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New state funding model a consequence of higher education costs

Missouri is joining the growing number of states that seeks to revise their higher education funding model. According to a July report commissioned by the State of Missouri, the new model will include funding for an institution’s fixed costs, variable costs, and performance. Additionally, it will include funding for capacity building and non-instructional activities that are mission related. The state expects the new model to address rising higher education costs there.

That Missouri seeks to revamp the way it pays for higher education is somewhat less important than the fact that many states seek to do the same thing at the same time. The higher education sector has been plagued by a growing crisis of confidence driven by the politicization of higher education.

The lack of confidence in higher education might be a cover story for the fact that legislators no longer want to write a blank check for higher education costs. In other words, money – or the lack of desire to spend money – may be driving the new ultra-conservative interest in higher education costs.

Of course, the higher education sector may have avoided this move toward performance-based funding by … well… performing. Instead, higher education administrators busied themselves with building new facilities on campus and expanding their own ranks. When those costs outstripped the state appropriations, and their complaints about lack of funding went unheeded by their state legislatures, they turned to other sources of funding to paper over their spending problems. Tuition, research, licensing, charitable endowments, and a host of other fundraising activities padded higher education budgets.

That all worked until the students stopped showing up for classes.

It appears our higher education institutions have forgotten some basic rules of economics:

  • Something is worth only what someone is willing to pay for it.
  • It is possible that the returns of the investment you choose turn out to be lower than the returns of the investment you passed on.
  • If the benefits do not outweigh the costs of an investment, it’s likely a bad investment.

All these maxims apply to higher education costs. When people start asking these questions, or questioning whether education is valuable, the bubble has burst.

It will not be long before the Michigan State Legislature begins looking at performance-based funding for the higher education institutions here. So, keep building new buildings, even as your enrollment craters and continue to raise tuition to pay for all the Vice Presidents that you have crammed onto the payroll. Disregard the condition of the buildings while you can. Someone from the Legislature will be along shortly to help you align your spending priorities with the State’s new guidelines.

Photo Credit: NASA HQ Photo, via Flickr