Report Debunks Notion That State Subsidies Favor High-Income Students

By Brittany Hackett, Communications Staff

Despite conventional wisdom, state subsidies at public universities do not have a disproportionate impact on different income groups, according to a new report from The Brookings Institute. In fact, students with the highest incomes receive the lowest subsidies.

The report—co-authored by the American Enterprise Institute’s Jason Delisle and New America’s Kim Dancy—examined the value of “indirect subsidies” in the form of appropriations from state and local governments and how those subsidies are distributed among students from different income levels.

According to the authors, it is generally assumed that indirect subsidies have a greater impact on high-income students. The reason? Because elite universities receive larger per-student appropriations from state lawmakers, and wealthier students are more likely to attend those universities than low-income students who tend to enroll at less-selective institutions that receive smaller per-student appropriations.

However, that assumption is “more inference than analysis,” the authors wrote. By using student-level data about family income and the school-level financial information for each student’s school, the authors were able to examine the indirect subsidy “as the difference between what a student pays in tuition and what the university spends on education,” which led to national averages of these indirect subsidies.

“We find that the conventional wisdom is wrong about indirect subsidies at public universities,” the authors wrote. “For students attending school in-state, there is no difference in indirect subsidy among different income groups.” Rather, the data show a decline in per-student subsidies as income level increases among all students, indicating that the lowest-income students see larger subsidies than higher-income students.

When they examined indirect subsidies in aggregate instead of per student, they found that the total distribution of the subsidies correlated with enrollment, with high-income students not receiving a disproportionate share of indirect subsidies given to students at public institutions.

The report also highlights several policy implications for public institutions, such as increased recruitment of out-of-state students, which “can actually make the distribution of indirect subsidies more progressive.” The study also indicates that state disinvestment in higher education since 2008 “has not skewed indirect subsidies at public universities such that they disproportionately benefit high-income students,” the authors noted.

“Our analysis uncovers that indirect subsidies are actually relatively flat, if not slightly progressive,” the authors wrote. “How subsidies should be allocated is, however, still open for debate and our findings offer a new perspective on that topic.”


Publication Date: 7/29/2016

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