A Simple Framework for Funding Higher Education

In my five years at UNLV this is the first spring that I haven’t had to cut my budget. It is a refreshing change. Nevada’s economy has a long road to full recovery, but stability has given state officials the opportunity to catch their breaths and consider how to fund higher education going forward. For his part, Chancellor Klaich has suggested a sharp break from the past that would be a huge step in the right direction.  People typically resist change. Those who do appeal to caution, claiming a new approach is too complicated and produces too much change too soon.  This is nonsense. Creating a viable financial model for Nevada higher education as Chancellor Klaich suggests comes down to getting agreement on just four issues.

First, is the amount of tax revenue the state wants to invest in NSHE.  This is an inherently political decision that should be tied to Nevada’s economic development strategy.  The ultimate answer depends on both how and against whom we want to compete. A different higher education system is needed to follow an entrepreneurial, high value added, market differentiation strategy than to support a low cost provider strategy. The former strategy focuses on charging universities with creating employers not just employees and requires more state investment in university research and development than the later.  If we want to compete in this manner, we also have to look at the other states that are pursuing this strategy and how much they are investing in higher education to achieve their goals. The point is, the amount of dollars allocated to higher education, is not a technical issue that can be decided by a “formula’.  It is something that requires open dialogue among elected officials who are willing to go on the record about the amount of block funding higher education needs to meet the state’s objectives.

The second issue is the relative importance of the research universities (UNR and UNLV) in the state’s economic strategy.  Research universities are critical to an entrepreneurial, high-productivity, market differentiation strategy.  They are much less important to a low cost provider strategy.  Research universities cost much more per student than the other institutions in the system. The competition for expert faculty is fierce and takes place on a global scale. The types of experiences that students need to gain maximum benefit from being in a research university environment are also different and more expensive than at institutions elsewhere in the system. Well known cost ratios can be used to understand the magnitude of these differences. The allocation of state monies to the systems’ institutions needs to reflect this difference along with the relative importance of the various institutions to the state’s objectives and competitive strategy.

Third there needs to be an agreement that each institution keep the tuition and student fees they generate.  Most people would be shocked to learn that this is not currently the case.  Simply put, markets work.  If you want institutions to be sensitive to the needs of their students and the organizations that employ them give universities the power to set price, keep revenues and respond to supply and demand.  A market approach will encourage institutions to attract, retain and educate students who will go on to do great things after they graduate.  This is all good.  Embrace it.  More tuition-driven institutions will build reputation, produce a higher quality education, provide employers with better students and improve the value of their degree.  Concerns that greedy administrators will price a college education out of the market are misplaced.  As long as the state doesn’t bail out universities for living outside their means, schools will learn the true market value of their product and respond accordingly.

Finally, there is the issue of explicit incentives for universities to meet milestones of special value to the state.   This could come in the form of additional (or loss of) block funding or annual bonuses of one time funding. The milestone that has been getting the most attention is the number (or percent) of students the institution graduates.  I share the concern of many faculty that such an incentive would lead to grade inflation and a lowering of standards.  Frankly, if all I have to do is graduate students—that is easy.   Preparing students to compete in today’s marketplace is much harder.  In that spirit, I would propose that incentives be created for the number (or percent) of graduates who report that their degree has helped them further their career goals through a new job, a promotion or admission into the graduate school of their choice.  Collecting this type of information isn’t difficult: a simple solution would be to require students to fill out exit surveys as a condition of completing their degree.  If the incentive was significant say 5% of base funding, I guarantee you universities would act differently than they do today.

I know all of this talk of funding higher education can seem pretty remote when you are in the middle of a semester and struggling to keep up with classes, a job and family obligations.  But the size of your tuition bill, the quality of your educational experience and the future prosperity of Nevada are at stake.  Reform opportunities like this one only come along once a decade or so.  Make your voice heard. You can’t afford for the politicians to get it wrong.

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