Fiscal cliff or not, the coming years are certain to bring cuts in public spending on higher education. The looming sequestration threatens to cut $500 billion in federal discretionary spending starting next year, leaving a multi-billion dollar hole in R&D funding at public universities. State governments have already begun higher education funding cutbacks. So as policymakers pledge austerity and deficit reduction, colleges and universities will be left in a financial pinch.
Students and university faculty and staff are the obvious targets to fill these budget holes. But who actually pays the price for cuts in university funding?
New PPI research suggests college students will bear the brunt of additional austerity imposed on colleges and universities. Looking at previous cuts in public funding, we found college students were unquestionably worse off relative to faculty and staff when it came to making up the difference. And the impact of this uneven allocation could be serious. If college students continue to pay the biggest price for austerity, the next generation of young people may think twice about the value of going to college.
That’s because college students paid a high price for cuts in university funding over the last decade, while faculty and staff were relatively unaffected. As shown in this first graph, total tuition at four-year universities rose a staggering 35% over the last decade (in constant dollars). These rising prices are certainly behind the rising real average debt per graduate, up almost 30% over the same time.
Meanwhile, the average salary of instructional faculty at four-year public and private universities remained relatively constant over the last decade, actually increasing at private universities (in constant dollars). What’s more, the number of full-time instructional faculty increased by over 30 percent at public universities and by 65 percent at private universities. Faculty compensation makes up the largest share of university expenditures.
The fact that faculty have been basically unaffected by the financial constraints facing their employers isn’t what’s troubling – the fact they are unaffected relative to students is. Passing on the brunt of austerity to students translated into significant increases in tuition, and consequently passed through to further increases in real average student debt.
And the financial woes of colleges and universities are unlikely to change anytime soon. Private universities warn that endowment returns may never reach the peak of the stock boom just a few years ago. Further drop-offs in public funding are all but guaranteed as policymakers target deficit reduction through cuts in areas like R&D. We can see in the graph below what happened in 2012 when federal stimulus funding for higher education ran out – a big drop that put total support 7% below 2001 levels (in constant dollars). Somebody will have pick up the additional slack. As colleges and universities spend to compete for higher rankings, future shortfalls are unlikely to be internalized.
Young college grads are already facing an uphill battle – real earnings are down 15% since 2000 as a hollowed out labor market is squeezing them into lower skill jobs. And total student debt is now over now over $1 trillion. At some point they will no longer be able to pay the most for austerity if their real earnings continue to fall, which could result in more young people to not enroll or drop out. Yet going to college remains the best way to get ahead financially.
That means colleges and universities must work harder to distribute future austerity more evenly across faculty, staff, and students. And these institutions should think carefully about their own spending – a new restaurant on campus won’t matter if students can’t afford to eat in it.
But most importantly, policymakers are too focused on the wrong side of the budget when it comes to reducing the deficit – entitlements, not discretionary spending, are real drivers of long-term debt. Policymakers must recognize that massive cuts to higher education funding will fall disproportionately on the backs of college students, and in turn add to another growing debt crisis – student loans.