansion of Pell Grants in particular (from $15b in 2007 to $38b in 2011) has a voucher-like quality. And there has for decades been a position in economics, held by people from Milton Friedman to Alice Rivlin, that support should be tied to students, not institutions. I’m not convinced that shift is actually improving education.

    But the volume of federal loans is three times that of Pell Grants, so the voucher analogy only holds up to a point. It’s still money that is tied to students, not institutions. But students do have to pay it back.



    September 1, 2015 at 12:55 pm

  7. Beth, there’s been an interesting subtle shift in the rhetoric regarding whose responsibility it is to pay for an individual’s post-secondary education. My impression is that there was a strong consensus across the nation 50 years ago, and certainly into the late 1960s, that governments had a responsibility to educate their students that extended up through college. However, I perceive that consensus has been under attack from both the left and the right. Conservatives argue that state support leads to wasteful spending on such things as services and administrators, whereas liberals argue that much of the public subsidy goes to the wealthier high income students whose parents don’t really deserve the subsidy. Conservatives argue that as students benefit substantially from their college education, they should pay most of the cost. Liberals argue that more money should be set aside for lower income students. Certainly, we notice at a state school like UNC that probably 80% of our students come from the top 20% of the income distribution in the state.

    About a decade ago, UNC created a very generous program for low income students, the first of its kind in the nation. Students whose family income is less than twice the poverty level for a family their size are guaranteed to graduate from UNC debt free. So, we do have quite a few lower income students enrolled here. But the fact remains that middle and upper income students benefit disproportionately at state schools from state subsidies. The issue is how to interpret such state largesse!


    Howard Aldrich

    September 1, 2015 at 4:35 pm

  8. @Howard: this claim is very institutionally-specific, and it highlights the fact that classifying all public institutions together can be very misleading. For example, at my institution, 49% of students receive Pell grants, clearly not a middle/upper income population, and at least some of the remainder are adults ineligible for Pell due to their own full-time salaries. Community colleges, of course, tend to enroll even higher proportions of low-income students.

    Now, I certainly would not want to make an argument for reducing state support at UNC, but your argument, if taken to its logical conclusion, would suggest that flagships should be further privatized while state support at regional campuses and community colleges should be increased. One alternative would be to imitate the privates and adopt high-tuition/high-aid models at public institutions, but those models tend to dissuade poor students from applying given their lower knowledge about financial aid availability.



    September 1, 2015 at 5:01 pm

  9. Thanks for the thoughful comments. So I have some subtle things to say about cost-benefit thinking and the left that are related to Howard’s point and I would really like to get out, but I’m really tired and I think maybe they merit their own post anyway.

    Instead I’ll throw in a quick plug for a piece in the Research in the Sociology of Organizations on “the university under pressure” that I’m coediting (and in which Mikaila has a paper too). George Breslauer, former Berkeley provost, has a provocative article in it arguing that by using the high-tuition high-aid strategy, Berkeley has remained as public as ever, maybe even more so, despite dealing with state funding cuts and having much higher tuition today. (Older version here: I don’t fully agree, but the question of what “public” and “private” mean for universities these days really is pretty blurry.

    Liked by 1 person


    September 2, 2015 at 1:51 am

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