Let’s Privatize State Colleges

Student loan debt

Op-Ed. An estimated 14.67 million college students attend what we call “state universities.” Some of them are renowned highly selective research institutions like the University of California at Berkeley or the University of Michigan, while others are relatively obscure schools with an open admissions policy. But all receive some degree of subsidization from the state government where they are physically located.

Yet there are good arguments to make state universities independent private institutions, albeit ones that still indirectly receive some governmental support. Our so-called “private” schools already mostly are indirectly heavily dependent on the federal government for support via its financing student tuition and room and board charges, not to mention research support and favorable tax treatments. With a few exceptions like Hillsdale College, purely totally independent private institutions are extremely rare.

Let’s give money to needy and accomplished students, not to schools. Data collected by Harvard’s Raj Chetty and associates show that the family income of kids attending schools like the University of Virginia or the University of Michigan averages around $200,000 a year, with the median income also in the six digits. These schools are not places where poor but bright and ambitious kids heavily populate. People worried about income distribution and access to economic opportunity should be concerned that state government aid to colleges is, in fact, largely a middle and upper-class entitlement.

Why don’t we provide vouchers for college attendance like some states do for students going to K-12 schools? The aid could be more explicitly targeted to kids who are either relatively poor or who excel academically. For example, suppose Michigan gave vouchers for attendance by residents that vary in magnitude from $1,000 to $15,000, with extremely high-income applicants made ineligible for any assistance, while very low-income students could receive enough to cover most basic living costs (more than they get today)? Why don’t we further restrict assistance after the first year to students showing at least minimally acceptable academic performance, perhaps something like a “C” average (2.0 grade point average)? Why don’t we put a five-year limit on vouchers, reducing the phenomenon of students taking six years to get a degree?

Meanwhile, state schools would be freed of restrictions on tuition fees. Perhaps Michigan would raise its in-state rate by many thousand dollars (say $8,000) to make up for lost state appropriations. Schools like the universities of Michigan, Virginia, and Colorado already derive a tiny proportion (less than 10 percent) of their revenue from state appropriations. To sweeten the pot, all sorts of other restrictions on schools could be lifted. The University of North Carolina might have its governing board picked in a less political manner, or the University of California could select more non-Californians to serve. State rules on new construction, such as prevailing wage laws, could be eliminated, lowering costs. Legislated or informal politically imposed restrictions on the enrollment of out-of-state students would disappear. Universities would lose a direct handout from the state, but gain freedom of action, in return for now having to fight harder for students to fill their classrooms.

Some flagship state schools tend to neglect their undergraduate students, viewing them as cash cows helping expensive finance research and graduate programs. If the students are writing bigger checks (directly or indirectly), they likely will command more attention, for example, less often getting closed out of classes. A bit of needed consumer sovereignty will come to higher education.

Moreover, the distinction between “in-state” and “out-of-state” students could potentially be eliminated. One issue would be: should state scholarships be available to residents wishing to attend universities in other states? Conceptually, I think the answer should be yes, but financial and political constraints might make that impossible in the short term. In general, though vouchers will stimulate intercollegiate competition for students, a good thing.

In any proposal of this kind, there are winners and losers. Schools with generous state subsidies but which are not terribly popular with students will lose. The degree to which a progressive voucher is used may also impact who the winners and losers are.

As for the students, if there is substantial progressivity in the voucher scheme, those from lower income backgrounds should gain, making the top state schools perhaps a bit less academic gated communities than at present. Upper-income kids might have to pay tuition fees closer to what they would pay at private schools.

By not funding some higher-income students, state governments could structure the scheme, so their total appropriations for higher education actually fall from existing levels, perhaps providing some taxpayer relief. If the switch is done in an expenditure-neutral sort of way, state budgets are not impacted but the freedoms granted to individual schools would in some cases, allow them to increase total revenues.

Federal data show that graduation rates are somewhat higher at private schools, even controlling for such factors as family income or high school grades. The reason for this is simple; I think: families typically have more “skin in the game” in private school settings. For example, when students are paying a small portion of tuition bills, they are not incentivized to graduate on time as much as when attending colleges imposing a significant personal financial burden. The move to having students writing bigger tuition checks, even if partially compensated by governmental funds, might work to induce higher four-year graduation rates. Imposing some modest academic performance standards likewise might improve student academic performance modestly.

Student academic achievement could be further stimulated by offering a voucher bonus for superior academic performance. Thus the voucher approach can be customized to both improve student access and academic performance.

The proposal is not problem-free. There would be some transition issues as states move from traditional funding of schools to emphasis on funding students via scholarships. Probably the new approach would need to be phased in over several years to minimize disruptions to existing students. But currently, schools are costly, and learning outcomes are dubious. Some financial innovations are certainly worth a try.


  • Richard Vedder

    Richard Vedder is Distinguished Professor of Economics Emeritus at Ohio University, a Senior Fellow at the Independent Institute, and a board member of the National Association of Scholars.

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11 thoughts on “Let’s Privatize State Colleges

  1. “The proposal is not problem-free”. Boy, Richard, you are not kidding! Your proposal reeks with problems.

    As part of an accomplished team of consulting management professionals who analyzed for hire for multiple state legislatures, I have personally examined the inner workings of the operations and management of a number of U.S. systems of public higher education and years ago predicted most of what has come to pass. Moreover, our insights and honesty was rewarded by the outrage and condemnation of politicians, ed-industry lobbyists and every newspaper editor of every college town in every state we studied.

    Your simple ‘one-fits-all’ proposal can’t possible address the diversity, complexity and cancerous political environment of today’s institutions of higher learning. The political conflicts between the U.S. Dept of Education and the variety of state governance entities alone is a massive hurdle.

