Finance

Think State Budget Cuts Explain Tuition Hikes? Not So Fast, Says One Researcher

June 01, 2017

Some explanations for rising college prices are greeted with more skepticism and better scholarship than others, argues Jason Delisle of the American Enterprise Institute.

Ask an expert why college prices keep rising, and you’ll probably hear that a major factor is states’ disinvestment from public universities. When states cut their support, the argument goes, colleges must charge more tuition to make up for it.

But in a report released on Thursday, Jason Delisle, a resident fellow at the American Enterprise Institute, argues that the research supporting this assertion is not nearly as robust as one might expect. Mr. Delisle identifies just three rigorous studies addressing the question in the past 20 years, and highlights instances of the relationship between state cuts and tuition hikes being presented as a given.

Mr. Delisle contrasts this to the stronger appetite for investigating another explanation for tuition hikes, the "Bennett hypothesis," which is named for William J. Bennett, a former secretary of education under President Reagan. That long-debated theory posits that wide availability of federal student aid drives colleges to raise their prices.

The Chronicle caught up with Mr. Delisle to learn more about his provocative argument, which sets the table for new research by one of his colleagues, on the relationship between state funding and tuition prices. AEI plans to release that work next week. The following transcript has been edited and condensed.

Q. You come off as kind of frustrated with the widespread acceptance of the idea that reduced state appropriations drive tuition increases at public colleges. What led you to write this report?

A. My colleague Preston Cooper here at AEI was interested in measuring the link between changes in state funding and changes in tuition. As part of his research into that we decided to do a literature review. He did his own review, I asked some people in the academic community who I know, and the answer I got was there isn’t much research on this, and what is there doesn’t show a very strong relationship.

And I was very taken aback, because other really important questions in higher-education finance would be treated with a lot of skepticism if there was that kind of thin research base around them. There was just this huge asymmetry between the amount of research verifying this relationship and the faith everyone had that the relationship was very strong.

“There was just this huge asymmetry between the amount of research verifying this relationship and the faith everyone had that the relationship was very strong.”

Q. Where do hear that strong faith being expressed?

A. I probably hear it or read it on a daily basis, whether it’s in The New York Times or from advocacy and think tank organizations in Washington, like Demos, in websites like FiveThirtyEight. I was doing a presentation on Capitol Hill earlier this year and the first question out of the gate from someone in the audience was: The real problem in higher education is state disinvestment, how can we encourage states to reinvest?

So it seems to come up all the time as the main diagnosis for rising tuition. Even in the 2016 presidential campaign, the democratic candidates talked about this being the main reason why tuition goes up.

Q. Why do you think this has become the pervasive explanation for rising tuition?

A. The point of the public funding for universities is to reduce tuition — that’s one of the main reasons why the funding is provided. There is this long-term trend that funding has been declining, and that tuition has been going up, and so it’s not crazy to say that they’re related.

But in the piece that I wrote, I did want to juxtapose that with other claims that are sort of logical on their face about higher-education finance that people demand a lot of evidence before they believe it, like the Bennett hypothesis that more student aid just drives up tuition.

So I think it’s a logical view to have, but that has never stopped academics from wanting to study an issue.

I agree that it’s counterintuitive that the relationship would be weak. But again, that’s what the research seems to suggest. And the researchers who have done work on this, their work was sort of tangential, and so they didn’t delve as much into the finding that there’s not a very strong relationship. In fact, they seemed to be very satisfied with the fact that the signs were moving in the right direction, that there was a statistically significant relationship between the two things, and that as appropriations went down, tuition went up. What I found very interesting, though, is that the magnitude of that relationship was very, very small relative to what the popular narrative would suggest — really just pennies on the dollar.

Q. The comparison with the Bennett hypothesis is interesting. I can imagine someone’s incentives for disproving, if you will, the Bennett Hypothesis might be a little bit different from the incentives for disproving the state-appropriation argument.

A. I actually think the incentives are the same. The incentive to prove or disprove the Bennett hypothesis is essentially a question of: Are we getting good bang for our buck? And the state-disinvestment and state-reinvestment argument, the incentive to check that is the same.

Q. I meant that if I think colleges are more or less good actors, or I advocate for them in some capacity, I probably don’t really like the Bennett hypothesis, which suggests that government investment only leads to higher prices. But the argument that state funding is to blame for rising college prices is kind of convenient, because then it’s not really the colleges’ fault, they just need better public support.

A. Yeah, I think that’s fair. If you trust that when you provide student aid indirectly to students by passing it through universities, that they would do exactly what you intend, then I can understand that you would question the Bennett hypothesis but you would think the state-disinvestment hypothesis is true.

The elephant in the room here is that tuition at these universities tends to go up even when appropriations are rising. That’s clear by looking at a simple chart.

Q. We noticed this series of tweets from Barmak Nassirian, director of federal relations and policy analysis for the American Association of State Colleges and Universities, who argues here — and I’ll try to summarize it — that this doesn’t require a regression analysis to show the connection between state funding and tuition. He says public colleges, when their budgets are cut, can basically decrease spending or increase other revenue. But they’ve been operating on a shoestring budget for a long time, and the only other realistic source of revenue is tuition. So he’s basically saying the connection is obvious from an institutional standpoint. I wonder how you’d respond to that argument.

A. He’s suggesting it’s obvious — my point that it shouldn’t necessarily be obvious, because tuition seems to rise in both good and bad times, and so that suggests to me that there’s more going on. I think for his rationale to be true, costs have to be fixed at universities and they only have two revenue sources, tuition and state appropriations. The other issue is that if something like tuition is always rising, you do want to bring some different analytical techniques to bear on determining — well, how much is that trend that’s otherwise always moving in that one direction being influenced by changes in something else?

Q. So in other words tuition could always be going up and still go up much more dramatically when you have cuts in state funding.

A. That’s right, and that’s what you’re trying to isolate.

Q. What else might we learn from rigorous research into tuition increases and state funding?

A. These are the kinds of things I think that researchers will have to explore: Do universities cut spending, do they raise revenue elsewhere? Perhaps they cut spending on important things, like instructional expenditures. So it’s still possible that cutting funding to universities has a harmful effect in terms of student outcomes or what’s being provided to them. Or it may be that universities cut spending on non-core functions and operations. We don’t really know. So that’s an important thing to sort of suss out. And you can’t do it just by calling up a few budget offices and asking them what they did this year.

Beckie Supiano writes about college affordability, the job market for new graduates, and professional schools, among other things. Follow her on Twitter @becksup, or drop her a line at beckie.supiano@chronicle.com.