Public Policies, Prices and Productivity in American Higher Education

April 23, 2013

Rapid increases in what colleges charge and what they spend per student have been and remain one of the most controversial aspects of American higher education, says Arthur M. Hauptman of the American Enterprise Institute.

Tuition, fees and other college charges have increased in both the public and private sectors at more than twice the rate of inflation for over a quarter century. Trends over time in what colleges and universities spend per student are harder to discern because recent changes in accounting conventions have made it difficult to compare spending patterns. We do know from various sources, though, that spending per student in the United States is high by international standards. For example, the Organization for Economic Cooperation and Development (OECD) reports that in the United States more than $25,000 is spent per student in higher education, by far the highest among OECD countries and more than twice the OECD average.

Hauptman's report seeks to examine the extent to which public policies at both the federal and state levels have shaped these trends in price and cost productivity (measured as spending per student). To accomplish this, the report is divided into the following four sections:

  • A theoretical consideration of how public and private providers meet the demand for higher education.
  • An examination of trends over the past 40 years in what colleges charge, how much they spend per student, and tuition as a percentage of educational costs.
  • A discussion of the various theories that have been put forth for why prices and spending per student have increased so rapidly in the past three decades.
  • An analysis of the effects public policies may have had on pricing and productivity (measured as spending per student) and a series of suggestions for a series of federal and state policy reforms that could slow the future growth of what colleges charge and spend per student.

Hauptman finds that state funding formulas have traditionally led to higher spending and encourage enrollment but not completion. These incentives must be changed in order to stop the spiraling cost of higher education and increase the number of college graduates. Part of this process will require that states revisit how funds are allocated to different parts of the public higher education sector. States should also rethink their role in setting price and volume in public higher education.

Source: Arthur M. Hauptman, "Public Policies, Prices and Productivity in American Higher Education," American Enterprise Institute, April 11, 2013.


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