Paying for Higher Education: Part I


Part 2

In the next fiscal year, the state of Louisiana plans on severely cutting their higher education budget. The current administration predicts these cuts to be between $200 – $300 million while other other legislators and education official predict the number will be closer to $380 million. This money accounts for 40-60% of the funding state colleges/universities receive and a cut of this magnitude has serious implications for the future of these institutions. Louisiana is not alone; state funding for public universities/colleges has fallen dramatically since the 2006-2007 school year across the nation. With increased demand for higher education and tuition costs rapidly rising, these cuts have caused a lot of concern for the future of public higher education.

What effects have funding cuts had on the higher education system? What does this mean for future students and their families?

 

Article Summary

The inspiration for this post came for the article “Louisiana Higher Education Officials Say Campus Closures Are a Possibility”. The article discusses potential financial cuts Louisiana will likely make to public higher education funding in the next fiscal year and how this will affect Louisiana’s universities and colleges.

Governor Bobby Jindal and his administration predict the cuts to public higher education to be between $200-$300 million in the next fiscal year. This money accounts for between 40-60% of the funding Louisiana’s higher education institutions receive and will be a massive blow to these already struggling organizations. Education officials warn that it is likely that multiple colleges/universities will have to close institutions and campuses as a result of these cuts, particularly if the amount reacher $300 million or higher. This is particularly concerning as these officials as well as legislators feel cuts will rise much higher; closer to $380 million.

The closing of university/college campuses has large economic implications for Louisiana. In addition to training a quality workforce, higher education institutions provide employment and attract business. Colleges/universities require staff at multiple levels in order to function and as a result, offer many employment opportunities. Businesses flock to the areas around these institutions not only to benefit from the purchasing power of students and the college/university employees, but to be close to a highly trained workforce. With the closing of campuses and institutions, these economic benefits could be lost.

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The money being cut from Louisiana’s higher education budget will be used to to help make up for Louisiana’s $1.4 billion deficit. Other sectors of the state budget are seeing significant cuts as well; health care looking to lose around $250 million. Despite the implications of these extreme cuts, Governor Jendal has refused to approve any hikes in taxes or fees to increase state revenue, likely due to his interest in running for president.

Some lawmakers refute the claims made by education officials, stating that though the cuts will be a financial blow, they are not likely to cause institutions or campuses to close. They argue that these higher education organizations have threatened closures when faced with significant budget cuts in the past, but most had figured out how to avoid doing so and therefore, it is too soon to threaten closures with current cuts. However, the fact remains that these budget cuts are the largest in Louisiana’s history and it is still to be seen how they will affect Louisiana’s higher education institutions.

 

The Economics of Public Higher Education

Despite high tuition costs, state funding accounts for the majority of the income for public colleges and universities. The amount of money that states can dedicate to higher education (and other public sectors) is based on the revenue they make on sales tax and income tax.  This money helps public higher education institutions cover operations and keeps higher education affordable by subsidizing the financial responsibility placed on students. When cuts in the state budget for higher education occur, they cause a ripple effect that changes the way colleges/universities are run and the ability of students to access them.

Though state funding for public higher education has been decreasing since 1980, budget cuts have been more severe since the 2007-2008 school year. The recent recession hit many states hard, significantly decreasing their yearly revenue. As a result of the tough economy, many people lost their jobs while many more took pay cuts and/or stopped receiving yearly raises, significantly decreasing income tax revenue for the states. With income levels decreasing, people became more cautious with the money they spent. A mix of decreased purchasing power and people’s willingness to spend meant that states were also losing significant revenue from sales tax. Losses in both sectors put significant pressure on state budgets, leading to cuts in multiple sectors.

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Since public higher education institutions rely heavily on state funding to operate, the financial struggles of the states were felt by their respective institutions. With funding rapidly decreasing, public universities and colleges began subsidizing the the losses by increasing tuition. Annual published tuition cost for a four-year program is up an average of 20% from the 2007-2008 school year*. This percentage is much higher in in some states, published tuition being about 66% higher in Florida and Georgia and close to 80% higher in Arizona. For some colleges/universities, tuition has risen enough that it has overtaken state funding as the institution’s main source of income.

Even with tuition hikes, public colleges/universities have been unable to fully make up for the money lost by decreased state funding. On average, tuition has only made up for 60% of the money lost by colleges/universities offering graduate programs. Losses are even more significant for institutions not offering graduate programs and community colleges, tuition only making up for 30% and 14% of the money lost respectively. In order to make up for the remaining deficit, universities/colleges have had to cut a number of their programs and services. These cuts are coming at a time where the demand for higher education is on the rise.

As the economy begins to recover, many states are beginning to increase funding for higher education. However, recovery has been slow and funding will take a long time to reach pre-recession levels. During the recession, states relied disproportionately on budget cuts (45% of policy) to make up for their deficits rather than seeking new avenues for additional revenue  (introducing/raising taxes and fees((16% of policy))). Where policies that increase state revenue are often unpopular, they are necessary to balance out budget cuts. Because states largely relied on budget cuts, most public sectors have suffered severe losses and are left in desperate need of additional capital to function properly. A growing number of students in the K-12 system as well as increasing populations in state prisons have put additional demands on these decreasing funds.

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As states’ revenues begin to increase with the recovering economy, so has funding in multiple public sectors. However, the financial pressure caused by years of budget cuts has made states careful with how they spend additional revenue, particularly states who have been left with large budget deficits. States decide on an individual basis how to allocate yearly revenue, creating variation in how quickly funding for higher education has recovered. In 8 states, recovery in higher education has yet to begin as budget cuts in this sector remain part of the political agenda.

So far, recovery has managed to slow (or sometimes stop) tuition hikes in public higher education institutions. However, even if/when funding reaches pre-recession levels, it is unlikely that tuition levels will drop in turn. The history of budget cuts in this sector since the 1980s has slowly shifted the financial responsibility for public higher education from the state governments to students and their families. This trend is unlikely to change and if current trends continue, it is predicted that funding for higher education in most states will drop to zero by 2059, privatizing all higher education institutions. Where we may yet avoid this extreme, the future of public higher education remains in question as economic recovery drags on.

Part 2

Works Cited

“Center on Budget and Policy Priorities.” States Are Still Funding Higher Education Below Pre-Recession Levels —. N.p., n.d. Web. 17 Jan. 2015. <http://www.cbpp.org/cms/?fa=view&id=4135&gt;.
Julia O’Donoghue, NOLA.com | The Times-Picayune. “Louisiana Higher Education Officials Say Campus Closures Are a Possibility.” N.p., n.d. Web. 20 Jan. 2015. <http://www.nola.com/politics/index.ssf/2015/01/college_university_closures_mi.html&gt;.
“State Funding: A Race to the Bottom.” State Funding: A Race to the Bottom. N.p., n.d. Web. 20 Jan. 2015. <http://www.acenet.edu/the-presidency/columns-and-features/Pages/state-funding-a-race-to-the-bottom.aspx&gt;.
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