The private-public gap in higher education

Albert Carnesale, who used to be the provost of Harvard University and then Chancellor of UCLA, wrote in The Chronicle his concern about the private-public gap in higher education -- the gap in finance as well as in quality of research.

Private universities tend to have much larger endowments which generate consistent stream of annual revenue. For instance, Harvard has more than $20-billion endowment. Assuming about 5 percent investment return, the endowment generates about $55,000 each year per student. Standford University has an endowment of about $10-billion, which translates to more than $25,000 per student each year. In contrast, UCLA, which has about a student body twice the size of Standford, only has a $1.5-billion endowment, with an annual payout less than $2,000 per student. [UMN has about 2 billion endowment at 2006.] Some may say that most part of endowment belongs to restricted asset, and so the figure does not translate directly into general education support. But it suggests that private universities get much richer resources for scholarships and fellowships, endowed chairs, research support, construction and renovation, and equipment purchases.

On top of the endowment difference is the huge gap in private-public tuition, which directly affect the level of funding for students. Harvard and Stanford charge about $30,000 per year for undergraduates. For UCLA, the out-of-state tuition is about $20,000 while in-state students pay only about $7,000 -- meaning that the state provides about $13,000 for them. [Likewise, UMN charges about $8,000 in-state annual tuition and about $20,000 for out-of-state students.] So, even counting the state support UCLA's per student direct funding is about a third less than that available to typical private institutions.

To make things even worse, in recent years state governments have significantly reduced higher-education appropriations. Only about 15 percent of UCLA's budget now comes from the state, as does just 9 percent of the University of Colorado System's. [In 2004, UMN receives about 25 percent of its operating funds from the state. For all Minnesota state colleges and universities, the percentage is 40% in 2003.] Decreased funding from states force public institutions to be more dependent on tuition and other sources of revenue.

How can public esearch universities narrow the resource gap?

One model is to follow the examples of the Universities of Michigan and Virginia. Both accept about 40 percent of out-of-state students who pay a much higher tuition comparable to what they would pay at private universities. However, many are concerned that this solution would not serve the best interest for state residents.

Another option is to "privatize" some professional schools that are well demanded in the market. Some universities, such as U Michigan and U Virginia, have privatized their law and business schools, which receive no state money but can charge market rates.

A final possibility that is widely discussed recently is "higher fee, higher aid." In such a model, universities would charge higher tuition, more comparable to but still less than the average fees of private institutions across the country. Meanwhile, they still receive state funding, which would be used to subsidize state students, with the highest subsidies going to the students with the lowest incomes. In this way, the fluctuation of state support will change the level of student subsidy, but not directly undermine the quality of education.