From Governing:

Severe funding cuts and the record-high numbers of people going to college are forcing state university systems to make tough decisions about financial aid, curriculums, research and more.


Holden Thorp is perfectly positioned. As the surprisingly young chancellor of the University of North Carolina (UNC) at Chapel Hill, Thorp’s office is adjacent to the Old Well, the symbolic heart of this highly respected state research university, which many regard as the birthplace of public higher education more than two centuries ago.

He is of the place, having grown up in Fayetteville and graduated with honors from UNC in science in 1986, before going on to the California Institute of Technology to earn a Ph.D. in chemistry and then on to Yale for more post-graduate work. He returned to UNC in 1993 to teach chemistry, became the department’s chair, then the dean of Arts and Sciences and, four years ago at the age of 43, was named chancellor. Along the way, he co-founded a company that now develops drugs for fungal infections and prostate cancer, and co-authored a book about entrepreneurship and innovation in a university.

In other words, Thorp is a blazing star in the academic firmament. He presides over a campus of almost 30,000 students and 12,000 faculty and staff — a small city with a $2.4 billion budget in a metro area called the Research Triangle. The area is currently the fastest-growing in the nation, in large part because of its mega-universities — UNC, Duke and North Carolina State. The UNC faculty last year brought in around $800 million in research contracts and grants. Private donations reached their second highest level ever of more than $300 million, including pledges and gifts.

Last fall, the university enrolled some 4,000 first-year students from a record of 24,000 applicants, 80 percent of whom graduated in the top 10 percent of their high school class. Eighteen percent were first-generation college students; another 12 percent were eligible for the Carolina Covenant, which promises qualified low-income students the chance to graduate debt free. For the 11th straight year, UNC has been rated as the best value in public higher education for both in-state and out-of-state students by Kiplinger’s Personal Finance magazine, as well as The Princeton Review’s list of the “2012 Best Value Colleges.”

That’s the good news. But these days Thorp is in a difficult position, as are most of his colleagues in other states. Public funding has been severely reduced over the years as demands on state university systems have grown.

Since 2008, the university’s state aid has been cut by about $230 million, and the campus is feeling the full brunt of it. Class sizes have been expanding, 556 class sections have been dropped and, in a state where there is a severe shortage of nurses, admissions to the undergraduate class in the nursing school have been reduced by 25 percent. Salaries have been frozen for three years. Though UNC had prevailed in most retention battles when faculty received offers from elsewhere, the number of those that the school tried to keep and stayed dropped by half to 41 percent this past year. When many of them leave, they take their research grant money with them, so the “word is out in higher education that UNC and some other flagship public campuses are vulnerable to faculty raids,” Thorp warned in his annual address last fall.

Three years ago, in anticipation of coming cuts in state aid, Thorp initiated a program called Carolina Counts to carry out the key recommendations prepared by Bain & Co., the private consulting firm that did a thorough analysis of the campus operating structure and how to make this complex organization more efficient. The program is expected to result in reductions of some $50 million in expenses over time.

So in February, the inevitable tuition increase was approved by UNC’s 16-campus system board of governors — 9.6 percent for in-state students (to $7,683) and 5.9 percent (to $28,435) for out-of-state students. There will be somewhat smaller increases next year, but what happens beyond that is unclear.

It is a delicate balance because the university prides itself on its affordable price, on its commitment to low-income students across the state and the diversity in its student body.

“I’m not sure where this will go,” Thorp candidly told a recent meeting of the alumni board. (Full disclosure: I’m a board member.) “It’s hard to imagine doing what some other schools are doing, but don’t want to. Look at our peers, see what happens. As you raise tuition, the culture among undergraduates really changes. [It] becomes more like a private university. It creates more pressure on students to go into high-income jobs — not as nurses or social workers or museum directors.”

What is going on in Chapel Hill reflects a strong national trend.

The rate of decline in most states for funding their university systems is stunning. Currently, states are spending 20 percent less in inflation-adjusted dollars on higher education than a decade ago. According to the annual Grapevine study conducted by Illinois State University and the State Higher Education Executive Officers, state appropriations for higher education declined by 7.6 percent this past year — the largest annual decline in at least half a century. A five-year drop in state support has left funding levels for higher education lower in 29 states than it was in 2006-07.

Ironically, as funding has declined, enrollment rates have been increasing, especially in recent years. In the last decade, the full-time enrollment in public colleges and universities surged by about one-third. This year, almost 60 percent of Americans ages 18 to 24 were enrolled in the higher education system. So with state appropriations dropping and enrollments expanding, the amount of money supporting the average full-time student plummeted in the past decade by 23 percent after rising modestly during the 1980s and 1990s.

The severe drop in state funding has been exacerbated by the Great Recession, for sure, but it is part of a longer trend. Collectively, states spent $90 billion on their public universities in fiscal 2009, accounting for about 30 percent of total revenue, according to Moody’s Investors Service. That is down from a 50 percent share two decades ago, and it is continuing to drop. When the crunch comes in state legislatures, higher education makes an easier target because it’s assumed that the colleges and universities, especially the flagships, have more flexibility — shifting costs to students, increasing class sizes, changing the curriculum, attracting private funding, managing more efficiently, whatever.

