Is State Disinvestment Really the Cause of Rising Tuition?

By Brittany Hackett, Communications Staff

It’s a commonly heard argument in the higher education community—state disinvestment is a major, if not the only, contributor to the rapid rise in college tuition, as public institutions have fought to maintain level funding.

But is this actually the case?

No, according to a new policy analysis by Neal McCluskey, director of the Cato Institute’s Center for Educational Freedom, which argues that state and local support for higher education has, in fact, increased in the aggregate over the last couple of decades and that significant increases in enrollment have led to apparent “cuts” in aid per student.

The argument that state and local disinvestment in higher education has led to rises in the sticker price of college “has problems,” McCluskey writes. First, the argument cannot be applied to private institutions, which have seen a slower increase in prices than public four-year institutions or community colleges. While it might be tempting to blame these increases in declining direct support from state and local governments, that is “only part of the explanation, and that part varies from state to state,” he writes.

Using data from the 2016 edition of the State Higher Education Executive Officers’ (SHEEO) State Higher Education Financing (SHEF) report that covers the 25-year span from 1990 to 2015, McCluskey analyzes the appropriations and tuition-and-fee revenue for each of the 50 states, finding that total direct public appropriations have actually increased by about $580 million per year over the last 25 years.

Thirty-one states (see a full list below) have seen declines in per student appropriations, but their tuition-and-fee revenues have at the same time increased annually, resulting in an average net change of $63 per student. “If that seems small,” McCluskey writes, “note that this finding is over a 25-year period, and enrollment tended to rise significantly during that time.” The result is average total revenue increases of about $44 million per state per year for this group.

Eleven states—California, Florida, Georgia, Idaho, Iowa, New Jersey, North Carolina, Ohio, Pennsylvania, Washington, and Wisconsin—saw declines in per student appropriations that were not equalized by increases in revenue from tuition and fees. However, the net loss was only about $30 per students per year in this group, and these states saw the highest increase in total revenue, which rose on average by $68 million annually due to enrollment increases.

Six states—Alaska, Illinois, Kentucky, Nebraska, North Dakota, and West Virginia—saw increases in both per-student appropriations (an average increase of $169 per year) and tuition-and-fee revenue (an average increase of $35 million per year). Two states—Wyoming and Louisiana—saw increases in per-student appropriations and decreases in tuition-and-fee revenues, resulting in an average revenue increase per student of $83 per year, for an average revenue boost of $15 million per year.

“By all indications, the state of higher education financing over the last quarter-century is not how is has been portrayed: institutions treading water just to stay financially afloat as state and local governments have withdrawn their support,” McCluskey writes. “Most states have seen their schools do better than that on a per pupil basis, and all have seen significant increases in total revenue.”

So, if state disinvestment is not the cause of increasing sticker prices, what is? Well, according to McCluskey, it is likely a combination of several popular explanations including:

  • The Bennett Hypothesis, which asserts that federal student aid empowers institutions to increase their prices;
  • The “cost disease,” which is a theory that asserts that because higher education is labor-intensive, it cannot be cost effective because it relies so heavily on human provision; and 
  • An endless desire of institutions for more revenue so they can provide more value to their students, employees, and communities.

“What may well be enabling much of this is federal student aid, and colleges taking not just whatever they need, but whatever they want,” McCluskey writes.

What do you think is the cause of increasing sticker prices for higher education? Take our quick poll to see what your colleagues think and share your thoughts in the comments section!

Editor's Note: The 31 states mentioned above are: Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Hawaii, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, New York, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, and Virginia.


Publication Date: 2/22/2017

David S | 2/22/2017 11:53:46 AM

Jon - Bingo. And state and federal funding for higher ed means less money for tax cuts to the Koch Brothers of the world, so there's that agenda in addition to the far-right's anti-intellectualism. Remember, Trump did say that he loves the poorly educated.

Jon J | 2/22/2017 11:35:50 AM

Sometimes people with political agendas make arguments so ridiculously easy to debunk you wonder why they even bother. The fact is the CSU alone, one of the two major college systems in California, saw budget cuts of $650 million and then a further $100 million in the last 15 years. Three quarters of a billion dollars cut, and that's just from the CSU. Between 2008 and 2012, UC’s state appropriations fell by $900 million. And who was ever even claiming that private institutions were part of the equation, when it was public funding cuts being discussed?

So who makes such an easily disproven claim? Someone who doesn't like higher education, because people with an education statistically tend not to vote for extremist right wing social conservatives.

To quote: "No, according to a new policy analysis by Neal McCluskey, director of the Cato Institute’s..."

The CATO Institute, AKA the Charles Koch Institute, which is what it was originally named when it opened in 1974. If you're not familiar with Charles Koch by now, Google him and the Koch Foundation. That will tell you everything you need to know about this article and why it was written.

Judith C | 2/22/2017 11:25:46 AM

Why do I never see acknowledgement of steady growth in overhead expenses related to the unfunded and costly compliance mandates that support public policy but do little to enhance higher education environment?

David S | 2/22/2017 10:47:27 AM

Shaking my head. I'll use the one position I've had in my career in the public sector as an example, a community college in New Jersey. Original model for CC funding in Jersey is 1/3 state, 1/3 county, 1/3 tuition revenue. When I left that position in 2011, the school I was at was up to about 70% reliant on tuition revenue, and state funding has decreased since, so who knows where it is by now.

And to use modern terminology for the 1980's Bennett Hypothesis, it's fake news.

Sherwin H | 2/22/2017 9:53:27 AM

An interesting analysis....

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