The fiscal crisis in many states of the United States has led these states to cut their funding of public colleges and universities. The newly elected governor of California, Jerry Brown, has proposed to significantly cut state funding to California public colleges and universities, the most extensive and prestigious public system of higher education in the United States. To compensate at least in part for the cuts in public funding, tuition at American public institutions of higher learning is increasing significantly.
Something similar is going on in countries where cash-strapped central governments finance most university expenses. The newly elected British coalition government of Conservatives and Liberal Democrats last month approved a contentious bill that allows universities beginning in the fall of 2012 to raise tuition to a maximum of more than $14,000 a year compared to present levels of about $5000. Note that the average tuition and fees at American four-year public institutions was about $7,500 for in-state students, and it was over $12,000 for out-of–state students. Students at different British universities opposed the proposal to raise tuition by occupying university buildings, picketing the British Parliament building, and engaging in various acts of violence, but the bill passed anyway (by a close vote).
Tuition and other fees at public colleges and universities generally are much less than the cost of providing the education. To be sure, tuition and fees at private nonprofit institutions are also generally considerably less than education costs. The crucial difference, however, between public and private institutions is that the gap between costs and tuition revenue of private schools is mainly covered through voluntary contributions from alumni, private foundations, and others, whereas a sizable fraction of the gap at state-run schools is paid out of taxes imposed on state residents.
The case for higher tuition for students at state-run institutions of higher learning is powerful. A compelling reason to raise tuition at the present time is that many states have serious fiscal problems because their overall spending increased during the past decade at unsustainable rates. They are searching for various ways to cut their spending, and there is little reason why public spending on universities should be exempt from this fiscal pressure.
The average college graduate earns much more than the average individual who does not go to college. As a result, college graduates earn a lot more on average than does the typical taxpayer. It is a questionable system of regressive taxation when taxes are spent on subsidizing individuals who will earn more than those paying the taxes.
To be sure, without offsetting subsidies, high tuition discourages poorer students from attending college. These students should not be priced out of higher education, but it is not sensible to insure that these students can attend by charging low tuition to everyone, including students from higher income backgrounds. Rather, poor students alone should be directly subsidized with grants, and/or extensive loan programs could enable all students to borrow to finance their education. They would then repay any loans from their higher earnings after they finish school. Perhaps individuals who earn less would have to repay a smaller fraction of their loans. The British bill that raised tuition does not require students to pay any tuition upfront since they could borrow all their tuition from the government, and then pay back gradually after they finish school. The US federal government also has an extensive program that makes loans to students at both private and public colleges and universities.
Another argument commonly made against further increases in tuition is that tuition already rose substantially during the past decades, even after adjusting for increases in the price level. For example, tuition and fees at the University of Illinois, Urbana increased from $4770 in the academic year 2000 to $13, 508 in the 2011 academic year. However, the growth in tuition was mainly a response to the large increase in the earnings of college graduates compared to individuals who never went to college. Salaries and other benefits paid to professors are the main cost of providing a college education, and these benefits went up by a lot because earnings of college graduates increased by so much since 1980. The growth in earnings of college graduates, and of persons with a post-graduate education, made a college education a very good deal, despite the increases in tuition, because the gains from going to college increased by much more than the costs of going.
A quite different argument often made in support of subsidizing students is that individuals with higher education produce large benefits to others in their country or region (positive “externalities”) as well as to themselves. Yet while individuals with advanced degrees who do research and development work sometimes produce important innovations that confer benefits on society as a whole, the US and many other governments already subsidize R&D spending. Similarly, governments subsidize college-educated (and other) individuals who make films, write books, and produce artwork.
Perhaps these subsidies should be increased, but that is distinct from subsidizing all college students with low tuition. For if society benefits from having college-educated persons engaged in particular activities, such as research, it is better directly to subsidize spending on these activities (perhaps more generously than at present) than to subsidize all college students, including, for example, salesmen, bankers, and lawyers.