Funding college students instead of institutions?
By MICHAEL D. KLEMENS
One of the school reform options currently in vogue calls for allowing parents to choose the schools that their children will attend. The theory goes that if public schools "compete" for students, they will have to get better or end up without students. The Chicago school reform law that took effect on July 1 mandates that the Chicago Board of Education come up with a plan for school choice.
A similar notion has been floated for higher education but has yet to catch lawmaker's fancy. In short it would apportion state money to students who need help in going to college instead of to institutions to underwrite the cost for all who attend public universities. In its ultimate form the proposal would give students the money they need for college and allow them to shop around among various private and public universities for the school that best suits their needs.
Winners in the scenario would be private colleges and universities. They would have an easier time attracting students who have a state voucher in their pockets. Losers would be the public universities which would have to raise tuitions to make up the lost state subsidy. The biggest losers would be the well-off parents of students at public universities who would have to pay higher tuition.
Currently Illinois taxpayers both help students and subsidize public colleges and universities, with the largest share of funds going to underwriting university costs. For the current fiscal year lawmakers have authorized $1.97 billion in higher education spending. That includes $1.35 billion for public universities, $227 million as the state share of what community colleges spend, $205 million for the Illinois Student Assistance Commission (formerly the Illinois State Scholarship Commission), $32 million for private colleges and universities, and other smaller programs. The state's general funds will contribute $1.63 billion to higher education while public university tuition and fees will raise $307 million. The balance comes from other sources.
The money that goes to the public university helps hold down tuition costs for all students who attend. Tuitions cover about one-third of instructional costs, and taxpayers cover the remaining two-thirds. A rich student and a needy student get the same break, and the needy student also gets some need-based state scholarship money.
Championing the change to a student focus has been James D. Nowlan, a professor of public policy at Knox College and a former state representative, gubernatorial aide and an independent candidate for governor. Nowlan has also taken on duties as director of a policy institute at the Federation of Independent Illinois Colleges and Universities.
Nowlan says that his motivation is good public policy, not the boost that private universities would receive. He says that he first conceived his plan while still teaching at the University of Illinois. Nowlan first publicly aired his notion in 1986, tagging the idea then as Universal Scholarships. He proposed taking the $1.3 billion that the state provided to public universities and colleges and dividing it equally among the 460,000 full-time equivalent students, giving each a $2,800 warrant that could be spent at any Illinois college or university.
Nowlan argued then that the system would force a marketplace approach that would increase efficiency and quality on the part of institutions who would be competing for students. Public universities would have to increase their tuitions, but students who needed assistance could get it from student aid programs. Those who did not need the help should not be getting it anyway, Nowlan argued. And elected officials would be sending money to taxpayers who vote instead of institutions that do not.
In 1987 Nowlan pushed his ideas as a member of a task force studying financial aid. In 1988, with state funding for universities declining, public universities' tuition rising and students complaining, Nowlan and Rep. David Hultgren (R-94, Monmouth) repeated the student-over-institution proposal at an Illinois Board of Higher Education (IBHE) hearing. The duo argued that middle-class families had been squeezed by declining support for need-based scholarships. In 1981-1982, they said, 47.1 percent of all students whose families had incomes of $38,000 to $39,000 received financial help from the Illinois State Scholarship Commission. By 1986-1987 the percentage had declined to 24.9 percent of applicants from that income group.
Nowlan and Hultgren were not the only witnesses to argue for higher tuition and increased student aid. Edwin S. Mills, a professor of real estate and finance at Northwestern University's Kellogg Graduate School of Management, urged setting tuition so that it covered 60 to 70 percent of costs. Mills maintained in written testimony that low tuition removes the incentive to improve teaching: "Given that highly subsidized tuition produces long queues of students trying to gain admission, state-supported colleges and universities lack incentive to produce as high quality an educational program as they can."
On March 15, 1989, Rep. Hultgren introduced what he called a "Fund Students First" bill in the General Assembly. H.B. 700 would have required that the need-based scholarship programs run by the Illinois Scholarship Commission (since renamed the Illinois Student Assistance Commission) be given priority over assistance to public universities. His bill said that students should receive the assistance to meet their full demonstrated need under federal regulations. Hultgren said that depressed appropriations for the scholarship commission had boosted the burden on middle-class families. "A relatively simple shift in budget allocations would allow all students with financial need to receive assistance without spending an additional state dollar," Hultgren argued.
The IBHE, charged with setting overall higher education policy in Illinois, disputed the notion that Hultgren's was a simple shift and opposed the changes. William B. Browder, IBHE chairman, told Hultgren that the board was following the recommendations of the 1987 task force that urged continued funding of both student
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aid and institutional support.
Browder and the board staff said that the Hultgren bill would produce changes that could not be measured. One unknown was the shift in student choice between public and private universities. A second unknown was how high public and private universities would raise tuitions to offset lost funds. The third unknown was cost to the state because the bill and its direct tie to federal formulas removed state control from spending. The board estimated that phasing in full funding of the state's need-based scholarship program would cost $140 million over five years.
Hultgren's bill went nowhere this spring. Ross Hodel, IBHE deputy director, believes it will be difficult to enact politically. First, lawmakers are wary of creating a system that forces tuition increases. And Hodel argues that across the board there is bipartisan consensus that good public universities are one of the few things that upper income taxpayers can expect to receive for their tax dollars.
Nowlan, on the other hand, argues that his idea may be politically salable because of pressure on lawmakers from parents who thought that there would be scholarship money for their children and then find out they do not make cutoffs. Nowlan says it is ironic that although Illinois spends relatively healthy amounts on its public universities, the lawmakers still catch hell. "If Illinois went a little further with student assistance, any parent and any youngster could have the guarantee of financial aid," Nowlan says.
However, there are other forces at work. The cost of higher education is soaring at rates dramatically greater than inflation. And soon the number of high school graduates will decline. Nowlan touched on that looming issue in his 1986 proposal when he said that the declining number of high school graduates would increase the overcapacity of the higher education system: "If there is no change to tuition pricing that reflects actual costs, then more independent colleges will close (when many contend it is the weaker public universities that are more dispensable)."
A switch to funding students instead of institutions is a monumental structural change of the type that government resists. It will not come soon or easily. Government will resist radical change; demographics and economics may force it.
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