The Effects of Subsidizing Higher Education

(Victor Joecks/NPRI) – I’ve always been a fan of economist Richard Vedder, but I was especially intrigued when I came across this short video, the script for which he wrote.

The video notes that North Dakota subsidizes its public universities much more heavily than neighboring states and the United States as a whole.

The effect?

Students from neighboring states flock to the University of North Dakota to receive an education financed by North Dakota taxpayers and then, when they’ve finished, they leave North Dakota for other locations. As the video says, 60 percent of college graduates leave the state upon graduation. This is after North Dakotans have spent $144 per capita each year to finance higher education for out-of-state students.

I thought this analysis was particularly relevant to Nevada, since the Silver State boasts the nation’s third-lowest tuition rates at public universities, behind Wyoming and Florida, according to the latest datafrom the U.S. Department of Education.

A key objection to high subsidies for the Nevada System of Higher Education frequently raised by NPRIis that the subsidized tuition rates are priced so low that policymakers have essentially priced potential private competitors out of the marketplace. Yet, the major hubs of innovation within the United States, such as the San Francisco Bay Area or North Carolina’s Research Triangle Park have achieved such status because of healthy competition between public and major private universities nearby. Not coincidentally, the public universities in these areas are less dramatically subsidized than in Nevada. Other innovation hubs, including Boston and New York, are led primarily by private universities.

Intrigued by Vedder’s findings, I went on to see what else has been done on this topic and was pleased to find that there is a rich literature showing the impact of tuition subsidies, merit scholarships (such as Nevada’s Millennium Scholarship) and other taxpayer-financed college freebies on the rate of out-migration for college graduates.

Here’s just one example, but the academic literature consistently supports Vedder’s findings. That is, heavily subsidized public universities tend to draw in more students from out of state and these students tend to leave in large numbers as soon as they graduate. Alternatively, merit-based scholarships targeted to high school graduates who remain within the state for college, like Nevada’s Millennium Scholarship, tend to encourage students to remain in the state for college but these students tend to leave as soon as they’ve exhausted the benefit anyway.

This being the case, it would seem clear that many of the traditional arguments in favor of subsidized tuition or the Millennium Scholarship–that we must attract and retain the best students in order to amass “human capital”–are misguided.

Nevada and other states with highly subsidized tuition rates aren’t amassing human capital, they’re just forcing state taxpayers to finance the education of students who will likely be headed elsewhere upon graduation.