    Institutions are not equal. They will refuse to be treated as such. For example, you mentioned Michigan. In Michigan the individual board of control members of the powerful University of Michigan, Michigan State and Wayne State are selected by voters in state-wide elections from candidates selected by the partisan political parties. The boards of the remaining 46 public colleges including a dozen other large four year schools are appointed by Michigan’s Governor. Politics alone will render your proposal useless.

    Higher education has insurmountable problems of unsustainable cost, student debt, tenure issues, dead-end graduate assistant exploitation, unconstitutional political correctness, suppression of free speech, and a prevalence of useless degree paths and misguided social justice, race and gender policies that are undermining an entire generation of our youth as well as the U.S. economy. It has been corrupted by greed, self serving political agendas and mismanagement. Have you heard about the current self inflicted problem at Oberlin?

    Leave it alone. It can’t be fixed. Better to allow the self destruction it is headed for at an accelerated rate so that we may start over again in keeping with our preferred national interests. Let them die. Spend the limited money we have on electronically earned degree programs emphasizing self sustaining, STEM and the classic trade studies and real liberal arts, not the diluted politically correct version that remains.

    Dear Richard, I thought you knew better than this. Or have you given up and just waving a white flag. Come on man, get back to the fight. You can’t leave it up to the current powers that be. You know they will corrupt what ever you suggest and just make things worse.

  2. The state schools have tremendously huge real estate holdings. Many separate campuses could be consolidated freeing up large tracts of real estate for commercial development. States should sell off this excess real estate portfolios and sell off stadiums, cafeterias, dormitories, and performance facilities as separate taxable private entities. There are a lot of such valuable assets in state university portfolios that should be liberated to higher value uses that would contribute to state revenues. If at all possible, privatization should be to taxable entities in order to avoid the inefficient distortions in talent markets that tax exemptions create.

    1. The land might be hard to sell off, as in many cases it was provided by the federal government to land-grant colleges under the Morrill Act. That’s why they have such nice large campuses.

      But they could get back more to the original purposes of agriculture and the useful arts. The other stuff should be unaffordable anyway, we should not be lending money for a student to study grievance stuff, or sociology.

  3. State Colleges are just the tip of the iceberg. It is time to ABOLISH State Education completely. It is time for the separation of Education and State – for the EXACT same reason one separates Religion and State.

  4. One MAJOR concern. Free speech. At least the First Amendment still has a legal foothold at government institutions (see Foundation for Individual Rights in Education aka FIRE). At private institutions all bets are off 🙁 .

  5. Privatizing state universities is a terrible idea. The general trend in universities today is a full court press for “equity, diversity, and inclusion,” while suppressing diversity of speech and opinion. Private institutions are not bound by the First Amendment, which is a constraint to government, not a constraint to citizens. In contrast, public institutions are bound by the First Amendment. And while most are not inclined to respect the First Amendment, and do their best to institute a monopoly of “social justice” ideology, state governments in two dozen states have passed laws requiring universities to respect freedom of speech. In Canada, Ontario has passed such a law. It is the public nature of these universities that allows elected officials to demand respect for the First Amendment and free speech. Privatizing state universities would free them to impose unfettered monopolistic “social justice” ideology.

  6. First, the out-of-state issue was first raised by Thomas Jefferson regarding the Univ of VA — he believed that VA students would benefit from interacting with students from other states. It’s always been politically unpopular and extends to things like the Univ of Maine only providing financial aid to those who have graduated from a Maine high school.

    The late John Silbur of Boston University used to argue that the public university’s benefit of that status extended way beyond mere appropriation — it included ability to participate in the state’s pension plan (and thus not having to provide the employer’s half of FICA), ability to borrow money cheaper (as it involved the “full faith and credit” of the state, and the legal benefits of the 11th Amendment.

    Above and beyond this, the concept of income-based tuition already exists in the context of university scholarships. State schools such as UMass have increased tuition even further to fund “institutional aid” and what that increasingly has done is create a dual-modal student body — students whose families have six-figure incomes and are paying full price, and low-income students who are paying essentially nothing.

    Priced out is the middle class and we have reached a situation where (in real dollars paid) it is now cheaper for the Firefighter’s kid to attend Amherst College than to attend UMass Amherst. It is not a good situation to have what essentially amounts to a bipolar university.

    “The University of North Carolina might have its governing board picked in a less political manner”

    No. One need only look at the politics of (K-12) Charter Schools in Massachusetts to see why that wouldn’t happen — the NC legislature would instead attach “strings” to the money it provided on a per-student basis. Much as the US Dept of Education has done — Title IX comes to mind….

    The problem at UNC is that the educrats don’t like what’s being imposed. UMass is every bit as political, it’s just that they like what MA is imposing.

    Hillsdale doesn’t accept funding for a reason……..

    1. And, knowing its position, how likely is it that Amherst College will admit the child of a firefighter? They know they can effect social change by where they put their money.

      Now I don’t know for sure, maybe they do admit some firefighters’ children. Holistic admissions is the great unknown, where colleges can make value judgments essentially free of scrutiny.

  7. “… as states move from traditional funding of schools to emphasis on funding students via scholarships.”

    Both policies are based on the assumptions that education is a right and that the state is justified in confiscating the wealth of some citizens for the benefit of other citizens, due entirely to the manifest nobility of the cause.

    I’m wondering how many would voluntarily hand over part of their income for this purpose. Perhaps the state should get out of the social justice business for a little while and give people a chance to speak and act freely, with their wallets, on this issue. After all, it is a noble cause, right?

  8. The states would never allow their public universities free rein over the tuition they charge in-state students. They would never let them charge the in-staters as much as the out-of-staters and international students pay. I work at a place that would probably be better off financially with no in-state students. It’s never going to be allowed to happen.

    This proposal isn’t going to fly.

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