| April 18, 2011

Oklahoma higher education: Who subsidizes whom?

Oklahoma higher-education officials are hosting a public hearing this week to seek citizen input on the cost of a college education. In all likelihood these officials won’t pass up the opportunity to remind citizens that, even though a college education is expensive, it’s still a bargain: It costs the colleges more to provide an education than what the students actually have to pay.

Indeed, that is the conventional wisdom. But is it correct?

“While universities routinely maintain that it costs them more to educate students than what students pay,” Robin Wilson reported earlier this month in The Chronicle of Higher Education, “a new report says exactly the opposite is true.”

The report was released today by the Center for College Affordability and Productivity, which is directed by Richard K. Vedder, an economist who is also an adjunct scholar at the American Enterprise Institute and a Chronicle blogger. It says student tuition payments actually subsidize university spending on things that are unrelated to classroom instruction, like research, and that universities unfairly inflate the stated cost of providing an education by counting unrelated spending into the mix of what it costs them to educate students.

“The authors find that many colleges and universities are paid more to provide an education than they spend providing one,” says a news release on the report, “Who Subsidizes Whom?” … “Convincing people that you're giving them a big discount when you are doing no such thing is not a new idea,” the report says. “What is new is its application to and celebration within higher education.”

I asked the report’s authors for data on my alma mater, the University of Oklahoma. Their data indicate that out-of-pocket tuition paid by OU students is $1,928. Of course, OU receives payments from third parties on behalf of students (Pell grants, for example), so you add that amount to the out-of-pocket tuition to arrive at total tuition revenue of $5,004. In addition, OU receives government appropriations; add that amount and you arrive at the total payment received by OU for the purpose of providing an education: $12,018. That’s the revenue side of the equation.

On the spending side, the report’s authors say “Education and Related Spending” at OU is $12,904. Using the authors’ “Adjusted Education and Related Spending” estimate, that amount becomes $11,093. Furthermore, “if one is willing to entertain the possibility that colleges and universities can overspend, then the use of a third estimate for spending, Achievable Education and Related Spending, may be warranted.” For OU, that figure is $8,381.

Thus, OU is paid more to provide an education ($12,018) than it spends providing one ($8,381). Same with OSU, by the way: total payment is $16,832 while Achievable Education and Related Spending is $7,246.

You’ll want to read the report and the methodology for yourself, of course. And read the Chronicle story and the lively discussion it sparked in the comments section.

Here’s hoping Oklahoma’s higher-ed officials will discuss this matter at the public hearing this week. They’re going to have to discuss it sooner or later, hopefully before the higher-ed bubble bursts. These officials need to understand that the times they are a changin’. As Forbes blogger Jerry Bowyer pointed out last week, “you and your iPod (or desktop) can listen to the smartest people in the world give interesting lectures on the most important topics for free, or you can pay lots of money to hear an inarticulate and resentful grad student ladle out early 1960s French intellectual fads in one of collegedom’s cavernous freshman lecture halls at a time of his, not your, convenience.”

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