Education

Covid Is Hurting Higher Ed’s Bottom Line. Who Should Foot The Bill?


The epidemic of inexorably rising student debt has long raised two critical questions about higher education: why does it cost so much, and who should pay for it? Wonks tend to address the first question, and populists have a range of proposals on the second. But Covid-19 has given both an air of ragged urgency. 

Over a hundred lawsuits have now been filed by students, arguing that their alma maters have shortchanged them by providing an online educational experience during the pandemic, and not a social one. Institutions with empty dorms and parking garages are looking desperately to governments to subsidize their revenues. States, for whom higher education is the third-largest expenditure in a season of dramatically tight budgets, are looking to shed spending wherever possible. 

Covid-19 has radically changed the offerings—and revenue models—of traditional, place-based institutions. In so doing, it has revealed the complexity of the traditional higher education business model, and of the mix of public and private funding that undergirds it.  

Higher Education: A Public-Private Partnership 

Education creates private benefit. It opens pathways to opportunities, generates greater personal income (on average over $1 million over the course of a lifetime), and enables social mobility. The aggregate realization of private socio-economic benefits also creates a public benefit—and is the reason we have public subsidy of education. The skills and capabilities that individuals learn in their own academic endeavors result in a skilled workforce, innovation, and economic progress that benefit communities and societies broadly. 

Without subsidy or publicly financed programs, it is fiercely debated whether the free market would produce an optimal quantity of education, and likely that access would be even less equitably distributed than it is in our current system. The private-public benefit of education is part of why funding for the US system is from a mix of public and private funding sources. 

The United States’ system of higher education is both more and less subsidized than in many other countries: according to OECD data, the US ranks in the top third of public spending per student, but also has one of the highest proportions of private expenditures. The result is a system that is more expensive overall than any other country in the world, save Luxembourg. Some of this expense doubtlessly funds the preeminence of American university research. But some of the high costs of our system can be traced back to the growth of administrative costs and spending around the student experience. 

Private Experiences Aren’t Pandemic-Proof 

The student experience of college plays a critical role in the lives and memories of many. It is a time of life idealized in fiction and movies, replete with social functions, iconic quads, and perspective-changing travel. It is a time of meaningful relationship building, as evidenced by data showing that over a quarter of college students meet their spouses while in school. This emerging adult experience is formative for many Americans—it was for me. It is largely a private good. And…it does not translate well to a pandemic.  

The centrality of this student experience to an institution’s value proposition—and spending—varies wildly. Not every place-based school has a 25-person hot tub or a lazy river. Indeed, efforts to compare the American system of higher education to those of other countries are complicated by the fact that the American system is highly diverse in terms of schools’ relative focus on research vs. teaching, career preparation vs. general education, and education in general vs. student experience.  

Our system of funding education, on the other hand, is comparatively monolithic. State budgets do subsidize a significant share of the cost of public institutions. But the federal system of grants and loans is indifferent to whether students attend an affordable, career-focused community college or an expensive, elite university replete with student-life excess. This is part of what makes our higher education system regressive: middle class students receive more subsidy than poor ones because wealthier students tend to go to more expensive schools. The elite gravitate to schools with pricey amenities, not career-oriented commuter schools. 

But in 2020, as it turns out, the vast majority of schools will be offering the same thing: online classes. Room and board revenue will go largely uncollected. But tuition at many schools will remain high—and, as a spate of lawsuits indicate, it is not clear that the price tag is justified on strictly academic terms, particularly given the questionable quality of some online programming. Even Harvard has seen 20% of its first year class defer. This puts college budgets across the country in a tight spot. So, who should pay to maintain the infrastructure that supports the emerging adult experience? 

Invest in Innovation, Rather than Subsidizing the Status Quo 

Arguments around crisis funding for higher education have focused on the essential nature of American higher education to our society, and on education as a public good and a fundamental right. But the elements of college that do provide the primary public good can surely be delivered online with high program quality and strong student outcomes—and have been for decades.

To the extent that schools are losing revenue during the pandemic, it is largely because they are not able to offer the private goods: food, housing, and fun. It is worth noting that the schools most impacted by the loss of the residential experience disproportionately serve wealthier students. Students at non-residential schools, like community colleges, do in fact have food and housing expenses—but those were never revenue streams for their institutions, and do not represent revenue loss for higher education during the pandemic.  

There is reason to pause and reflect before throwing public money at the pandemic-induced crisis facing higher education. Our system of higher education is internationally admired, but also hugely expensive. In part, this is because institutions bundle the large public benefit of education with the mainly private benefit of the student experience. Education can be delivered in a pandemic. But schools that are losing revenue were delivering more than that. It’s not clear that we should subsidize lost revenue from housing, food, and fun anymore than we should replace revenue lost at hotels, restaurants, and waterparks.  

Instead, we should target public funds at the essential tasks of reskilling and upskilling our workforce to prepare every American for opportunity in a post-pandemic world. Instead of subsidizing a traditional student experience that can’t coexist with Covid-19, we should open our eyes to the millions of mid-career workers who have been displaced and need learning experiences to help them find their next opportunity. In short, in a time of highly constrained resources and unprecedented need for education, we should focus public dollars on the public benefits of education and ensuring that those benefits are accessible to those who need them most.



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