The large flagship schools have suffered most, but so have whole state systems. They include institutions that carry out massive amounts of research across a wide array of disciplines, research that often kindles economic development, creates whole new industries and generates jobs. Collectively, they educate around 80 percent of the nation’s college students.

Bob Campbell, who is vice chairman of the consulting firm Deloitte and who serves on two university boards, provides context: Higher education, he says, “may have some parallels with a few other industries which drift along for quite a period of time with business models which have become obsolete, but do not transform until some tipping point is reached.” He thinks that “one of the greater overriding issues is lack of strategic focus. In other words, virtually every institution is trying to do everything for everybody. It is not clear at all that we can afford that. I believe we will see a push for more consolidation, greater shared services and expanded e-learning.”

Today, public higher education seems to have reached that tipping point. Nowhere is that more apparent than in California, which accounts for one in seven dollars spent by the states on higher education nationally. This past year, the Legislature cut appropriations for all higher education by $1.5 billion, or almost 12 percent. The situation is so bad that California State University officials announced in March that they had decided to freeze enrollment at most of the system’s 23 campuses until the results of a November referendum on raising taxes are known. In the meantime, every applicant will be wait-listed. Usually about 70,000 students apply each spring; in the fall, it is 10 times that. If the referendum is defeated, enrollment will be cut by at least 20,000 students.

The separate 10-campus University of California (UC) system has not frozen enrollment, but failure of the referendum almost certainly will lead to reductions in the number of students allowed in and even more hikes in tuition, which already has doubled in the past six years. UC-Berkeley, the system’s flagship and arguably the most outstanding public research university in the country, is suffering. State aid as a share of total revenues has plummeted from 47 percent two decades ago to 11 percent.

In fact a year ago, UC-Berkeley became the first public university to join the elite “$50K club” of the 100 highest priced schools, all costing more than $50,000 for tuition, fees, room and board. Berkeley’s charge of $50,649 applied only to out-of-state students, as opposed to about $28,000 for in-state, but if current trends continue that charge will apply to a larger percentage of the student body as the university seeks more tuition revenue.

The Golden State hardly is alone. The tipping point is prompting very different reactions in many states. The differences say a lot about state traditions, values, demographics and politics.

In Florida, state spending on higher education has dropped by almost one-quarter in just four years, and the state’s 11 public schools have raised their tuitions by 15 percent in every one of those years.

Colorado is a relatively small state in population — about 5 million residents. So it’s hard to run a university that can be “everything for everybody” as Deloitte’s Campbell put it. With less than 7 percent investment from the state, the University of Colorado at Boulder’s strategy as a constitutionally chartered school in a semi-private reality is to raise a lot of private money, increase tuition, depend more on out-of-state students and cut programs. The university regents voted five to four last year to close its journalism school.

The University of Washington in Seattle has another strategy, having a lot to do with its geography. The university is admitting so many foreign students, most of them from China, that those students are subsidizing one-quarter of the freshman class from low-income families. A report in The New York Times notes that the 18 percent of the class from abroad pays tuition of $28,000 a year, or three times as much as in-state students. Indeed, it is becoming a national trend: The number of Chinese students migrating to U.S. public campuses (almost 60,000 at last count) is now six times what it was fours years ago, and they all are paying a premium for tuition.

The University of Michigan’s flagship in Ann Arbor has served as a bright beacon of success in a state ravaged by the decline in manufacturing in recent years. The state now contributes only about 6 percent to its revenues. About half its undergraduate and graduate student body are from out of state, paying around $35,000 in tuition — or three times what in-state students pay. The results of the school’s changing demographics are predictable. One measure of economic diversity of a campus is the percentage of students who receive Federal Pell Grants. In Ann Arbor, it’s about 12 percent, as compared to roughly 30 percent of students at UCLA or UC-Berkeley.

Last year, the University of Wisconsin-Madison, facing $250 million in cuts in Gov. Scott Walker’s budget, made an abortive attempt to separate the flagship school from the rest of the university system. It caused such a kerfuffle that the chancellor left to take a job as president of Amherst College. Only months later, the president of the University of Oregon was dismissed by the State Board of Education after he pushed aggressively for more autonomy for his school.

What the universities in Wisconsin and Oregon were seeking had been achieved seven years earlier in Virginia by the state’s three elite schools — the University of Virginia (UVA), the College of William & Mary and Virginia Tech. They in effect accepted lower funding levels from the state in return for more flexibility in running their institutions. So now, the state covers a little more than 7 percent of the costs at UVA. Funding levels at the other two campuses have dropped as well, but more modestly.

Leaders in both Virginia’s Legislature and university system shy away from the term “privatization,” preferring to call it “restructuring.” When the new arrangement was finalized, the university embarked on an ambitious $3 billion fundraising drive, which was largely successful despite the recession. The other part of the strategy is evident at the College of William & Mary in Williamsburg, where the president, Taylor Reveley, is blunt about his approach. If the state continues to cut spending, he says, let the market determine college tuition. The current total cost including tuition, fees, room and board for in-state students is $22,024; for out-of-state students, it is $44,854. The out-of-state figure may be pushing the limit, so boosting the bills for in-state students is the best alternative. Part of that increase in revenue, Reveley adds, will be used to provide more financial aid to middle- and lower-income students. The state money will continue to dwindle, he predicts, so “we’ve got to pursue other means of sustaining ourselves.”

