institutionalfinance

A business-friendly argument for more government support for higher ed (essay)

Academics have historically balked when confronted with suggestions that the education system is a business and should be treated as such. They speculate that placing a monetary value on an entity with a deep, intellectual purpose diminishes the overall significance of learning. They claim that you cannot quantify the positive benefits of a degree.

But this is not the case. Education, particularly higher education, is a business, and one of the few left in this country that guarantees a positive return. To call education a business isn’t to undermine its importance to our country and citizens — it provides the proof that our higher education systems should be a top priority, if not the top priority, for government spending.

Quite simply, the future of our economy depends on well-educated workers. More than 59 percent of jobs today require some postsecondary education, yet these degrees are becoming increasingly difficult to attain. We must evaluate higher education based on the return institutions generate for the country both in terms of absolute dollars and competitiveness.

Public higher education depends on state and federal budget allocations. We have a choice as to how we distribute these public funds. By continually prioritizing Social Security, health care, and defense spending over education, the government is indirectly hindering an increase of college graduates that our economy so desperately needs. By 2018, 63 percent of jobs will require a college degree, but we are likely to fall 3 million graduates short of what the market demands, according to a recent study.

Today, the federal government spends approximately $30 billion annually subsidizing enrollment in higher education institutions, with most of the money spent on financial aid, and roughly 8 percent going to grants to institutions. According to a Cato Institute Study, the federal government also provides approximately $30 billion to U.S. universities to fund research projects. While these are certainly hefty investments, combined it means the government only contributes 14 percent of the total dollars — $420 billion — that flow into higher education institutions.

Higher education is the best investment we can make for our country’s future. But are we doing enough to support educational institutions and students? Higher education provides annuity-like returns for 40 years — the working years of most graduates. Over the course of an average lifetime, a holder of a four-year-equivalent degree (the weighted average of associate’s, bachelor’s, master’s, professional, and doctorate degrees) gives the government $471,000 in income, payroll, property, and sales tax revenue. You certainly can quantify the value of a degree: that’s more than twice what it would collect in lifetime taxes from a high school graduate lacking a college degree, according to a University of Maine study.

In California, for instance, every dollar the state invests in higher education leads to a $3 net return on investment. The University of California System (UC) contributes more than $14 billion in California economic activity and more than $4 billion in tax revenues each year, not to mention the impact from UC-related spinoffs. Further, the California State System (CSU) ensures businesses get the trained workforce they require — CSUs graduate 45 percent of the state’s computer and electrical engineers. Despite this, the UC and CSU schools have seen a 28 percent decline in state support between fiscal years 2007-2008 and 2011-2012, according to a study done by the Stanford Institute for Economic Policy Research.

Higher education graduates help fuel innovation that creates new jobs. Research universities contribute new technologies — from Internet search algorithms to genetic coding — and file thousands of patents annually. The American Recovery and Reinvestment Act (ARRA) of February 2009 provided some funds for higher education (mainly to prevent states from reallocating education dollars for other purposes). However, these funds are miniscule — less than a percent — in comparison to the total funding for research universities, according to the Washington Higher Education Coordinating Board.

If the government should plateau on its investment in higher education, we’ve raised the risk level of our current investment. When endowments are down and state governments cut funding to state universities, tuition rates rise and the likelihood of students not graduating increases. According to the American Institutes for Research, students who started bachelor degree programs in the fall of 2002 but failed to graduate in six years cost the students approximately $3.8 billion in lost income in 2010 alone.

A recent Inside Higher Ed blog post discusses an interesting approach to lowering tuition costs while increasing the numbers of students able to enroll in universities and earn degrees, using a simple supply and demand model. Approaching the problem from an economic standpoint does not undermine the importance of receiving an education; it highlights its very necessity, and makes it more accessible.

As taxpayers, we need to be asking about our tax dollars’ return on investment. From 1987 to 2006, we doubled federal support for Medicaid in state budgets — increasing these funds from 10.2 percent to 21.5 percent — but decreased federal expenditures for higher education from 12.3 percent of state budgets to 10.4 percent, according to a University of California study.

