As the politicians and pundits debate whether the U.S. Supreme Court’s recent affirmative action decision allows the University of Michigan to discriminate according to race, a clear form of discrimination is being overlooked. Officials at U of M and other elite public universities give students from richer families what amounts to a tax-free subsidy at the expense of the poor. How? By artificially pricing tuition at well below market costs.
To most people it seems like such policies would help poorer students. In fact, it does precisely the opposite. Instead of making college less expensive for those unable to pay high tuition, charging less than market value for higher education leaves universities without the financial resources to offer adequate assistance to these students. Meanwhile, the policy makes it far easier for children of rich parents to attend the school.
Consequently, according to a recent article in the Detroit Free Press, over 51 percent of the University of Michigan’s freshman class comes from households with incomes above $100,000 per year. Yet, only 12.7 percent of Michigan households earn such incomes, according to calculations using 2000 Census figures. This economic disparity is ignored by social policy activists and lawmakers alike. As former president of the school James Duderstadt has said, the University of Michigan is more segregated by class than by race.
According to U of M’s admissions office, students considering Michigan also consider schools such as Northwestern, Cornell, the University of Pennsylvania, and Duke. But how can they? All of the latter are elite private institutions with tuitions ranging from $27,988 at Penn to $29,350 at Duke — compared to $7,298 for in-state residents at UM.
They can because most students who can afford to attend U of M come from families with relatively high incomes. In fact, an academically gifted but poor student from Detroit can pay even more to attend the University of Michigan than to attend these other private institutions. This is because state universities have fewer financial resources with which to offer tuition reductions to needy students.
To its credit, Michigan does pledge to meet, through its own resources, the financial needs of all in-state students. However, its financial packages are frequently filled with massive student loans and work-study. By contrast, universities with high tuition are able to charge wealthier students more and, in turn, offer greater gift aid and tuition reductions to needy students.
Some will argue that low tuition rates are the result of state subsidies. Yet, according to the University of Michigan Budget Office, only $324 million of Michigan’s $3.6 billion budget, or less than 10 percent, comes from the state. This fact led James J. Duderstadt, author of “The Future of the Public University in America,” to remark that the University of Michigan is the nation’s first privately financed state university.
It makes no sense to hold tuition below market rates if it doesn’t achieve the goal of giving a financial leg up to students from poorer families. Fortunately, since Michigan’s Constitution confers independence on the state’s three major universities, solutions can be implemented by a simple vote of the university regents.
They should vote to:
Adopt a high-tuition/high aid policy. U of M should charge market rates for tuition and at the same time guarantee to meet the financial needs of all its students.
Spin off the university’s Medical Center or merge it with a private health care system. The hospital is a $1 billion-plus enterprise not related to the university’s core mission of teaching and research. Worse, any financial stress in the hospital system may require raising student’s tuition to offset losses such as uninsured medical care.
Eliminate informal rules regulating the percentage of in-state vs. out-of-state students. Currently, there is an unwritten cap limiting out-of-state students to 35 percent of the undergraduate population. Admission should be based on academic merit and contribution to the university community. Arbitrary caps punish gifted students, prevent the migration of bright students to the state, and hinder development of the university’s financial resources.
The realities of economics often are counterintuitive. Although it seems like charging less tuition would help poor families, charging less for something that costs more means the shortfall must be made up somewhere else. One look at the numbers tells you who’s getting the short end of the stick: the very families lower tuition was supposed to help.
(Lance J. Weislak is a Phi Beta Kappa graduate of the University of Michigan, a student at the University of Chicago Graduate School of Business, and an adjunct scholar with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland. More information is available at www.mackinac.org. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliation are cited.)
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
Please consider contributing to our work to advance a freer and more prosperous state.