Thursday, September 04, 2014

The Consequences from Finding Alternatives to Tax Revenues for Higher Ed Funding

A wise writer of detective fiction once remarked - follow the money.  The puzzle to be solved in this case is for public Higher Ed institutions that appear to be fiscally healthy.  First, how are they doing it, given the decline in state funding?  (Or, alternatively, given a rising cost environment with flat state funding?)  Second, are there strings attached to the new revenue sources and, if so, what sort of strings are they?  Of course, we should also include public sources, where there have always been strings.  For example, at Illinois there are lower bound constraints on how many students from in state would be admitted to the university.   There are also a host of state regulations that the university is subject to.  (The most recent one of these that I am aware of, instituted during my last year of of full-time employment 2009-10, is time reporting for full-time faculty and staff, an example of bureaucracy for bureaucracy's sake.)

At Illinois,where there has been a to do about the Salaita matter, we've been getting a real time lesson about strings attached to gift income for the university, particularly when that income comes from donors who give a lot individually.  If the university engages in an action that the donor doesn't like (here I'm not going to get into whether that donor belief is reasonable or not) then the donor can threaten to withhold future donations, which may have already been anticipated by the university in its budgeting.  Apparently, several large donors made just such threats over the Salaita appointment. Put a different way, in addition to the tax deduction the donor receives and the benefit that the gift the donor gives will provide (say to fund an endowed chair, in which case the benefit is to support the research of the chair holder), the donor expects to have some influence on future decisions the university will make.  Much of that influence is probably exerted outside of public view, by having private audience with top university administrators.  On the flip side of this, it is well known that much of the time that the campus top administrators put in goes to fund raising.  That often happens without much comment at all, as if the gifts are "free money."  One thing the Salaita case surely has done is to remind us that there are strings attached to these gifts. 

In this piece I'd actually like to focus on a different source of funding, using the above only as motivation to ask the question. The other source is the tuition revenue generated by international students.  (See line 3652.)  There has been a near doubling of international students on campus in the last 10 years.  The base rates for tuition of undergraduates can be found at the link. (Many colleges have a surcharge beyond the base rate.  LAS does not.)   Together these two tables create an interesting picture.

I'm old enough to remember back when US News & World Report would rate the U of I as a "best buy" for undergraduate education.  (In contrast, now even the in state tuition is pretty hefty.)   At the time the fraction of in state students exceeded 90% of the total undergraduate population.   And then, in my view, the students would have benefited from there being more out-of-state students, primarily because there tends to be a kind of provincialism of the kids, who are mainly from the northern and western suburbs of Chicago.  So having other students around who've grown up in different environments would have been a benefit unto itself.  Yet that doesn't explain what is going on with international students now.

Though there isn't published data on who pays full tuition and who is getting some discount, it is evident that the bulk of the international students are paying full fare.  And it is further evident that the vast majority are from Asia, mainly China.  The tuition these students pay is making up a good chunk of the shortfall in state funding.  Is this found money?  If it is not, what are the strings attached?

The above is factual.  Now I will venture into guesswork, but there is some economic basis for the guesswork.  The economics is that the "demand" for spots at the university by international students is far more elastic than the demand by in-state students, because once you're paying international student rates there are a host of institutions that might be attractive to such students, including universities outside the U.S. and private universities within the U.S.  So, purely on the economics, it appears to me that my campus has a not-well-diversified portfolio of international students (diversified in the sense of coming from many different countries around the globe) yet where, looking into the future, the demand of such students is fairly elastic.  This looks like trouble in the making.  In other words, the near future is likely to look unlike the recent past.  Let me explain why.

The university has a great reputation in Asia, particularly for Engineering.  That explains the current demand.  Also, the high rating of the Accounting department for undergraduate education, in particular, has spurred the international demand for seats in Business.  But the numbers of international students has gotten sufficiently great that many of them must enroll in other colleges, notably LAS.

This semester in my Economics of Organizations class, out of a total enrollment at present of 25 students, 9 have Asian sounding surnames.  Of these 7 are from China, 1 is from Korea, and 1 from New Jersey.  (When I was growing up in New York City, we used to think of New Jersey as a foreign country, but that is a different matter.)  All the other students are in state. If you compute the fractions, I have 32% international students and 36% from out of state, a bit higher than would be predicted from the campus averages.  Perhaps those Asian students in LAS find Economics an attractive major.  I don't know and the numbers are too small for my class to speculate further based on just that.

But if you look at a rating of undergraduate economics in the U.S., such as this one, you can see there are alternatives to Illinois that are rated higher, including four public universities from within the Big Ten. 

To my knowledge, the campus has not yet gone on a program to shore up offerings in departments outside of Engineering and Business that would appeal to students, particularly from China.  Doing so would require additional resources, which have already been allocated to other purposes.  Rather, it seems that the campus has followed a strategy of "cashing in" on the its reputation.  What will happen when there are a sufficient number of Chinese alums from Economics, and other departments that are now a haven for Chinese students, especially if in retrospect their views of their own education are not so glowing? 

A possible alternative approach in anticipation of a weakening in such demand would be further belt tightening now.  But belt tightening in Higher Ed is always done grudgingly or is resisted outright, with a prayer that the revenue shortfall is temporary and some bailout will be forthcoming soon.  Now, when there do seem to be adequate revenues, it is hard to imagine how such belt tightening will happen. 

Until now in this post, I have focused only on economic issues.  Let me briefly consider social/political issues.  This is not by any means to exhaust the possibilities.  It is merely to suggest that the scope of strings attached is quite broad and also to raise the possibility that many of these will be hard to anticipate ahead of time. 

One that is plain is that international students are here in part for reasons of acculturation.  What is it like to be American?  How do American students act in college?  Since there seems to be a clustering of students outside of class by national origin, this puts a premium on in class interactions.  In this view, the American students who speak up in class are providing a cultural benefit to the Chinese students.  Those American students who remain quiet are not.  In my class, where there is also online writing, something similar is afoot there.  But since all students must blog in the class, it is a course requirement, with the writing it is the lively bloggers who provide the cultural benefit for the other students.

Take the above and now consider kids from the Chicago suburbs versus kids from down state.  The latter are likely to have gone to a smaller high school, one less well funded, and with fewer options for enrichment.  Over the years, the campus has felt some imperative to admit such students because of their potential, coupled with the geography; their county is underrepresented on campus.  But, it should be recognized, these kids are more likely to feel like a fish out of water when attending the university and even if they overcome that feeling to some degree, they are more apt to be quiet in class.  That may not have been much of a liability in the past.  Will it increasingly become a liability as we move into the future, given this new economic model?

I don't see these sort of questions being asked elsewhere.  In my view, they are issues that need to be discussed and thought through.

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