We need to have a conversation about education similar to the national debate we had about the automotive and financial industries. We should not view education expenditures as discretionary dollars that we can increase and decrease at will, but rather as the most dependable, profitable, and ultimately, important investment our government can make.

Mehdi Maghsoodnia (@mmaghsoodnia) is CEO of Rafter, which provides software tools for cloud-based distribution of course materials. Rafter is also the parent company of textbook rental service Bookrenter.com.

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Report finds alumni giving, among other areas, correlated with football success

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Report says college football success is correlated with increases in alumni giving, applications, academic reputation and incoming students' SAT scores.

Audit Threatens U.S. Funds for Replacing Flood-Damaged Facilities at U. of Iowa

A federal official has recommended that the Federal Emergency Management Agency reverse its decision to provide tens of millions of dollars to help the University of Iowa replace three buildings that were damaged in 2008 flooding, The Gazette of Cedar Rapids reported. The inspector general of the U.S. Department of Homeland Security issued an audit this week recommending that Homeland Security officials not provide $83 million in funds to replace three buildings that have been part of the university's efforts to rebuild in the wake of devastating floods. The audit was prompted by a complaint that FEMA should have repaired rather than replaced the buildings. Iowa officials said they were hopeful that Homeland Security administrators would reject the inspector general's recommendation, the newspaper reported.

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The war of words and battle of wills between Texas Southmost College and the University of Texas at Brownsville is continuing. The two institutions used to operate jointly, and now the college has said that it will not sell any real estate to the university. That prompted this statement by Francisco G. Cigarroa, president of the university system: "The UT System stated early in the transition team negotiations that leasing facilities is not in the best interest of UTB’s educational mission as it is not conducive for a prosperous and growing four-year university. The UT System’s priority remains to build a vibrant four-year university campus that one day can rival the best universities in the state. Doing so on borrowed land and with leased facilities does not allow UTB to appropriately advance its educational mission. Without access to land for expansion in Ft. Brown, the proposed ‘Educational Village’ would not be practical; therefore, the UT System will move quickly to evaluate alternative sites in Brownsville for future expansion of the main UTB campus and build the required infrastructure necessary to accommodate its students by Fall of 2015."

 

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California Lawmakers' New Push to Freeze Tuition

California Governor Jerry Brown and legislative leaders have reached a deal that would bar public universities from receiving $125 million that could become available for them if voters approve a tax hike unless the universities freeze tuition, The Los Angeles Times reported. Lawmakers dislike planned tuition increases, and see the deal as another incentive for voters to pass the tax increases. But university officials are dubious, saying that they can't give up the tuition revenue, especially given that passage of the tax measure is uncertain.

 

Renewed Fund-Raising Effort for Black Colleges in Mississippi

Part of the settlement of Mississippi's higher education desegregation case in 2004 was a pledge by the state to raise $35 million to boost the minimal endowments of the state's three historically black universities: Alcorn State, Jackson State and Mississippi Valley State Universities. After the campaign was announced, the Bill & Melinda Gates Foundation gave $1 million. Since then, nothing has happened. But the Associated Press reported that state higher education officials are now pledging to develop new plans to raise the money. Hank Bounds, the higher education commissioner, said that "we really need to put forth a really good strategy and see if we can find some success."

Business group ranks states on effectiveness of public colleges

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U.S. Chamber of Commerce ranks public higher education in state-by-state report card that measures "return on investment." Good data and transparency are lacking among public colleges, group says.

Moody's Praises Wesleyan for Ending Need-Blind Policy

Some student leaders may be questioning Wesleyan University's recent shift away from need-blind admissions, but Moody's Investors Service is applauding the change, The Hartford Courant reported. In fact, a new report from Moody's suggests other private colleges may want to follow Wesleyan's lead. "These actions ... are credit positive for Wesleyan, as well as other selective private colleges that could look to this model as an avenue for growing tuition revenue in an increasingly difficult higher education market burdened by stiffening tuition price resistance and rising student loan burden," Moody's said.

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