Aug. 17, 2006

State Funds and Student Success

A new research paper from the National Bureau of Economic Research argues that declining state funds for colleges can impair student success and, in turn, economic growth. The paper, “Cohort Crowding: How Resources Affect Collegiate Attainment,” indicates that “[w]hile it is plain that the well-known cyclical variation in state funding for higher education may have deleterious effects on public colleges and universities, it is the more sustained depletion in resources per student accompanying relatively large cohorts that has the significant impact on collegiate attainment and the supply of college-educated workers to the economy.”

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The problem may be exacerbated, the report warns, because in the coming decade, many states will face large increases in the college-age population — “with serious questions about the capacity of state colleges to meet enrollment demand for these cohorts.”

“The impending collision of large cohorts and limited public resources in higher education is not just a predicament for colleges and universities, but a potential crisis in economic growth for decades to come if the flow of college-educated workers to the labor force is further curtailed,” according to the report. “While states have, historically, been central to the development of infrastructure and the provision of subsidy in higher education, the current fiscal constraints and restrictions against deficit funding may limit the capacity of states to make investments in human capital through public colleges and universities.”

John Bound, the lead author of the report and a professor of economics at the University of Michigan, says that policy makers would be wise to pay attention to dramatic increases in enrollment at colleges and universities and their relationship to graduation rates. His findings suggest that a 10 percent increase in the size of the college age population in a state leads to a 4 percent decline in the fraction of students attaining a bachelor of arts degree. (Sarah Turner, an associate professor of economics and education at the University of Virginia, co-authored the report.)

Bound also says that it would take “enormous increases in tuition to provide the necessary resources for colleges and universities to expand and maintain quality.”

“Because consumers pay only a fraction of the cost of production, changes in demand are unlikely to be accommodated fully by colleges and universities without commensurate increases in non-tuition revenue,” he said in the report. “For this reason, public investment in higher education plays a crucial role in determining the degrees produced and the supply of college-educated workers to the labor market.”

— Rob Capriccioso

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