Changes to College Funding System Could Increase Efficiency, Transparency

In the realm of higher education funding, Missouri can do better than the system it currently has in place, which is currently characterized by little accountability for education funding, few effective measures of quality, and meager increases in access to the underserved, all while college tuition continues to rise. During the past few decades this system has sought to address problems in higher education related to access, affordability, and quality by lavishing an ever-increasing amount of funds and resources on higher education institutions within the state.

That this approach is failing to expand access or quality measures, or to reduce tuition costs, should be of little surprise. The ultimate question that those who fund higher education should address is not one of how much to fund, but how to fund.

In 2004, Colorado began an experiment in higher education funding when its legislature ratified Senate Bill 04-189 and created the College Opportunity Fund (COF), intending to end the traditional method of direct funding for universities. The new system called for students as young as 13 to sign up for the COF, with the hope that such early enrollment would force both parents and children to begin thinking about college financing options as soon as possible. When students enroll at a state college and authorize the state to disburse funds for their education costs, the state’s support is reported as a line item on their tuition bills.

University funding has never been very transparent; both the average taxpayer and the average student have little knowledge of how state money works to help students. As a result, the amount of taxpayer money that a given university receives for each student is somewhat arbitrary. Often, the per-student subsidy reflects the amount that the state can afford to spend, rather than the extent of student needs or costs.

Under the Colorado plan, the state’s contribution shows up in the tuition bill, so parents and students know the degree and change of state aid from year to year. This transparency helps students hold legislators accountable for their education spending, providing an additional incentive for the lawmakers who set education funding policy to keep student needs in mind.

Colorado also committed to direct funding for a portion of university expenses through fee-per-service contracts, and to conditional funding based on performance measures. In that system, a university is funded directly for progress toward broad state goals, such as increased graduation rates or expanded minority enrollment. This policy has helped some more than others, but unarguably has helped make college funding more effective and accountable. By introducing conditional funding, Colorado universities have begun striving to reach performance benchmarks, rather than just using tuition money to climb in national rankings through extravagant but ineffective spending.

Furthermore, by doing away with guaranteed funding, the state has created incentives for universities to keep operating costs and sticker prices low, in order to attract a larger pool of applicants. Three private universities are currently participating in the COF program, a competitive process of funding allocation that encourages all institutions to work toward greater efficiency by keeping programs that work and cutting costly ones that do not.

It is time for Missouri to take a critical look at higher education. Regardless of whether the state adopts the Colorado plan, lawmakers should look to lessons learned by other states and craft a system that encourages universities to compete and innovate in order to receive government funds. Taxpayers deserve a system that absorbs their dollars in the most efficient way. Students deserve an education that is accountable, affordable, and of the highest quality. Funding students instead of institutions would be a first step in the right direction.

Abhi Sivasailam is an intern with the Show-Me Institute and an economics student at the University of Missouri–Columbia.