College education provides skilled labor to the economy of a state. In the developed world, there is a long tradition of public funding of college education, much of it at the state level, mostly at public institutions. The question is whether it is more efficient to fund public institutions or to subsidize private colleges. This issue is important, as states face increasingly tight budgets, as the nation faces the demographic shifts which are predicted to lead to a skilled labor shortage, and as the level of international competition increases.

State colleges tend to have differential tuition and admission standards for in- and out-of-state students. What is missed is the differential local impact these students have through their spending. In particular, all tuition, room and board, and incidental spending for out-of-state students is new spending for the state and will have a marginal impact on the local community. For in-state students, incidental and board spending is new to the college community, but not to the state. Thus, this spending should not be included in the impact analysis on the state.

With the higher out-of-state tuition, the price disadvantage of private colleges will be less for out-of state students. Thus, private colleges will not be as disadvantaged with respect to out-of-state students.

Thus, it is expected that private schools will have a higher percentage of out-of-state students, increasing the (marginal) local impact of student spending. In this study, we evaluate this difference in impact of the in-state and out-of-state student spending for both public and private colleges in. Then we incorporate the differential in-state percentages to assess the difference in the local economic footprint per student. An additional factor that will be considered is any difference in the percentage of graduates who stay in the state and add to the local stock of skilled labor. The ultimate goal is to assess whether these differentials justify subsidizing private provision of higher education as an alternative to public provision. Admission policies of public institutions could be modified to have the same (revenue and local) impacts. However, the political implications may not allow this. Part of the tuition policy is related to an ex-post subsidizing of students who are (or whose parents have been) paying taxes. An alternative view would be subsidizing out-of-state students attracts new money to the state and adds to the local stock of human capital without having to pay for their pre-college education. This study will add to our understanding of the financial implications of public funding for public versus private provision of higher education.

Selected References

Courant, Paul, “The Public Role in Higher Education,” _National Tax Journal_, June, 2006, 59, 2.

Kärkkäinen, Kiira, “Emergence of Private Higher Education Funding within the OECD area,” OECD.

Levy, Daniel C., “Public Money for Private Higher Education, _International Higher Education_, Number 49, Fall, 2007.Winston, Gordon, “Subsidies, Hierarchy and Peers: the Awkward Economics of Higher Education,” _Journal of Economic Perspectives_, 13, #1, Winter, 1999, 13