Promoting progress in Virginia by shining

a spotlight on the business leaders, activists,

and ideas moving us ahead.

Higher Education: A Public Good Under Fire

By Neal Modi | February 6, 2012 | No Comments

There is a fundamental debate raging in the higher education world right now. The basic resolution reads: Is higher education a public or private good?

This is a crucial question not only for theoretical debates in the academy but about public policy affecting thousands of Virginia students and families.  If higher ed is is a public good, the state’s role in funding higher education is clearly established. The state has a clear obligation to ensure that students can attend higher education since the product of that education benefits state and society alike. Meanwhile, if it’s a private good, it follows that the costs of education should fall entirely onto the student, since it’s the student who enjoys the fruits of his or her education.

In economic terms, a public good is characterized by two prominent principles:

1)    Non-excludability – it is not possible to exclude non-payers from consuming the good, and

2)    Non-rivalry – more people consuming the good than was intended does not diminish the good’s value or benefit to others.

The classic example of a pure public good, amply demonstrating both of these principles, is national defense. National defense is non-excludable because it is not possible to exclude non-payers (i.e., free riders) from consuming the good. My neighbor, who fails to pay his taxes which funds our national defense, still benefits from that same system which I fund and profit from. Likewise, national defense is non-rival since an increase in the population of our society is independent of our armed forces’ ability to protect it.

Yet, as with most things in reality, very few things fit the mold perfectly. In other words, with the exception of national defense and a few other cases, many things are not a pure public good. Usually, they fit one criterion but not the other.

Case and point: higher education

In higher education, it is obvious that people who cannot pay, cannot attend. Thus, the good is excludable – it is possible to exclude non-payers from consuming the good. In contrast, the more people who receive a higher education degree does not diminish the good’s value onto society at-large. So, it is a non-rival good.

Society benefits when more people go to college. People with a college degree, for example, earn more than others. These same people are drivers of inventions and new modalities for production, cooperation and management. In sum, people with college degrees are better citizens. They add greater marginal value to society compared to a high school dropout or even graduate.

Therefore, if the benefits of higher education stand to benefit others, including those without a higher education degree, as well as the state (in the form of an increased tax base), it follows that the costs of such an education should be shared, too.

But, according to Gov. Bob McDonnell’s higher education budget plan, now before the General Assembly, such is not the case. While his post-secondary schools budget does increase funding for higher education overall, the plan simultaneously puts a cap on the amount of revenue used for financial aid derived from tuition and fees. Put differently, Gov. McDonnell wants to limit the amount of money students, particularly low and middle-income students, receive to pay for school.

In a time when student debt continues to rise and burdens students after they finish school, when the cost of school is becoming a larger factor in the decision to attend higher education to begin with, and in a time when, as Peter Blake, director of the State Council of Higher Education for Virginia, puts it student need is on the rise largely because of the weak economy, limiting the source of financial aid is dangerous and disastrous.

Not only does it prevent a more socio-economic diverse set of students from attending and benefiting from our institutions but it likewise puts a heavier burden on our schools to find funding sources. Moreover, not mentioned is the cost this can put onto society. If students cannot strive for higher education, a non-rival good, because of the lack of a school to provide adequate financial aid, then society loses out. As I wrote in a previous post, the cost comes out to approximately $582,000 per person if that person does not proceed to higher ed.

The debate over whether higher education is a public or private good is part and parcel of our discussion about how we ought to fund our public institutions and how that funding is distributed. Given that the state benefits, economically and socially, from more college graduates, there is an obvious interest to concomitantly invest heavily in public higher education and ensure all students, from diverse backgrounds, can attend. Gov. McDonnell’s proposal to limit the percentage of tuition and fees directed for financial aid ensures the opposite outcome. If anything, his view borders on characterizing public higher education as a private good, one that each must pay for on their own since, in time, they stand to benefit the most from it.

This view is fundamentally wrong. After all, we cannot have a strong commitment to our state without a even stronger commitment to our higher education institutions.


Disclaimer: The opinions expressed in this post are those of the author, and do not necessarily reflect those of members of the NDP Steering Committee

Bookmark and Share

Leave a Reply

Your email address will not be published. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>