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Debt and Taxes: Can the Financial Industry Save Public Universities?Author(s): Bob MeisterReviewed work(s):Source:
Vol. 116, No. 1, The Humanities and the Crisis of The PublicUniversity (Fall 2011), pp. 128-155Published by:
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Accessed: 08/01/2012 21:32
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Debt and Taxes:Can the Financial Industry Save Public Universities?
Privatization Is Now the Problem—Not the Solution
hat is the crisis in
US public universities? We are generally told only part of the story: taxpayer funding hasdeclined. This
the crisis according to most university leaders. They tell usthat it is simply “unrealistic” for public universities to rely on state support and that tuition must inevitably replace taxation as a revenue source. If thestate is the problem, then “privatization”—the increased reliance on non-state funds—is the solution. Those of us who resist it are portrayed as livingin the past or naive.There is, however, another part of the story less often told: the ability of public colleges to spend so much more depends on their ability to chargemore; and they can charge more because there has been a long-term tuition
The price of public higher education has been growing at twice therate of the economy, twice as fast as health insurance, and three to four timesmore quickly than consumer prices in general.
University leaders were, of course, both observers of this bubble and participants in it. They would not have privatized so eagerly if they did not see tuition as a faster and surerform of enrollment-generated revenue growth than taxpayer funding. Fromtheir perspective, privatization is not a defensive strategy for revenue replace-ment but rather an opportunity for aggressive revenue growth they couldnot afford to miss.Privatization, as conceived by university leaders in the 1990s, was never astrategy by which public universities would eventually become private (by 
This article examines the limitations of tuition (higher personal debt) as a mode of fundingpublic university systems and, also, the widespread resistance to
tax increase by citizens with falling or stag-nant income and growing burdens of debt. It argues that the questions of debt servitude and tax resistancemust be considered together if public universities are to regain taxpayer support and become, once again,drivers of greater economic and social equality.
116. Fall 2011 © The Regents of theUniversity of California. ISSN 0734–6018, electronic ISSN 1533–855X, pages 128–55. All rights reserved.Direct requests for permission to photocopy or reproduce article content to the University of CaliforniaPress at http://www.ucpressjournals.com/reprintinfo.asp. DOI:10.1525/rep.2011.116.1.128.
Debt and Taxes: Can the Financial Industry Save Public Universities?
129being sold, for example, to a nonprofit or for-profit corporation). It was,rather, a new and robust model for expanding public universities that lever-aged the state’s potential willingness to fund
students by getting
students to pay 
. Under this model, students would be told that they must pay ever-increasing tuition because the state would never pay 
tofully fund the enrollment growth necessary to keep their universities
. And they would be
to pay more because they expected prices inhigher education would continue to rise (sometimes even faster than hous-ing prices) regardless of their ability to pay.
It is because of this price bubblethat public universities could increase enrollments despite diminished statesupport.
The present crisis in public higher education does not begin and end with the loss of state funding; it reflects the fragility, incoherence, and moralcynicism of privatization as a scheme for continuing to grow whether statefunds rise or fall. The scheme was to maximize the
total revenues 
generatedfrom students by increasing both enrollments and tuition with no require-ment or expectation that tuition would cover the resulting decline in state-funded
 per student revenues 
that would result from higher enrollments. According to this plan, the budgetary quality of instruction would necessar-ily deteriorate with enrollment growth even if the public university’s reputa-tional quality (its brand) survives, perhaps because its total budget isgrowing.
The gross revenue gains that come from higher enrollments withhigher fees can then be used to offset the net losses public universities run inother areas, such as sponsored research projects, which, according to someestimates, cost $1.20 for every $1.00 they bring in.
The result is that costs inuniversities continue to rise in almost every area except instructional deliv-ery—which is where administrators know how to economize
—and thesenoninstructional costs are heavily subsidized by high enrollments, especially in humanities and social sciences, which “earn” much more in tuition andfees than is returned to them in campus budgets.
But why did public universities think their students would pay more for adeteriorating product? Incurring higher costs is a way of getting more reve-nue only if there is more to be gotten—and normally rising costs for a lower-quality education would result in falling demand. But universities, bothpublic and private, assume that when students buy a degree they are not pay-ing merely for the cost of an instructional
; they are also purchasing afinancial
—a kind of insurance against a rising income gap betweengraduates and nongraduates. The price of this insurance could increasemuch faster than the rate of inflation and independently of any rise or fall inthe cost of instruction. As long as the value of the financial asset embeddedin tuition continued to grow, based on a widening income spread betweenthose with college educations and everyone else, public universities could

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