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Does Charles Lane Know Where Kids Go to College?

David Callahan

Charles Lane is a smart guy, but his recent column in the Washington Post on higher education makes you wonder how much he has dug into that issue. 

Lane makes the familiar point that the university sector is bloated, and that too much government spending is one reason why. I can certainly see his point about bloat: As I noted here a few days ago, the United States spends twice as much per student on higher education than most other advanced countries while falling steadily steadily behind those same countries in college graduation rates. 

Where Lane goes wrong is to blame government spending for this bloat, and here's why: Most college students -- 75 percent -- go to public universities, and these institutions have suffered from steady cuts over past years, along with soaring tuition costs. As the Center for Budget and Policy Priorites reported earlier this year:

States are spending $2,353 or 28 percent less per student on higher education, nationwide, in the current 2013 fiscal year than they did in 2008, when the recession hit. . . . In many states the cuts over the last five years have been remarkably deep.  Eleven states have cut funding by more than one-third per student, and two states — Arizona and New Hampshire — have cut their higher education spending per student in half.

To offset these drastic cuts, public universities have jacked up tuition over the past five years: "Annual published tuition at four-year public colleges has grown by $1,850, or 27 percent, since the 2007-08 school year, after adjusting for inflation."

Arizona and California have both increased tuition by more than 70 percent. 

States have also laid off thousands of staff and administrators working in higher education -- 4,200 in California alone -- and greatly diminished student enrollment in some cases. 

So just to be clear: state government are now spending much less than five years ago on the institutions where the great majority of college students go to school. 

The picture is pretty much the same if you pull the time lens back even further. As Demos noted in a report last year, "The Great Cost Shift,"

While state spending on higher education increased by $10.5 billion in absolute terms from 1990 to 2010, in relative terms, state funding for higher education declined. Real funding per public full-time equivalent student dropped by 26.1 percent from 1990-1991 to 2009-2010.

We called the report "The Great Cost Shift" because falling government spending on higher education translated into steadily rising financial burdens on young people. It's no coincidence that there's been an explosion of student debt in the past decade; that reflects falling government support for higher ed. 

Lane cites an NBER paper about how federal subsidies for tuition, through Pell Grants for instance, serve to push up tuition costs -- especially at private colleges. But, again, most students don't go to private institutions and, anyway, there is no question that the tuition hikes faced by the majority of students who are in public colleges is driven by budget cuts. 

Regardless, it seems bizarre to blame Pell Grants for spiraling higher ed costs given that these grants cover a smaller portion of tuition than at any time in the history of this program. Nobody was complaining about Pell Grants driving up tuition in 1980, when they covered 77 percent of the cost of getting a four-year degree at a public university. Indeed, tuition inflation was far more modest back in the golden age of Pell Grants when recipients got a virtual free ride. 

Given that the purchasing power of Pell Grants has been steadily falling for decades, it doesn't make sense that these grants would be a significant driver in rising college costs.

So if subsidies aren't causing the U.S. higher ed system to become so inefficient, much like our healthcare system, what is the driver? Why do we spend twice what other advanced countries do and get worse results?

Various factors are at work, but clearly one part of the problem is overspending by colleges on a host of things aimed at improving their U.S. News rankings. (Much like every rinky dink hospital has its own MRI machine.) For instance, as I have written here, private colleges are now showering affluent top students with financial aid offers they don't need to lure those students to campus and improve their rankings. And pay for top professors and administrators has soared as schools have bargained up the price of talent.

Also, of course, university healthcare costs have skyrocketed, just like that of every other institution. European universities don't have that problem. 

But the biggest problem may be the lack of a truly competitive market for college in terms of price. Everybody feels they desperately need this service, but comparison shopping is difficult for various reasons and private colleges have often been accused of colluding on prices. 

Much has been written about why markets aren't working so well in higher education. But only the right seems to believe that federal subsidies are the main culprit here.