Saving money on the backs of college grads

Anybody who was unwise enough to visit a Michigan college town last week now knows it was move-in time, when the streets are jammed with cars and U-Hauls, while students (and parents) are anxiously wandering around with bags in tow. So it seems timely to revisit the old debate over declining state support for public colleges and universities and how this affects both increasing tuition costs for students and the resulting mounting student debt burdens.

An extensive report released last week by the Michigan League for Public Policy, a progressive think tank based in Lansing, found that Michigan’s public university tuition, adjusted for inflation, has increased by 100-150 percent since 2003 and today ranks as the sixth-highest in the country. At the same time, there is no doubt that Lansing over the same period has cut support for Michigan higher education more than nearly than any other state. For example, newly elected Gov. Rick Snyder’s first budget in 2011 slashed higher education funding by 15 percent, although in recent years the legislature has slowly increased state support.

Further, there is a direct relationship between declining state support and increasing university tuition and fees – a conclusion reached by both MLPP and the nonpartisan House Fiscal Agency. Back in the 1990’s when I served as a Regent of the University of Michigan, students paid around 30 percent of total operating costs, but today that figure is around 70 percent. Former U-M President James Duderstadt used to say that the University “was not a public university in the full sense of the term, but it was only to a degree ‘state supported.’” A Business Leaders for Michigan study concluded that our state in 2013-14 ranked 36th in the country in amount it allocates to higher education institutions.

As a consequence, according to the MLPP, not only do students pay more to go to college, but on average they graduate deeper in debt after graduation. Sixty-two percent of Michigan’s four-year college students graduate with debt levels averaging a little above $29,000, the 8th highest in the country, according to BLM, although the remainder graduate with little or no debt.

The debate over who is to blame has raged for years. Is it the fault of budget-cutting, conservative lawmakers in Lansing or is it universities with bloated administrative costs and unnecessarily expansive faculty salaries?

And the debate is not confined to Michigan; nationwide, state support has been declining for public universities for years, according to a report from the Center on Budget and Policy Priorities, which says that 25 of 46 states that offer comparative data are funding their public universities at lower levels than before the Great Recession.

At least in Michigan, public universities are doing pretty well at restraining cost increases and managing bloat when compared with peers around the country, according to a recent study published by Business Leaders for Michigan. University officials argue that in an environment of reduced state support, they have an obligation to maintain quality to attract the best and brightest to our state and provide our businesses with the best possible pool of talent.

They make the simple point that you usually get what you’re willing to pay for.

Critics respond that merely getting a university degree (unspecified) may or may not result in sharply increased lifetime earnings, and that an individual student’s ambition to succeed often is more important than the quality of education received on campus. Quality overall may well be important to attract the best and brightest, goes the argument – buttressed last week by the University of Michigan’s recent ranking as the best public university in the country -- but that doesn’t necessarily translate to increased lifetime income for any individual graduate.

Because these arguments are predicated on overall political ideology and sustained by individual anecdote, there is something for everybody in these passionate exchanges, which all too often shed more heat than light on the subject.

There is, however, an important part of the discussion that is too often neglected: The economics of long run versus the short run.

Students today are being asked to assume student debt levels at the moment they graduate that are far higher than they were before the legislature started cutting back on support for higher ed. Paying off large amounts of student debt is tough for young people just starting out in their careers; many will defer for years getting married or buying a car or a house. And a fair number will be caught in the debt trap, never able to pay it off over the long term.

According to the Atlantic Magazine, the total student debt in America amounts to $1.3 trillion, spread over 43 million borrowers, of which only 37 percent were making timely payments on their long term debt. A House Fiscal Agency report concludes Michigan ranks 39th in the nation in granting state financial aid to students, a 70 percent reduction since 2002.

Lawmakers, on the other hand, can happily live in the political arena, cheerfully boasting to their constituents that they’re taking a hard line on college costs and gaining political points for being tough minded. But by cutting current funding for colleges, lawmakers are transforming today’s current costs for universities into long-term debt instruments held by individual graduate borrowers, who are required to pay them off … with interest.

In effect, it’s a hidden “college tax” levied on kids and their families, a gigantic (and carefully disguised) cost shift from the state’s historic collective responsibility to educate our people to growing long-term debt dumped on new graduates.

My impression is that there is general policy agreement that Michigan needs as many talented and skilled people as possible in order to compete in a global economy. To impose a stiff college tax on those working to develop their skills and talents seems exactly the wrong way to go about it.