Higher-ed Spending Is Not the Answer

Higher-ed Spending Not the Answer, by Neal McCluskey
This article appeared in the Baltimore Sun on December 17, 2008

Despite conventional wisdom - and the huge higher education spending increase just proposed for Maryland - giving academia more public bucks is not the path to economic success.

The cries for more money have certainly been abundant. In October, the New America Foundation's Michael Dannenberg declared that states should deficit spend on higher ed to keep tuitions low and economies running. In November, the Center for Studies in Higher Education implored Washington to fight recession by spending big on scholars. This month, the College Board, National Association of State Universities and Land-Grant Colleges, and National Center for Public Policy and Higher Education all decried states' tight outlays.

Finally, on Wednesday, a commission chaired by Del. John L. Bohanan Jr., a St. Mary's County Democrat, proposed that Maryland expend an additional $760 million on its ivory towers to keep the state competitive.

But colleges, despite their claims, are not great growth-makers. Yes, individuals with college degrees tend to do better than those without, but that doesn't mean forced higher ed spending is an economic good.

For one thing, we put more people into universities than can benefit from them. Nationally, about one-third of college students need remedial work (Maryland's rate is roughly the same) and many never graduate. In fact, the six-year graduation rate for all bachelor's students is just 56 percent.

But isn't the problem that college prices keep rising, forcing students to work when they should be learning? And isn't that rooted in ever-skimpier state support?

It's true that prices have ballooned. According to the College Board, nationally the inflation-adjusted costs of tuition, fees, room, and board have risen about 52 percent at public four-year schools over the last 15 years, going from $9,460 to $14,340. Four-year private schools have seen a 42 percent price leap, from $24,060 to $34,130.

But shrinking public funds aren't to blame. For one thing, state appropriations have little impact on private institutions. For another, according to the State Higher Education Executive Officers, nationwide the nearly three-decade trend is essentially flat. And, between 1992 and 2007, real (inflation-adjusted) state and local government expenditures per student in Maryland increased roughly 23 percent.

So, what accounts for rampant tuition inflation? Many things, but one of the biggest is student aid. Nationally, real sticker prices rose 52 percent at public four-year institutions between 1993 and 2008, but the increase was a more modest 35 percent after accounting for grants and tax benefits such as credits and deductions - essentially free money. At private institutions, the after-free-cash increase was 34 percent. And those numbers ignore cheap federal loans, which after adjusting for inflation grew from $2,830 per pupil in 1993 to $4,841 in 2007.

Of course, all this forced largesse might be worth something if it actually strengthened the economy. But there is evidence it doesn't. Economist Richard Vedder has isolated the effects of higher ed spending and found that the more states spend, the lower their rates of economic growth.

Why is this? In part, it's a function of the bureaucratic inefficiencies - and special-interest payoffs - that accompany almost anything government does. More fundamentally, taxpayers know their needs better than anyone else, and when they can keep their money attend to them more effectively than does the ivory tower.

Scholars and politicians might not like to hear these things. But before the state drops three-quarters of a billion dollars on its universities, they're worth considering.

Neal McCluskey is associate director of the Cato Institute's Center for Educational Freedom and author of Feds in the Classroom: How Big Government Corrupts, Cripples, and Compromises American Education.