A Better Way to Fund Universities

Michigan lawmakers are going to take another $1.5 billion from taxpayers this year and distribute it to state universities. That is roughly $390 for every household in the state. Yet it may be that in no other area of government is there less accountability than in sending taxpayer dollars to these institutions.

The deal that the state has with universities is simple. Dr. Richard Vedder, a commenter on higher education policy, explained it this way: The state fills up bombers with taxpayer dollars each year and flies them over the 15 state universities to drop their payloads. The only discussion that goes on is whether to fill the planes with smaller or larger cash bombs. This year, the governor wants 3 percent more money, the House 1.8 percent and the Senate 2.5 percent.

Ostensibly, the only thing that taxpayers get in return is a discount on tuition fees, at least compared to what these institutions charge out-of-state students.

Lawmakers ought to have a frank conversation about whether the transfer of wealth to state universities serves taxpayers’ interests. But, assuming that the state is going to continue making these transfers, there are ways to improve them.

For starters, the state should be funding students instead of ivory towers. That is, the state should fund scholarships for students rather than just dropping money on institutions. If higher education is about getting better-educated residents, funding the students ties the means to the outcomes.

There are other benefits. Funding students directly would also eliminate the discrepancy in aid between the different state universities. Currently, Oakland University gets an amount equivalent to $2,835 per Michigan student while the University of Michigan receives $12,625 per state student.

Lawmakers ought to discuss whether that student support should be general and unrestricted, needs-based, or a mixture. There are a lot of college students who come from families that can afford to pay the tuition. Giving them a general scholarship would transfer other people’s money to those who arguably don’t need it. In addition, giving someone taxpayer dollars to do something they would have done anyway and paid for themselves is not money well spent.

Universities currently recognize this and respond similarly — they keep average tuition high and offer need-based scholarships.

The state could also structure the scholarship to encourage schools to graduate students on time. Lowering levels of support after a student passes standard graduation periods may do the trick.

This would not fix everything that is wrong with higher education. Students as a whole still do not seem to be very cost-conscious about higher education decisions. Even while schools perpetually increase tuition, students find the means to pay it. The federal government supports these decisions by ensuring that students can borrow their way to almost any degree they’d like. This means that schools too often compete over the amenities they offer students rather than the value they provide for the price. This is in addition to bloated administrative staffs that are also cost drivers for colleges.

Converting from the current cash “bomber” policies to state-funded student scholarships would be an improvement. It would emphasize that higher education is about Michigan students obtaining a higher education, rather than simply transferring taxpayers’ money to favored institutions.