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1 What Is the Problem?
- Johns Hopkins University Press
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1 chapter one What Is the Problem? Trickle down does not work when two-thirds of the population does not have the necessary skills. w. mcmahon T he degree of privatization of higher education has been increasing since 1980, and even more sharply from 2001 through the present. As public funding of higher education per full-time student has declined, tuition has risen 29% in real terms net of increases in financial aid since 1996 at public institutions according to the College Board (2007a). For public and private institutions alike, the funding of federal and state student financial aid in real terms on a per student basis has not kept up, even with the 2007 increase in the maximum for Pell Grants of $260 to $4,310 for 2008 (ibid.). At public institutions this increase in tuition has made up for only about one-fourth of the decline in state funding. The net increase in costs to families has been accompanied by a reduction in participation by lower-income groups and minorities, as well as increased reliance on student loans at both public and private institutions. This shift of the costs to students and their families is an important aspect of the privatization of the financing of higher education I discuss further in this book. Similarly, research funding at the research universities is increasingly financed by firms and Internet courses financed totally by individuals. This includes privately financed organizations housed in university foun- 2 higher learning, greater good dations, as well as support of research the results of which can be patented and therefore the monetary benefits captured privately. It includes rapid expansion of Internet courses such as those offered by the University of Phoenix as well as privately owned for-profit colleges, both of which normally have a strong vocational slant. Together this powerful trend constitutes what has been called the de facto privatization of higher education.* Although a vast literature now has emerged in higher education about this and other related financing problems facing higher education policy, little analysis has been done on the degree of privatization that is economically efficient. If control of higher education is to be fully relinquished to private markets, then there needs to be analysis of the extent to which there may be market failure leading to distortions. In order for any market , including higher education markets, to work efficiently, there must be relatively complete information in the possession of students, families, and higher education policy makers. If there is poor information available to the average citizen and politicians about the value of the non-market private and social benefits of higher education, then poor investment decisions and policy decisions will result. An economic value can be placed on the benefits of higher education to better health and to longevity beyond income valued in terms of their income equivalent that are just as legitimate as the value placed on the earnings benefits, for example. But the problem is that although families and students are well aware of the increases in earnings following completion of a college degree, as shown by many studies, they are only very vaguely aware of the value of the non-market benefits beyond earnings that enhance the quality of life. An implication is that as privatization of higher education proceeds, private investment by families and students will be insufficient to be economically efficient. It is possible that privatization has not proceeded far enough outside of the United Kingdom in Europe, at the one extreme. There higher education expenditure per student is under half what it is in the United States. The result is that a major source of additional financing, the private support of families able and willing to pay (coupled with needbased financial aid), is not tapped and there are insufficient resources to sustain the quality of higher education in many European countries. In *Lyall and Sell (2006). See also Bok (2003). [18.232.188.122] Project MUSE (2024-03-28 17:18 GMT) What Is the Problem? 3 Greece, for example, the Constitution mandates that tuition must be free, and expenditure per student of $4,700 is less than one-fourth the $20,500 average in the United States (Psacharopoulos, 2005).* But as privatization proceeds, if there is poor information about the value of the private nonmarket benefits, total private investment still may be insufficient. If there is poor information about the specific...