State governments are heavily committed to their college and university systems. They spent in excess of $44 billion for ongoing higher education operations in Fiscal Year 1995–1996 at more than 1,600 public colleges and universities enrolling more than 11 million students. Alongside this system of state government-controlled higher education, there exist more than 2,000 private colleges and universities with more than 3 million students. This combination of state-run and private, independent higher education is an important characteristic of the American system.

Since these two systems are, in many ways, substitutes for one another, state government higher education policy has had a profound effect on independent colleges and universities. State government subsidies to public colleges and universities allow them to charge tuition that is substantially less than the cost of education and to underprice the private sector. This tuition differential is a substantial threat to independent higher education in the U.S. and, in turn, to civil society.

The effect on tuition

This state government subsidization of the public higher education system results in a wide divergence in reliance on tuition and fees. At state institutions, they increased from 12.5% of current-fund revenue in 1979–1980, but still made up less than one dollar in five in 1994–1995. In dollar terms, they rose from $4.9 billion to $21.9 billion over the same period, but still are only half as important as a revenue source as state government subsidies.

For private colleges and universities, tuition and fees are the major source of revenue. Since 1979–1980, they went from 35.9% of current-fund revenue to 42.4% in 1994–1995. In current dollar amounts over this time, they rose from $7 billion to nearly $30 billion. Thus, for private colleges and universities, tuition and fees are nearly twenty times as important as a source of current-fund revenue than is state government funding.

Tuition and fees at public institutions of higher education historically have been a fraction of those charged by private ones. Using current dollars, public institutions were charging an average of $243 for instate undergraduate tuition and fees in 1964–1965, while the private sector's tuition and fees averaged $1,088. Although tuition and fees increased at public colleges to $2,277 in 1996–1997, private tuition and fees rose to $12,537. Over the last three decades, tuition and fees at private colleges and universities have been more than five times as high as those at public ones. In current dollar amounts, the gap has widened from $845 to more than $10,000.

Enrollment

Public colleges and universities, subsidized directly by state governments, are capturing an expanding share of enrollment. At the beginning of this century, more than 80% of students were enrolled in private colleges and universities. By the middle of the century, the figure had fallen to about 50%. From the 1960s on, this trend has accelerated. By 1990, the composition had reversed itself from the beginning of the century, with four out of five students enrolled in public universities. During the decades from 1965 to 1995, the public sector absorbed more than 86% of the higher education enrollment increase.

The evidence is strong that state government policy to create a system of state-run colleges and universities that drastically underprices private institutions of higher education has resulted in a threat to the independent higher education system. This unquestioned march away from private higher education to government control is inefficient and harmful to a civilized society.

Private colleges and universities provide an educational experience quite different from state-run institutions. Private colleges are much smaller, with an average enrollment of around 1,500. The average enrollment for public colleges and universities is more than four times greater, approaching 7,000. Of the 120 largest institutions of higher education in terms of enrollment, all but eight are public. Eighty-five percent of colleges that enroll less than, 1,000 students are private.

Students at private colleges and universities are more likely to interact with faculty and are more satisfied with classroom instruction. They complete their degrees at a much higher rate than their counterparts at state-run institutions. Private institutions grant more doctorates and first professional degrees than state institutions, despite their much smaller enrollment. Moreover, contrary to popular opinion, the median family income of students in state and independent four-year institutions is identical.

Aside from offering a different type of learning environment, a system of private colleges and universities is much more efficient than a government-run and -planned system. State governments have created a situation where a vast majority of students attend college for a price that is far below the true cost of providing their education, and the educational service is not controlled very well by those who own the institution at which it is provided.

Because students don't pay the true cost of their education, they tend to waste it in the same manner that any consumer tends to waste a product that he or she doesn't pay for. If higher education is provided at much less than the cost of producing it, more students attend college than is efficient. As Nobel laureate in economics James Buchanan put it three decades ago, "the result is that a sizable proportion of university students, under any low tuition scheme, will be placing less value on what they are enjoying than they would place on other uses of these resources." This means that resources are being misdirected from producing other goods and services into the production of higher education services in order to satisfy political circumstances.

Those who own the state higher education system — the taxpayers of the state — do not control the product and can not decide effectively on resource allocation. The legislature has much less information about the true minimum cost of providing higher educational services than do the bureaucrats that run the universities. For example, the legislature can not know what is necessary to outfit a good physics class, how much different pieces of lab equipment add to the educational experience, and what it costs to run a physics lab. As a result, bureaucrats will be able to expand their budget beyond that which is economically efficient and beyond the amount desired by the legislature and the voters the legislature represents.

Continuing to support public institutions directly, rather than the students who attend them, will do more than sustain the inefficient allocation of resources that results from this policy. It threatens the very basis of the independent arena for the education of the next generation of the nation's leaders. Unlike throughout most of the nation's history, the vast majority of current college students attend large government-owned and -operated schools. It is important to preserve the island of independence that remains.

(Selected from USA TODAY, January 1999, written by Gary Wolfram)