US requires innovative funding rethink

For decades California’s public higher education system was admired as one of the best in the world. The system valued and honoured its commitment to providing high-quality and affordable post-secondary education opportunities to millions of students.

However, California’s recent and massive reductions in state support have led to questions about the stability, affordability and accessibility of the largest university and community college system in the US. With 3m higher education students – approximately 15 per cent of the total US figure – California’s rapid fiscal demise has national implications.

It also has the potential to accelerate or hinder President Barack Obama’s plan to return the US to the top of the OECD’s rankings for college access and completion rates by 2020.

Sadly, California is not alone in this struggle. While California’s disinvestment in public higher education by more than 30 per cent during the past two years may appear to be an extreme case, the only thing that is unusual is the swiftness with which it has occurred.

California’s spending on public higher education presently stands at its 1965 level. For all other states, expenditure collectively ranks at what it was in 1966. If this disinvestment trend continues, by 2048 there will be no state spending on higher education.

Where is the federal government in all of this? Ironically, the federal government is the largest provider of higher education revenue to US colleges and universities, even though federal support in the form of direct student aid was originally supposed to augment, not supplant, state support. In 2011-12, federal support through direct student aid grants, loans and the American Opportunity Tax Credits, was nearly $180bn, while states provided $72bn.

The newly significant role of federal funding for higher education is of concern because the bulk of this funding is student tuition and fee-based, while most state support is allocated directly to public institutions to keep college tuition as low as possible.

Additionally, the majority of federal funding of higher education in the US is mission-blind, in that federal funding through direct student-aid programmes and tuition tax credits can go to any privately accredited college and university, including not-for-profit private and for-profit private institutions. This is why public funding of private higher education in the US is at an all-time high, while public college and university state support stands at a 46-year-low.

How can the US turn this funding shortfall for its public higher education around? States must understand that there will be no return to previous funding levels that exchanged adequate levels of state funding for free or limited student fees. Instead, states need to seek creative alternatives.

Australia, for example, has implemented a limited version of a career-based funding model where students pay differing fees based on programme costs. These variations are not drastically different but do help to absorb the cost of more expensive programmes, such as engineering and science. This differentiated fee model is also augmented by government funding that provides additional assistance to meet areas of growing demand.

Most of the US’s OECD counterparts ensure that public funding is allocated to those institutions that can demonstrate legitimate public objectives, such as keeping student fees comparatively low. The system in the US gives state and federal government agencies little authority to determine whether colleges and universities are meeting public demand and expectation. Private accrediting bodies, which determine whether institutions should receive federal and state public funding, have done a miserable job at screening institutions and are fighting to justify their relevance to maintain their funding authority.

Public benchmarks that gauge an institution’s effectiveness in meeting growing public need should be established. A mission-blind funding model rewards those institutions that are more interested in institutional prestige than addressing increasing public educational need. Federal funds should be used as an incentive so that states continue investing in public higher education, much like federal funds are used for Medicaid.

They should also be structured to reward institutions that educate and graduate more under-represented and first-generation students, those in high-demand disciplines and expand educational opportunities through online education, while keeping student tuition and fees at reasonable levels.

Public higher education in California – and in the rest of the US – is on an unsustainable trajectory. The US cannot keep boasting about how globally successful it used to be in higher education; instead the country needs to refocus its energies and examine how higher education can meet society’s changing needs.

It is time for the US to learn from its OECD peers and create newer, smarter reinvestment strategies that will guide public higher education over the long term, towards a sustainable future.

Dr Reed is chancellor of the 23-campus California State University system. Dr Alexander is president of California State University, Long Beach