That is the challenge all public university executives now face: How to preserve the integrity and reputation of their flagship campuses as state revenues disappear. What is the new model for growing revenue while maintaining academic standards? How can you preserve some degree of equity in admissions, since financial aid is limited and a growing share of out-of-state and foreign incoming students are able to pay considerably more? The answers can be difficult, in large part because they often collide with traditional institutional values.

The existing higher education system’s vocal critics are increasing, particularly among conservatives. Political commentator Pat Buchanan is probably the most blunt: Higher education, he asserts, is “one of the biggest rackets going today.” In the view of Buchanan and others, university administrators make too much, professors don’t work hard enough and they teach too much stuff that students don’t really need. On top of that, too many of them are radical leftists intent on indoctrinating their students.

The academic underpinnings for that critical view come most prominently from Richard Vedder, a self-described “dyed-in-the-wool conservative” who is a retired economics professor from Ohio University and director of the Center for College Affordability and Productivity. His message is that state support for higher education is falling fast, so the schools are being forced to privatize, which is a good thing. “I’m increasingly thinking the government should get out of the business of higher education,” he has said, noting in his blog that the “prestigious state universities that are the pride and joy of American public higher education have largely lost sight of the mission to serve the poor residents of their state.” He cited the University of Virginia as an example of a public school with student demographics that now match those of Princeton or Yale. Virginia and the universities of Colorado and Michigan are his “prime cases for privatization.”

Not all the criticism is ideological. Early last year, the University of Chicago Press released Academically Adrift: Limited Learning on College Campuses, a book full of data and analyses from student surveys concluding that substantial percentages of students are not learning much in college. For many undergraduates, the study asserts, “drifting through college without a clear sense of purpose is readily apparent.” The main reason for the poor showing? A lack of rigor. Too many courses do not demand much reading, writing or studying, and the students in those courses show the least progress in critical thinking, complex reasoning and writing skills. Federal mandates on testing or curriculum rarely work, it concludes. Colleges have to stop just enrolling, retaining and graduating students, and concentrate on educating them.

This year, another influential critique was published. We’re Losing Our Minds: Rethinking American Higher Education picked up where Academically Adrift left off. Written by two former academic administrators who see themselves as “friendly critics,” it is more prescriptive. There needs to be a dramatic change of culture in higher education, they assert, because right now it does not foster or reward higher learning. Instead, it concentrates on what they call “throughput,” or the process of recruiting, admitting, enrolling, retaining and eventually graduating lots of students. They also make it clear that political pressure to improve efficiency, lower costs and improve the throughput system is not the right course. Instead, higher education must improve value by increasing the quality and quantity of learning, and that is not as easy as meeting some new throughput or output metric.

The University of North Carolina’s Thorp takes much of the criticism contained in these two books seriously. It’s true, he says, that the metrics used in higher education often are based on quality of inputs and outputs rather than outcomes. “A large number of students are not defined by academic work, and higher ed needs to face up to that.”

The problem, he says, is that “we are not creating enough of an immersive academic experience. The performing arts probably are doing the best job of this. Scientists can achieve it. We need more of that from everyone.”

Thorp has the kind of strategic focus that Deloitte’s Campbell spoke of. He sees four points to concentrate on: First, examine the quality of how we’re teaching, and what is the purpose of undergraduate education? Second, take a hard look at our financial aid system to make sure it’s aiding those who need it most. Third, control our costs as best we can. And in research, make sure what we are studying is optimized. Are we solving problems?

He does not buy the prediction from some critics like Vedder that the entire public higher education system will look very different in 10 or 15 years. The flagship universities will “all still be there,” he thinks. But administrators still have to face up to the idea that students are not getting everything they should. To his way of thinking, the classroom experience is important — if it’s close and personal. Otherwise, it can be done online. “If losing the immersive nature of residential undergraduate education isn’t that important, then you’re not giving anything up by taking classes online.”

Thorp agrees that the continued “privatization” of universities like Berkeley, Michigan and Virginia probably will continue, but adds, “My objective is to avoid that, and UNC is in a good position to avoid it. The California schools used to look just like us only five years ago. Now they’ve had significant increases in tuition and still have lots of problems. Are we sure the only way to go is by raising tuitions and adding more out-of-state students? We’ll try some of that, but there’s no magic bullet.”

The current syndrome, he says, is that there always is a group of students in pursuit of the “prestigious universities and are willing to pay for it. So these schools can continue on. Most other schools are aspiring to be in that group. They all can continue to do things that way, and others will follow.” At what point, he asks, “does a school like UNC say, ‘We’re not going to do this anymore, we’re going to get off the merry-go-round?’”

The answer is unclear, but Thorp is undaunted. “This is an exciting time in higher ed,” he says, “a great time to be in my job.”