At around $100 billion a year, Americans heavily subsidize public colleges and universities through state taxes. With state higher education dollars exceeding those spent on hospitals, health services, and roads combined, there’s little chance of removing government subsidies anytime soon. But right now, twenty-four states lack any performance-based accountability system for the dollars that flow into public colleges and universities. That needs to change.
One of these states is Missouri, where institutions’ public funding depends on the previous year’s level and how well they lobby the budget committee. This system allows for universities with four-year graduation rates as low as 3 percent and 8 percent to continue their current, failing practices. It also allows alumni earnings to average as low as $28,000 a year for recent bachelor’s degree recipients.
And even in states with performance-based accountability, the mechanisms are shockingly out of touch with the outcomes that taxpayers deserve. For example, most performance-based systems focus on degree completion. Yet, a Wisconsin resident with no more than a high school education shouldn’t be taxed to subsidize someone else’s B.A. in Fine Arts from the University of Wisconsin at River Falls, just for the new college graduate to earn $10,000 less than the average high school graduate.
States' college funding formulas are shockingly out of touch with the outcomes students and ... [+]
To be sure, training in the arts and humanities can do wonderful things for intellectual development and, thus, employment outcomes. The problem arises when that publicly funded training doesn’t enhance students’ chances of getting higher paying jobs. While a career as an artist may be perfectly fulfilling to an individual at a range of earnings levels, at the end of the day, a degree without an earnings boost is simply personal fulfillment and shouldn’t be financed on the public dime. Unlike investment, there’s absolutely no reason for the government to subsidize consumption.
That is why taxpayers shouldn’t have to fund others’ “college experiences” either. Parents certainly have every right to spend $300,000 or more for young adults to explore their interests, make lifelong friends, find themselves, and mature before facing adulthood. Consumers can direct private tuition dollars and donations to fine dining hall cuisine, luxury dorms, and immense football stadiums with stunning precision on their own, and without a public subsidy.
Even the pursuit of a more educated electorate isn’t an appropriate use of public higher education funds. If children can’t learn about the three branches of government by the time they reach adulthood, that’s a reflection on the sorry state of public K-12 education, not a reason to suggest every American should go to taxpayer-funded college and receive an array of general education requirements.
Most students report job and career outcomes as their primary motivation for attending college, but it doesn’t matter what students want when taxpayers are footing the bill. Taxpayer dollars for public higher education should fund economic returns for students that benefit the state. Individuals’ economic boosts from learning in-demand skills will generate a more talented workforce, attract more business, and provide a long-term boost to the state economy. Some states are putting this principle into practice.
Texas State Technical College (TSTC), for example, receives all state funding through a “Returned-Value Formula” that measures their economic return to the state based on each graduate’s earnings during their first five years in the workforce. Because of this novel funding structure, the college system witnessed a 117 percent increase in graduate earnings over the last seven years, even while most of their students come from low-income households and receive federal Pell Grants. Once the schools received funding based on outcomes rather than inputs or lobbying power, they had strong financial incentives to maintain close ties to Texas industry, teach in-demand skills, and work hard to mentor students for successful futures. In 2021, Florida followed suit by unanimously passing legislation to tie performance funding for industry-based certificates in community and technical colleges to students’ wages after they left school.
Applying the same principles to public universities will have similar positive effects: They will stop trying to become private liberal arts colleges and instead focus on education that prepares students for the workforce. To merit more funding than their competition, smart state universities would specialize according to demand from students and industry in their local communities, serving the taxpayers that fund them.
Accountability mechanisms for public colleges and universities make use of proven market principles, even in an industry dominated by government interference. They create competition between similar institutions to incentivize innovation and let the best ideas win. And they also provide a strong financial incentive for a clear success measure that at least has an argument for taxpayer support (in this case, increased alumni earnings).
To get a better return on investment for taxpayers, more states should create market-based accountability mechanisms for higher education funds. Make higher education accountability about economic returns for students and the state, and the rest will fall into place.
