Their View: Public colleges are on a spending spree

In a race to attract more and “better” students, the nation’s most prominent state-owned universities have been splurging as if there’s no tomorrow, according to a groundbreaking study by the Wall Street Journal.

The Journal evaluated the financial statements of 50 state “flagship” universities, analyzing their budget expenses since 2002. After adjusting for inflation, spending at these institutions surged by 38% between 2002 and 2022. Meanwhile, flagship enrollment grew by an average of 20% over this 20-year period.

While the tuition revenue from these additional students partially covered their ever-expanding budgets, the average student still faced a staggering 64% price increase during this period. At flagship West Virginia University, rapidly growing budgets far exceeded enrollment projections causing cutbacks and much consternation among students and faculty.

State universities often claim that they are compelled to raise tuition due to state legislatures slashing their annual funding. The Wall Street Journal discovered that three-fourths of the states did indeed reduce their support between 2002 and 2022. However, for every $1 cut in state funding, the median increase in tuition at flagship universities was $2.40. For instance, Penn State charged nearly $2.25 in additional tuition for every $1 lost in state funding.

So, where was this additional revenue spent?

Between 2002 and 2022, salaries and benefits at these universities rose by 40%. Surprisingly, most of these personnel dollars were not allocated to instructional costs but instead supported the significant growth in administration. Entire new operations within universities were established or expanded phenomenally in areas such as student services, accreditation and government compliance, research support and community service.

While these functions often started as modest initiatives, poor fiscal management and pressure from internal interest groups encouraged the expansion of their staff far beyond the original intent. At Penn State, which is now the most expensive flagship public university in the country, spending has risen 36% since 2021.

Division 1 athletics is frequently blamed for the rising costs, and rightfully so.

To say that athletics has become a big business at large universities is, at best, an understatement. Conventional wisdom holds that NCAA Division 1 major sports generate revenue that not only covers their costs but also adds net revenue.

However, only 23 of the 228 Division 1 athletics departments generated enough money to cover their own expenses, according to a 2013 study published by the American Council of Trustees and Alumni. Subsequent studies have questioned the exact amount of revenue that Division 1 athletics generates for its host institution.

Nevertheless, for various reasons, the vast majority of sports at Division 1 schools are subsidized by tuition and tax dollars.

The impact of expanding budgets at flagship institutions manifests in several ways, including tuition and tax revenue. However, some hidden costs are not as apparent. A significant one is the effect these enormous budgets have on private higher education.

Private colleges are feeling the pinch with 860 privates closing since 2004 mostly due to declining enrollments as more students choose public campuses. Many private schools have also raised their tuition, often in an attempt to offer at least some of the programs and amenities that larger state-owned competitors provide.

But private colleges have done much more belt-tightening than many of their state competitors.

In Pennsylvania, for example, net tuition at private colleges, the amount families pay after their financial aid is awarded (much of it from the college itself) has risen only 0.4% since 2011. Private college net tuition is often less than their state-supported competition, even though the state schools, on average, receive about $9,500 subsidy per student per academic year.

Without that kind of subsidy many private institutions have found it difficult, and sometimes impossible, to compete for good students. Their closures reduce higher education options for all students. Just as in any marketplace, fewer options in turn lead to price (tuition) increases, and more demands for government support from the state schools.

There are few industries where the private sector must compete with the public or quasi-public sector for their very existence. Higher education is one of them. Decision-makers in state capitals and in Washington should consider this fact as they address the cost of college today.