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You are here: Home > Products > Federations Magazine > June/July 2007 > Thirty Per Cent Hold Bachelor’s Degrees

special section: post-secondary education - united states

Thirty Per Cent Hold Bachelor’s Degrees

Highest success rates in the world hide large number of drop-outs

By Arthur M. Hauptman

Reuters

The American university system produces many Nobel Prize winners. Craig Mello, at right, and colleague Andrew Fire won the 2006 Nobel Prize in Medicine for their genetic research and its possible application to the treatment of AIDS and cancer.

Beginning with the establishment of harvard
University in 1636, most early universities in the United States were private institutions. Over the course of the nation’s history, the number and scope of public institutions has greatly expanded. In 1787, the new U.S. Constitution gave responsibility to the states for most important domestic functions, including education. This has meant that almost all of these public institutions of higher education – defined as those in which taxpayer dollars are a primary source of funding and public authorities are primarily responsible for their governance – are either state- or locally governed.

System Grew in Surges
Federal legislation enacted in 1862 encouraged the creation of land-grant universities in virtually every state. After the Second World War, many public four-year-degree institutions were created or expanded to accommodate rapid population growth. In addition, in 1947, the report of a federally-sponsored commission spurred the creation of community colleges. These institutions now account for more than one-third of all enrolments. Three-quarters of all college students now enrol in public institutions.

To finance these public institutions, governments stepped in by funding the basic operations including instruction and support for research conducted on campus or in institution-sponsored facilities, and by providing student financial aid such as grants, scholarships, loans and work-study opportunities. The states had the primary responsibility for funding instruction and basic operations of public institutions, while the federal government provided most of the funds for academic research and student
financial aid.

In the U.S., state income taxes, sales taxes and other state tax-based revenues (such as lottery funds) are the primary form of taxpayer support for public institutions. In 2006-07, state funds for post-secondary education exceeded $70 billion, more than one-half of a per cent of Gross Domestic Product (GDP). Most of these funds come from the individual states. Total spending for
post-secondary education in the U.S. from all sources accounts for nearly 3 per cent of GDP, which is the highest level of post-secondary investment in the world. On a per student basis, state funding now amounts to almost $10,000 per full-time equivalent student.

Tuition Fees Boosted Revenues
The growth in tuition and fees as a proportion of total revenues of public
institutions is one of the most marked trends in post-secondary education
finance in recent decades in the U.S. as well as in many other countries around the world. Tuition fees now pay for more than one-third of the educational activities of public institutions in the U.S., as opposed to 10 per cent three decades ago. There is quite a large variability among states in the reliance on fees, from 13 percent in New Mexico to 77 per cent in Vermont.

To pay for their tuition fees, many students take out loans. The 1965 Higher Education Act established a number of student financial-aid programs that form the basis for student financial support in the U.S. today. Guaranteed Student Loans, one of those programs, represented an interesting approach with respect to federalism. At the time, a dozen state agencies guaranteed
private lenders against the risk of default for loans made to student borrowers who had little or no collateral to secure their loans. The federally-guaranteed loan program worked with existing state agencies to ensure that students in states without guarantee agencies would be able to borrow. Today, the student loan industry in the U.S. makes more than us$100 billion annually in loans. The average amount borrowed by an undergraduate student is about us$20,000 and graduate student borrowing is much higher.

Research has been another major source of revenue for universities. The federal government traditionally has been the primary source of financial support for research conducted on campus, including at federal laboratories. Total annual federal spending in support of campus-based research is now about $30 billion. The bulk of this federal funding of academic research is based on peer review of proposals.

Rather than ensuring the overall quality of education, the federal government’s primary responsibility has been to ensure that the thousands of institutions attended by millions of federal student aid recipients meet minimal standards and to confirm that federal taxpayer dollars are appropriately spent.

Not Helping Low-Income Students
To improve the efficiency of higher-education systems, the U.S. Secretary of Education’s Commission on the Future of American Higher Education issued a report in September 2006 amid a firestorm of controversy. A key theme of the Commission’s report was that the student financial-aid system in the U.S. is not functioning well because it is too complex, non-transparent and not targeted on the needs of the lowest income students.

The report found that although U.S. participation rates have traditionally been among the highest in the world, the proportion of students who complete the program they began shows the U.S. has had a mediocre record, with only half of the students completing a four-year degree, and a much lower rate in
community colleges.

The Commission’s focus on low degree-completion rates has led to a growing debate on a related subject, namely, the U.S. ranking in attainment rates – the proportion of the adult population with a post-secondary degree of some sort. The U.S. continues to have the highest rates of attainment for bachelor’s degrees, with 30 per cent of the adult population holding such a degree – the OECD average is 19 per cent – although a number of countries are catching up. But in the attainment for associate’s degrees from community colleges, the U.S. has been in the middle of the pack with roughly 10 per cent of the adult population holding associate’s degrees (OECD average is nine per cent).

When the rates for both types of degrees are combined and the trends over time are examined – by looking at differences among different age groups – the U.S. position lags behind that of many countries.

It is now clear that the faulty system of student financial aid, the lack of student success, and the need to examine what students learn and to improve quality will be central to the debate on higher education in the U.S. for the foreseeable future. These topics, of course, have been the subject of extensive
debates before, but with little to show for it. Maybe this time, with the intense focus on global competition, the result will be different.

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Arthur M. Hauptman (hauptman_a@yahoo.com ) is a public policy consultant who specializes in higher education finance issues including the public funding of institutions, tuition fee setting and student financial aid.