The next casualty of the financial crisis: public universities

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Roger Goodman of Moody's credit rating agency has a prediction:

With policies of limiting enrollment places and tuition fees, market pressure to add capacity, and government funding unlikely to increase, Moody’s expects unprecedented pressure on the current financial model of public universities.

While universities in the rich world have been early casualities of the crisis (Harvard and Yale have earned the moniker of Big Losers from the Wall Street Journal because of the performance of their endowments), public universities in emerging markets have been shielded by the longer cycle of public budgeting and the stimulus spending of some governments. But that won't last forever.

When the squeeze on their finances arrives, public universities will basically have two choices. They can either ration education by limiting the number of people gaining admission, or they can figure out ways to reduce the high (and often implicit) subsidies to middle and upper income students. (Actually, they have a third choice of providing lower quality education to the same number of students, but I see this as unlikely in most cases.) Goodman provides arguments for reducing subsidies:

Another possibility is for the model of funding for higher education to evolve toward a public-market-based funding mix. The capacity for most higher education institutions to raise tuition and other fees to generate revenue is substantial, given the large remaining implicit subsidy provided to middle- and upper-income students in most nations. The potential is especially large in systems where government policy has effectively eliminated or capped tuition levels. In some countries, we have already seen signs of rising independence of universities through reformed governance structures and introduction of nongovernmental revenue streams such as tuition deregulation or expanded capacity for nondomestic students. While nuances of how tuition fees are implemented and managed can have serious social-policy consequences, financial aid strategies exist to ensure that access for the weakest economic groups is protected from increased tuition.

Of course, this argument is not new. There has always been something perverse about a system of public higher education in many countries where everyone is taxed, but those who are capable of paying for their education have disproportionate access to free or near-free higher education. Perhaps the financial crisis offers an opportunity to fix this.   


Ryan Hahn

Operations Officer

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