Artificially low tuition retards Nevada higher education

The state—to its detriment—boasts the country’s cheapest tuition

Governor Jim Gibbons' State of the State address and proposed budget provoked a great deal of ire from proponents of the Nevada System of Higher Education. 

The proposed budget would lower funding to the system by $473 million over the next two years.  The cuts reportedly prompted NSHE Chancellor Jim Rogers to say, "I would blow my brains out if I thought this was going through."  The Chancellor's suicidal tendencies aside, all the fulminations are largely unwarranted.

According to data maintained by the National Center for Educational Statistics, Nevada boasts the lowest tuition rates in the country.  In fact, NCES data shows that for 2006-2007, the last year for which data is available, the cost of tuition and mandatory fees at Nevada's public four-year universities was only 50 percent of the national average.  In other words, students in the system are subsidized more than any other group of students in the country and pay only half of what the average American student pays to go to a subsidized university.

If Nevada were to raise the price of tuition and fees paid by students to the national average, this would generate an additional $102,279,421 in each year of the two-year budget—coming to $204,558,842 for the biennium.  Additionally, if NSHE raised those prices to a level comparable with Vermont, there would be an additional $307,070,614 in revenue per year—resulting in an additional $614,141,228 over the course of the biennium.  This amount would not only offset the proposed cuts, but would provide the system with $141 million more in funding than the system enjoyed in the 2007-09 biennium.  Table 1 shows the total annual revenue that NSHE could generate if it were to charge tuition and fee rates similar to those of the national average or the state of Vermont.

Table 1

Rate	06-07 tuition and fees (4-year)		Number of Full-time Students	06-07 tuition and fees (2-year)	Number of Full-time Students	Total Annual Student Revenue
Nevada	$2,844	32,607		$1,695	29,947	$143,944,473
National Average	$5,685	-		$1,935	-	$243,318,240
Vermont	$9,783	-		$4,204	-	$444,891,469

The exceptionally low rates for tuition and fees charged by NSHE have several important adverse impacts that would diminish if the rates were raised.  First, exceptionally low rates for tuition alter the incentive structure for state residents in a perverse way.  Because state residents are not directly responsible for most of the cost associated with their education, they become more likely to fool around on the taxpayers' dime, wasting the resources that make the schooling possible. 

Earning a college degree requires a significant amount of time and money.  When college students are faced with the full cost of a earning a degree, they are more likely to pursue degrees that society values more—because those are the degrees that generate higher returns on the student's investment of time and money. 

There is generally greater demand within society for engineers, for instance, than for art history majors.  As a result, those graduating with engineering degrees can expect a higher salary—which merits their investment of time and money in the degree.  When students do not face the full cost of obtaining a degree, they are more likely to spend their college time frivolously.  Yet, someone is forced to bear the costs involved, and a dead-weight loss follows when incentive structures induce students to not be serious.

Public university systems also often force low-income families to subsidize education for the children of wealthy families.  Many of the revenue streams from which Nevada's tax dollars come are regressive—taxes on alcohol and tobacco are examples—and regularly eat up a higher share of income for lower-income families.  Additionally, children from higher-income families are more likely to attend college than children from lower-income families.  Lowering the subsidized portion of college costs in Nevada would go far toward curtailing this regressive impact.

Finally, the artificially low tuition rates charged by the NSHE discourage private universities from coming to the state.  It is no surprise that a state with such exceptionally low tuition rates at its public schools has no major private university.  Those low rates crowd out the market for private universities, producing a major negative impact on the quality of higher education in Nevada.  With no major private universities to compete against, the public universities and colleges have no pressure to improve the quality of their own educational curricula.  The best thing NSHE can do to improve higher education in Nevada is raise its tuition rates to allow competition from the private sector.

Raising tuition rates throughout the Nevada System of Higher Education is long overdue.  Artificially low tuition has produced negative consequences for Nevada.  NSHE should look to raise tuition rates to at least the national average if it wants to improve educational performance and the quality of Nevada's workforce.  To this end, the governor's actions should be applauded, not bemoaned.

Geoffrey Lawrence is fiscal policy analyst at the Nevada Policy Research Institute.

Tags: Education, Fiscal, Budget