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Education
Higher Education Policy

During the past several legislative sessions, the topic of state funding for the University of North Carolina system has frequently arisen. University leaders complain that years of insufficient funding have hurt academic programs and created a “brain drain” of talented professors. But critics point to other problems, such as an over-reliance on teaching assistants and part-timers, a tenure system that rewards research over teaching, and a tuition policy that provides disproportionate benefits to newcomers and the wealthy.

Are State Universities Underfunded?

The notion of an underfunded UNC system is fallacious. Even though inflation-adjusted General Fund support per student declined a bit during the recession years of the early 1990s and again in 2001–2002, it generally rose during the intervening years. The long-term trend has been one of significantly greater taxpayer resources flowing into the system — a 13 percent increase per student, adjusted for inflation and capital spending, over the past 10 years. Furthermore, North Carolina is a relatively generous funder of public higher education, ranking 18th in the nation in the share of personal income taken in taxes for college and university subsidies. North Carolina’s rate is 2.3 percent of income. The national average is 1.7 percent, with 1.8 percent the average in the Southeast. The latest study of faculty compensation by the Pope Center for Higher Education Policy found that compensation at UNC-Chapel Hill and N.C. State ranked above the national average when adjusted for regional differences in cost and quality-of-life. All but three of the 16 UNC campuses ranked above average for their peer groups. On the other hand, independent studies of community college pay suggest that North Carolina does rank low by any measure, and that inadequate salaries are harming the quality of instruction.

The Problem Of Low Tuition

The UNC system covers only 20 percent of its costs from tuition and fees, compared to a national average of 33 percent and higher numbers for comparable systems like Virginia’s (42 percent). Many people believe that the state’s low tuition is mandated by the constitutional language that higher education be “extended to the people of the state…free of expense as far as practicable.” While that provision is widely interpreted to mean that tuition must be kept extremely low, the phrase “as far as practicable” seems to grant lawmakers wide discretion.

The less students pay, the more has to be made up by the taxpayers. In North Carolina, the state’s support for the system was about $10,500 for each student enrolled in 2002-03. The median family income of students in the system ($54,000) is significantly higher than the state’s median family income ($42,000), with the differential far higher at UNC-Chapel Hill ($75,000). Therefore, the system has a “reverse Robin Hood” effect, taxing the less affluent to provide a benefit to the more affluent. Nor do tax collections from graduates compensate the state for the massive subsidy in any case except that of a few extremely high income earners who pay N.C. taxes for their entire careers. Individuals with such good prospects will attend college, subsidy or not. A second problem with low tuition is that it encourages students not truly interested in serious academic work to enroll. If students bore more of the cost, they would consider their options more carefully. Many UNC students drop out (nearly 50 percent fail to graduate within five years) and many of the less able and motivated students who remain pull standards down owing to the desire of faculty to receive favorable evaluations. Finally, the artificially low tuition at state colleges makes it difficult for private colleges to compete, thus reducing choices for students. As recently as the mid-1960s, about 40 percent of the state’s college students were enrolled in private institutions, compared to only about a quarter today.

A critical goal should be to increase UNC’s productivity and quality of instruction. Professors who are excellent researchers but only adequate teachers now receive tenure, but those who are adequate researchers and excellent teachers may not. These incentives weaken the ability of the UNC system to deliver its core service ofundergraduate education. Furthermore, admissions standards should be raised to provide incentives for students to excel in high school, while preferences based on race or similar factors should be eliminated. If the experience of the University of California system is any guide, such race-neutral admissions policies would promote equality and academic rigor without reducing opportunities for minority students to attend college.

Recommendations

1. Higher education in North Carolina should become more productive and rigorous. Tenure rules should be changed to encourage excellent teaching. Admissions standards should be raised — and based on merit.
2. UNC tuition should be increased over two years so that it is enough to cover 30 percent of the cost of students’ education, thus saving taxpayers an estimated $220 million while encouraging a more economical use of the system. The ultimate goal should be a system of differentiated tuitions financing half the cost of education at UNC-Chapel Hill and N.C. State, one-third at the regional universities, and one-quarter at the small schools that serve relatively poor families. Some of the savings should fund additional financial aid to ensure that poor North Carolinians can still afford to attend college. Community college tuition should also rise significantly, with much of the proceeds directed toward improving the system’s woefully low compensation for faculty.
3. To give families more choices and encourage competition in higher education, the state’s Legislative Tuition Grant (LTG) for students who attend private colleges should be increased to $4,000 a year. This would save the taxpayers the cost of expanding the UNC system and of having to subsidize students enrolled in it.
4. The state should make tax-deductible the first $4,500 a year of tuition payments or deposits into tax-deferred Educational Savings Accounts to reduce the current tax penalty for those saving for their children’s education.

To view higher quality graphs, download Agenda 2004 [560KB Acrobat].