Finance

Incentives to Attend Private Colleges Could Save States Money and Raise Graduation Rates

April 14, 2017

States could save money and increase college-graduation rates by providing modest financial incentives for students to choose private colleges over comparable public ones, according to a report released this week.

The conclusion, which was quickly disputed by a group representing public colleges, comes at a time when a growing number of states are providing the opposite incentives. This week New York became the first state to offer free tuition at both two- and four-year public colleges for middle-class families. Other states are considering similar moves, prompting widespread concern that enrollments could plunge at some tuition-dependent private colleges that recruit heavily from their states.

The report was prepared for the Council of Independent Colleges as part of its efforts to promote the value of the liberal arts and independent colleges. The report was distributed this week to all of the council’s members, to provide talking points when they make the case for financial support from state lawmakers, especially in states where free public-college tuition is on the agenda.

It’s hardly surprising that the council, which represents more than 700 nonprofit independent colleges, would promote a report based on the argument that costs per degree are lower and graduation rates higher at private institutions.

But the report’s authors, both of whom work at public universities, say it is based on a comprehensive analysis of federal data and state-specific simulations in 24 states. In all but two of those states, the proposed shift would save money, the researchers concluded.

“They're trying to make the counterintuitive case that expensive schools are cheaper than inexpensive schools.”
The findings were dismissed by Barmak Nassirian, director of federal relations and policy analysis for the American Association of State Colleges and Universities.

"I empathize with their plight, and I don’t begrudge them their moment in the sun, if that’s what their report is, but there are lots of problems with it," he said in an interview on Thursday. "They’re trying to make the counterintuitive case that expensive schools are cheaper than inexpensive schools. They go through a lot of contortions to make their case, but at the end of the day, common sense will prevail."

$1,000 in Aid

The study that yielded the report began two years ago, before the latest free-tuition pushes. "The idea is that we wanted to produce more bachelor’s degrees, and states have limited resources," the lead author, William M. Zumeta, a professor of public policy and higher education at the University of Washington, said in an interview on Thursday.

“The idea is that we wanted to produce more bachelor's degrees, and states have limited resources.”
At the same time, many small private colleges have room to admit additional students and could actually do a better job of retaining and graduating them, said Mr. Zumeta, who is a former president of the Association for the Study of Higher Education.

Instead of investing in additional infrastructure to expand crowded public colleges and universities, especially in states with rapidly growing populations, they asked, why not take advantage of the existing capacity of private institutions?

Most states already have a scholarship fund, like New York’s Tuition Assistance Program, that can be used for either public or private colleges, Mr. Zumeta said. The researchers set out to study how much more a student would have to be offered before he or she would choose a private college over a comparable public one.

Mr. Zumeta and his co-author, Nick Huntington-Klein, an assistant professor of economics at California State University at Fullerton, concluded that for a significant number of students, $1,000 in additional state aid would do the trick.

“In most states this would eventually lead to increased baccalaureate-degree production while also saving the state money.”
"In most states this would eventually lead to increased baccalaureate-degree production while also saving the state money," the report concludes. Even if the state spent more on financial aid, the report argues, that would be more than offset by the reductions in spending on public colleges.

Mr. Nassirian objected to the idea that states that have been disinvesting for decades in their public colleges should privatize them even more based on the argument that private colleges can get better results. Doing so would drive tuition costs up further, he said.

The council’s public-relations push has been supported by a number of funders, including the Carnegie Corporation of New York, the Lumina Foundation for Education, and the National Endowment for the Humanities.

Public vs. Private?

In an earlier study, the authors concluded that bachelor’s degrees at private colleges cost society about $89,000 each, compared with more than $115,000 at similar public institutions. That conclusion took into consideration their finding that it takes longer, on average, for students to graduate from public colleges, so they forgo more in potential earnings.

The president of the Council of Independent Colleges, Richard Ekman, said that when tuition discounting and the shorter time to degree are taken into account, the price difference between public and private colleges often boils down to a few thousand dollars.

He said he wished the new report had come out before New York’s budget was passed because that state offers one of the most striking examples of how shifting more students to private colleges could save money. The report found that the policy change could save the state $159 million and produce 490 more bachelor’s degrees each year.

If New York had chosen to provide $1,000 incentives to students who picked private colleges instead of committing to a free-tuition program that will eventually cost $163 million a year, "it’s pretty clear to us that the state could have saved money, more people could go to college, and you wouldn’t be devastating the private sector," said Mr. Ekman.

In New York, some private-college presidents complained that the free-tuition proposal would pit public against private colleges at a time they should be working together. Responding to the latest report, Mr. Nassirian echoed that idea, this time from the standpoint of the public sector. As colleges battle over limited resources, such tensions are likely to arise in other states.

"Public and private colleges both play important roles," said Mr. Nassirian, "and the idea that one sector is going against the other as if it’s the enemy doesn’t strike me as productive."

Katherine Mangan writes about community colleges, completion efforts, and job training, as well as other topics in daily news. Follow her on Twitter @KatherineMangan, or email her at katherine.mangan@chronicle.com.