Higher education should enrich students, not institutions

The current debate over NSHE funding formula misses the point

By Geoffrey Lawrence
  • Wednesday, August 29, 2012

What's the value of higher education?

That simple question evokes a wide range of answers, answers that recognize both tangible and intangible values.

For many, higher education is valuable because, they believe, it endows students with marketable job skills that will increase their future earning potential. Indeed, recent statistics indicate that holders of a bachelor's degree enjoy a 74 percent wage premium — meaning that employers are willing to pay these workers 74 percent more, on average, than workers without a four-year degree.

Others see value in higher education that is less concrete. Many individuals simply enjoy the accumulation of knowledge or seek to satisfy their intellectual curiosity. Others believe it will add to their cultural appreciation or will make them more rounded.

Yet, regardless of where one sees value in pursuing higher education, nearly everyone would agree that higher education is meant to benefit the students who participate. Nearly everyone, that is, except the Silver State's political class, who seem to believe that it's the physical institutions themselves, and not the students, that should benefit.

That's why they're again debating the state funding formula for the Nevada System of Higher Education. At stake is whether the state will continue to channel proportionally more taxpayer dollars to the University of Nevada, Reno, or whether it will divert some of that money toward the University of Nevada, Las Vegas, or elsewhere.

A legislative interim committee has hired a consultant to produce recommendations for tinkering with the current funding formula. Meanwhile, NSHE Chancellor Dan Klaich has commissioned a competing study from a different consultant. And, predictably, tension has now emerged between the legislative committee and the Board of Regents as to which recommendations should be implemented.

Here's the quick answer: It doesn't matter.

Both plans would only continue to direct taxpayer support for higher education toward institutions instead of students. After all, if students are the targeted beneficiaries of public spending on higher education, then students should be the ones to decide how that money would best be used to fulfill their needs.

That means that students need choices. They need clear, unbiased choices among degree tracks and among providers. Students must be allowed to choose which program provides them with the maximum personal value. Without this freedom, institutions will never have the input data to determine how to best allocate their own resources and meet students' ever-changing needs.

Any funding formula that targets money toward specific institutions through differentiated formulas — allowing students no control over the taxpayer resources deployed on their behalf — will bias students' decisions about which program offers the greatest value for their higher-education dollar.

Say that a student finds that a software development program at Truckee Meadows Community College would offer the greatest return on investment. The student would lose out on the larger public — i.e., politicized — expenditures being channeled into UNR's computer science department. Thus, the opportunity to capture benefits from the public's largesse can easily lure students into programs even if their proportional return on investment is markedly inferior.

This is the very definition of economic inefficiency — induced by the state's decision to target institutions for its higher-education dollars, rather than students.

Nevadans should get more for the money they commit to higher education, and that means putting taxpayer contributions under the direct control of students. Lawmakers could supplement each student's direct contributions with a set amount of taxpayer support. Then students would be free to shop among in-state higher-education providers for the programs offering them the greatest benefit.

As a corollary to this tuition-support approach to higher-education finance, direct funding of institutions would cease.  Students, making unbiased decisions, would immeasurably increase the efficiency of Nevada's higher-education marketplace.

Just as in the K-12 marketplace, Nevadans would be better served if the funding followed the student. The current arrangement — routing dollars into the institutions via governmental decisions — simply rewards entrenched interests with political clout. On the other hand, the dynamics of the marketplace would more efficiently allocate taxpayers' resources.

Moreover, were students free to use their tuition support at any college of their choice, the Silver State might finally benefit from the emergence of major private universities. Currently, the oligopoly enforced by the state's high subsidies for NSHE institutions keeps them priced out of the state. Yet the NSHE institutions graduate fewer than half of their students.

Significant room for reform exists in the way Nevada taxpayers support higher education. The current debate, however, only evades the real issues.

Geoffrey Lawrence is deputy policy director at the Nevada Policy Research Institute. For more visit http://npri.org.

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