Wednesday, the Journal Sentinel reported the efforts of one Rob Kreibich (surprisingly identitifed as a Republican representative from Eau Claire) to introduce caps on the growth of tuition at the University of Wisconsin system. Kreibich wants to be a hero with the college crowd by capping tuition and fees increases at 3% for this year and next. BadgerPundit is always disappointed to meet a Republican who believes that by favoring one constituency, the state can magically avoid robbing another. If one caps fees at the UW system, the burden will inevitably shift to the income and property taxpayers of Wisconsin. Kreibich may be spoiling the kids with his proposal, but he's socking it to the taxpayers.
Others have noted the fact that UW tuition is currently well below the Big Ten average. The Journal Sentinel article also appropriately notes that the median family income for entering freshmen at UW-Madison is a healthy $71,000 a year. (Remember that median per capita income in Wisconsin is just north of $28,000 per year). Many students in the UW system are comfortably middle class; John Kerry, looking down from the lofty perch of his wife's G5 The Flying Squirrel, might even venture to call them rich.
What interest does the state have in subsidizing the education of these people? Reams of economic research (by Nobel Prize winner Gary Becker, among others) have demonstrated that the present value of lifetime earnings for college graduates is vastly higher than for high school graduates. The individual economic returns to graduate education (e.g. pursuing a Ph.d, medical, or law degree) are higher still. The crucial point is that young students have a powerful financial incentive to pursue higher education. An early investment in one's human capital yields lifetime financial dividends (quite apart from intangible benefits which are hard to value) which in most cases dwarfs the initial financial outlay, even at the most expensive private schools.
Students (especially students from well-off households) do not require state incentives to pursue higher education. They know such education will benefit them substantially, whether it is subsidized or not. In many respects, education beyond the K-12 level is not a public good. Higher education is a valuable private good which belongs to the student. Students reap most of the benefits from their education; it is also portable, and can be easily removed from Wisconsin. The argument for subsidizing public higher education is that it creates positive externalities- having an educated population leads to higher incomes (and thus tax revenue), enhances economic development, and spurs entrepreneurship. These are indeed desirable public policy objectives. However, as Adam Smith famously noted, such beneficial side effects will follow naturally from private citizens pursuing their own self interest.
It is also important to observe that Wisconsin's scheme of funding higher education is inefficient in subsidizing these public policy objectives (assuming such government intervention is necessary). Wisconsin may be a net exporter of knowledge workers. Although the state heavily subsidizes the production of college educated residents, many of these in-state students graduate, pack their bags, and move off to another state which offers better job opportunities. As such, Wisconsin taxpayers are actually subsidizing investment in human capital in other states. This education export is due to perverse incentives, as excessively cheap education encourages residents to stay for their student years, while high income and property taxes encourage them to move once they begin earning income (thereby defeating the public policy rationale for subsidized higher education).
Like most states, Wisconsin charges out-of-state students significantly higher tuition to attend the state's public universities. But who is more deserving of a subsidy- the in-state teenager who leaves the state for good after 4 riotous years in Madison, or the California teenager (who pays full tuition) who decides to stay in Wisconsin after college and contributes tax revenues for the next 30 years? If Wisconsin's higher education subsidies were rational, they would both encourage and reward UW system students who choose to stay in Wisconsin. Subsidizing those who leave is pure waste.
How might the subsidy situation be improved? For starters, charge all UW students a market rate by tripling the current tuition and fees at UW, and dramatically scaling back taxpayer funded transfers from the state treasury to the university system. Let the students who will benefit fund more of their education. Because accessibility and fairness are valid concerns, offer all students a state backed loan program to fill the gap between the new higher tuition and the old subsidized levels. For students who avail themselves of this state loan pool, offer the following deal. The state of Wisconsin will offer a $0.75 credit against the outstanding loan balance for every $1.00 in Wisconsin state income tax paid by the student in the 10 years following graduation. Thus, if a graduating student stays in Wisconsin after graduation and contributes $16,000 in state taxes to the state treasury over the next decade, he will receive $12,000 in loan forgiveness against his student debt. If the student instead skips town with his diploma and Bucky Badger T-shirt to hang out in California, he receives no loan forgiveness and must repay the full amount. This is fair, because the student has contributed nothing to Wisconsin's economy and public finances during his productive phase; therefore, he is not entitled to a state subsidy during his educational phase.
Adjust the plan however you wish. The important principle is that only UW graduates who remain in Wisconsin should receive a state subsidy. All other students should be expected to pay full freight.
There are other economic arguments as to why UW fees ought to be much higher than they currently are. Anytime state subsidies hold the price of a good below its true price, consumers will demand more of that good than they would in a natural market-determined equillibrium. Because of state subsidies, it is probable that students in Wisconsin and elsewhere consume too much of certain types of higher education. An artificially low price encourages students to make educational choices without carefully considering the productive possibilities of their human capital investments. When tuition is high, and significant debt is incurred, students are forced to confront what they hope to gain from their education, and how that education will help them achieve those goals. BadgerPundit has attended two of the most expensive private universities in the United States- the horrendously high cost does provide a powerful reality check.
High tuition will also have a beneficial effect on governance of the university system. The more students are forced to pay, the more they will monitor and challenge the administrative bloat, irresponsible union contracts, and wasteful spending which currently drive up costs at all universities, but particularly public ones. Students have no reason to care about wasteful institutional spending as long as Wisconsin's taxpayers are picking up the tab.
The University of Wisconsin system, and particularly UW Madison, are real and important assets to the state. They provide world class research facilities, and spawn the growth industries of tomorrow. I strongly endorse continued investment in attracting the top faculty and students to the system, as well as investment in infrastructure and industry partnerships. Economic sense dictates, however, that more of this investment be shouldered by the private individuals who benefit most from the system - namely its students and graduates. The success of America's many great private universities provide overwhelming proof that educational excellence is possible without public funds.
The current system provides inefficient subsidies and is also a regressive tax- in many cases forcing the poorest and least educated in the state to subsidize the education of ambitious world-beaters from River Hills, who might then leave the state to go work on Wall Street. BadgerPundit readers should know that I am a committed anti-tax warrior; nevertheless, pointless regressive taxes such as the low UW fees are bad public policy.
So, Representative Kreibich, if you really support the Republican beliefs in free markets, lower taxes, and accountability in public institutions, the problem is that UW fees are much too low, not that they are too high. It is time to raise them, substantially.
As a recent UW-Madison grad and current UW-Madison graduate student I have witnessed the cost of good intentions regarding tuition subsidies.
The University never has any incentive to control costs on its own. Why should they when they can raise tuition then complain about the high cost of tuition to the legislature and congress. So far its worked. If you look behind the high nominal tuition rates you'll find that the actual amount students are actually paying has actually declined substantially in the past decade or so.
Also, the tuition subsidy here at UW-madison creates an incentive, as you point out, for lots of directionless but intelligent freshmen and sophmores to choose worthless majors in english or art history and the like rather than engineering and business or a hard science that has productive value to the state and the country.
Furthermore, the tuition subsidy for in state students tends to help those least in need. Kids from Madison's west side, Brookfield, Whitefish Bay, Bayside, Mequon, etc. whose parents attended the UW and are from middle to upper middle class backgrounds get the same break as the poor kids from Iowa County or Milwaukee. Though admittedly there are further subsidies in place for the low income kids especially minorities.
Posted by: sausagegut | February 06, 2005 at 08:18 PM