By Richard Vedder
The one word answer to the question posed in the headline is: yes. The more complicated answer follows.
At several prominent flagship public universities, state appropriations make up only 10-15 percent of the budget. At a school like the University of Michigan, University of Virginia, or even the University of Colorado, the average student tuition fee (including out-of-state students), net of scholarships, probably exceeds the marginal cost of educating freshman students, particularly given the widespread use of graduate students and part-time low paid adjuncts in teaching, along with the use of large lecture classes. In addition, at UVA or Michigan, there is probably $2,000 or more endowment income coming in per student (far more at the University of Texas) as well, not to mention several hundred dollars per student in new donations. My guess is that, roughly speaking, these schools make money off freshman and sophomores (after allocating some of the endowment income to their education as intended by donors), lose a bit on juniors and seniors, and, roughly speaking again, break even on all undergraduate education --without use of state subsidies.
If I am right, the entire state appropriations for these schools goes for research, graduate and professional education and non-academic activities. A large part of the graduate student funding helps students from out of state and often even outside the U.S. There is nothing inherently unethical or illegal about this, but it certainly violates the original concept of state universities, envisioned as places to provide, at public expense, low cost education to undergraduates. It also is not what taxpayers today THINK their money is going for, nor is it what university presidents talk about when they ask for greater appropriations --they talk, for example, about greater student access, even though these schools have selective admission policies, accept mainly rich kids, and use incremental monies largely to fund research, added administrative positions, and, occasionally, a little in the way of R and R facilities for the generally well-to-do students.
At less research intensive schools, this is less the case. In these instances, perhaps 25 to 35 percent of budgets still come from state appropriations, graduate enrollments are fairly modest, average tuition fees are a bit lower, and some of the state money actually goes to subsidize student education. That is clearly the case for community colleges.
What bothers me is the disconnect with respect to public funding of the prestige institutions (that typically get far more per student state funding than the lower ranked schools) between what actually happens and what legislators and the public think is happening. Would the public fund hundreds of millions for research at the University of Michigan annually at the expense of nothing for student subsidies? I rather doubt it. I think honesty and transparency requires that the taxpayers know where there dollars go.
All of this, of course, is just another reason why I believe that a superior funding model would be to give funds to students themselves rather than to universities, giving the universities only a limited amount for explicit subsidization of research. Not only would this scholarship or voucher approach stimulate inter-institutional competition, it would assure that funds are being given more in accord with the wishes of the people for whom government is meant to serve.
Giving money to institutions also promotes inefficiencies, such as the hiring of massive administrative staffs, or excessive payments of economic rents, as manifested in huge salaries for university presidents who a few years ago did the same jobs just as well for far less money. So taxpayers are being both deceived AND ripped off. The ultimate solution, of course, is to concede that higher education is largely a private good and gradually withdraw public funding altogether. In the interim, however, student-based funding is an idea whose time has come.