Tuesday, November 06, 2007

The Spiraling Cost of Higher Education

Ward Connerly has some interesting ideas about why college and university costs are rising so much, and what should be done to slay this beast. One point of fact, though, I found exceedingly interesting:

When Tanya Schevitz, a higher education reporter for the San Francisco Chronicle, asked UC about their fee increase for this year, Brad Hayward, the UC spokesman, said the fee increases are necessary "to maintain and improve the quality of education, expand student mental health services, increase financial aid and help raise faculty and staff salaries closer to market rate." Hayward added significantly that the UC system is "underfunded" by the state by $77 million.

Let's consider how this works. First, assume that the university develops an annual budget of $100 million. Assume further that $50 million of this $100 million is requested from state government. Finally, assume that the state only provides $25 million of the amount that was requested. In a private market circumstance, that would be the end of the story, as the institution would be required to adjust to a $75 million budget. Not so with most public universities. In their case, the $25 million that was not funded is considered an "unfunded" obligation of the state. The university doesn't tighten its belt in view of the amount that it actually received; it dips into its reserves, if it has any, raises fees (a more probable scenario), and operates as if the "unfunded" amount is an account receivable. As a consequence, there is no internal discipline for the institution to live within its means.

I often hear that NCLB be is "underfunded". I wonder if the terminology usage is similar?

3 comments:

Anonymous said...

I find it entertaining that "the fee increases are necessary 'to ... increase financial aid..."

Of course, it is a bit of a chicken-and-egg problem. The higher tuition is, the more financial aid the students need ...

-Mark R.

Ellen K said...

With three kids in college my observation is that if the tuition doesn't kill you, the fees and housing will. All of my kids work. Two have apartments, one lives at home. We saved for their tuition via a Texas Tomorrow fund. Sadly, since the older two went to a four year university rather than two in junior college, then two in university, the money ran out around the middle of their junior years. Add to that the fact that fees, which are the hidden payment schools exact to fund such programs as athletics, rise at a higher rate than tuition because the state doesn't control those costs. Right now in the state of Texas, they have a decidedly contradictory view of the situation. Here you have kids working nearly full time to pay just their share of tuition that goes over financial aid, then you raise the tuition and fees, making it where they can't afford as many hours, then you charge ADDITIONAL fees it they take longer than four years to graduate. How can a kid, or a family, EVER expect to make it through that financial nightmare unscathed? And we are the "lucky" ones because our kids will get out with less than $10K in loans. I know kids who will owe $75K when they gradate. And that is at a state school. God help the kids who go to privates.

Parentalcation said...

No sympathy

http://www.ucop.edu/treasurer/

The Treasurer of The Regents is a corporate officer of the University of California, reporting to the President and the Board of Regents. The Treasurer's Office is responsible for managing the investments and cash of the University of California system.

The Treasurer's Office currently manages a portfolio of retirement and endowment funds totaling more than $73 billion. These investments provide substantial benefits to current and retired employees and support the university's mission of education, research and public service.