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America’s higher ed funding mess


I see a lot of stuff like this in reaction to criticism of Biden’s forgiveness of some educational debt:

Funding for higher education in America is unquestionably a mess, but liberals and leftists do the subject no favors when they talk as if the problem is primarily one of inadequate public subsidization.

An absolutely enormous factor in all this is that, over the past several decades, the people running higher ed have decided in some un- or semi-conscious structurally driven way (no smoke-free room conspiracy theory here) to “monetize” the whole thing to the greatest extent possible.

A friend writes:

Universities have always known that university education is a Veblen good with, at a minimum, inelastic demand during periods of deindustrialization.

Until the 1980s, universities were mostly run by people who felt it was inappropriate to take advantage of that fact. Then Reagan made it OK to be a rotten selfish shithead, and somehow the people running universities changed to β€œrun them like businesses,” which meant $$$$$.

I think there’s a lot to this. Back in the day, there was a sort of diffuse sense that it just wasn’t OK to try to run a university with revenue maximization as the primary goal. We should avoid nostalgic sentimentalization of course, but there really was something of an ethos that running a university as if it were a business would be a fundamental betrayal of the institution’s reason to exist.

That ethos is, needless to say, as dead as disco.


Public sources of funding for public higher education in America

Pell grants   (2021 dollars)

2021: $19.5 billion

1981: $4.9 billion

Tax credits:

2021: $11.5 billion

1981: Zero

State appropriations (2021 dollars)

2021: $96.6 billion

1981: $62.8 billion

Voluntary giving from individuals, corporations, foundations, religious organizations, and others (2021 dollars)

2021: $26.5 billion

1981: $6.35 billion

Total public support and voluntary giving for public higher education in America

FY2021: $154.1 billion

FY 1981: $74.05 billion (2021 dollars)

Enrollment in public higher education increased by 43.7% between 1981 and 2021

Total public and voluntary support per student:

FY2021: $11,110

FY1981: $7,674 (2021 dollars)

Total current non-tuition support increased by 45% in real terms per public higher ed student between 1981 and 2021.

Total revenue for institutions of public higher education in America in FY2020:

$428.47 billion (Tuition represented $83.62 billion of this figure)

Total revenue for institutions of public higher education in FY1981, in 2020 dollars: 

$128 billion (Tuition represented $16.5 billion of this figure)

Total revenue generated per student by public higher education in America (2020 dollars)

2020:  $31,116

1981:  $13,264

Average tuition revenue generated per student (2020 dollars)

FY1981: $1,710

FY2020:  $6,029

Calculations are based on source data from the Digest of Education Statistics.

Now there’s a very real and complex debate on how much more money higher education should cost per student, in a society that is on the whole a lot wealthier than it was 40 years ago. But there’s also no real doubt that the numbers above reflect a whole lot of successful rent-seeking by various actors, most notably in the upper university administrative class, whose compensation has tripled in real terms over this time frame, while faculty salaries have declined (Full-time faculty salaries have risen modestly, but a vastly larger percentage of faculty are now contingent, so the average compensation of the people who do the teaching in American higher education has fallen quite a bit over the past four decades).

More significant still than skyrocketing upper administrative compensation has been the sheer proliferation of the administrative class as a whole, which sometimes seems to exist primarily to replicate and expand itself as quickly as possible.

Yet that replication and expansion also reflects the shifting role of higher education in American life, in both good ways and bad. Higher education is much more of a full service experience than it was 40 years ago, as higher ed is expected to provide various kinds of support for students that were minimally present or not present at all a generation or two ago. Some of that support can be critical to mental and emotional development/survival.

On the other hand, there’s also a lot of Veblenesque consumption in contemporary higher ed — luxury dorms, the infamous lazy river or three etc. — that’s a lot harder to justify.

So it’s all very complicated. But one thing that should be avoided is the whole “tuition has gone up because public support for higher ed has declined” narrative. Because it’s completely false at the structural level, although of course it is sometimes valid in terms of individual institutions.

A larger pattern here is that elite educational institutions have gotten obscenely wealthy over the past 40 years, while enormous numbers of wannabe institutions chase after them, causing budgets everywhere to explode. In other words, we have yet another classic tale of America’s new gilded age.

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