A New Pattern for the Finance of Higher Education

by Thad L. Hungate - 1947

The study of the finance of higher education is a study of the investment of capital—individual and social. The author discusses how higher education is controlled and what it costs, and offers proposals for more effective financing.

WHEN a father decides to send his son to college, he has undertaken to invest capital in him; when a state decides to provide higher education for its youths, it has undertaken to invest capital in them. The study of the finance of higher education is a study of the investment of capital—individual and social.1

We are all aware of a deepening public interest throughout our country in the development of higher education. This interest has grown with the growth of secondary education. It has grown with our concern over the solution of those domestic problems that arise with the advance of our technology. It has grown with the increase in our sense of responsibility for world leadership commensurate with our resources. In the years ahead our institutions of higher education not only must train larger numbers of students, but must train them for more effective participation in a world society that is becoming increasingly complex.

This year over two million students were enrolled in institutions of higher education—more than eight times the number enrolled at the turn .of the century. It is predicted that by 1960 the number will reach three million. Without doubt, this calls for the greatest development in higher education the world has ever seen.

To make sure that existing financial policies for higher education are designed to strengthen the American social policy of democracy, we must examine practices, and we must weigh them against our needs. If we find shortcomings we may then re-examine our objectives, modify organization, reallocate responsibility, and change procedures.

It would be difficult to outline an area of study as complex as the one to be discussed. There is scarcely an activity of man that remains untouched or that may not be modified by the influence of higher education. The purpose of this discussion will be threefold: first, to summarize present practices in financing higher education; second, to examine these practices in light of objectives and principles of finance deemed appropriate to the welfare of our democracy; and third, to advance proposals for more effective financing of higher education.

But first let us take note of the extent of higher education in the United States—how it is controlled and what it costs.

Higher Education Possessed and Produced

If we measure higher education in terms of the amount possessed, we find it is not evenly diffused among our adult population. For the nation as a ' whole a representative 100 adults collectively possess 26 years of college training. In the Western states the average is twice that of the East South Central states. The average for the Middle Atlantic states is slightly below that for the nation and slightly below that for the South Atlantic states. Thus, the leadership in the amount of higher education possessed is found in the newer states of the West and not in the older states of the East.

On the other hand, the amount of training being currently produced is estimated to be three times as great as that now possessed by the adult population. But this production, too, is unevenly diffused. Quantitively, the opportunities for youth vary widely from region to region. For example, in 1940—the most recent normal year for which figures are available—for the nation as a whole 15 of every 100 youth were in college. In the East South Central states the figure was 10; in the South Atlantic states it was 11. It was 17 in the North Central states and almost 25 in the Pacific states. The regions that produce relatively more of the nation's training than they possess are the Pacific states and the East and West North Central states.

Migration of students among states and regions is extensive. In most regions it appears more marked among men than among women. It has been estimated that 40 per cent of the men college graduates residing in New England have been educated outside this region, while in the Pacific states the per cent is but 14. This factor of migration is significant in fixing responsibility for financing higher education.

Distribution and Control of Higher Education

The control of our institutions may be described as multiple. We have institutions under federal, state, and city or county control. Others are controlled by private independent governing boards, or boards controlled by church bodies. For the country as a whole, about 51 per cent of the students are enrolled in institutions publicly controlled, 29 per cent in institutions under private independent control, and 20 per cent in institutions under church control. But the distribution varies from state to state and from region to region. In the older regions of the Atlantic seaboard public control reaches less than 50 per cent of the students. This is the region in which so many of the great private institutions are to be found. As to religious control, the Protestants are stronger in the South, and the Catholics in the Middle Atlantic and East North Central states. The professional schools are found mainly in institutions under state and under private independent control, while leadership in graduate work is centered in the great private independently controlled universities.

The size of the institution is important both educationally and financially. More than two-thirds of the students are enrolled in institutions with student bodies in excess of 1,000. Student bodies of institutions under church control tend to be small.

Such is the distribution and control of higher education in the United States. Altogether we have about 1,700 institutions. Their expenditures for current purposes have this year exceeded one billion dollars. This is almost double the expenditures in 1940, six times those of 1920, and almost thirty times the expenditures of 1900. Thus we see that higher education has become important not only in our social life, but in our economy as well.


With this background let us turn to existing practices in financing higher education. The sources of institutional support are everywhere the same— public funds, philanthropy, and student fees. But the aggregates of state support and the levels and patterns of institutional support vary among states and among institutions.

Limitations of State Support

All of us know that great variations exist in the abilities of the states to support education. This has been clearly shown in studies of support of elementary and secondary education. The annual income of individuals per capita of the population of New York, for example, is more than three times that of Arkansas or Alabama. There can be no doubt that institutional support of higher education correlates with such ability. For instance, the average institutional support from both public and private funds in 1940, per capita of the population aged eighteen to twenty-one, was $29 in ten states of low per capita incomes. It was $83 in ten states of high per capita incomes. But it is interesting to observe the tendency in states of highest ability for the level of support of higher education to fall below our expectation. In those states in which private support predominates, public assumption of responsibility for this support appears slow to develop. The existing inequalities among the states remain. And these inequalities are bound to remain until public finance in a major way replaces private finance of mass higher education, and federal funds augment the resources of the states of low fiscal capacity or ability.

Position of Institutions Poorly Financed

The variations in the support of individual institutions are even more marked. We may use as a measure of total institutional support the average annual expenditure per professional employee. This average for all institutions was $4,300 in 1940, but the range was from $750 to $10,000. No matter what classification we choose—whether geographic area, type of institution, or kind of control—we find an undesirably wide range in the levels of average institutional support. If as a minimum standard we choose support consistent with the median salary received by college graduates, we discover that 40 per cent of our faculties in higher education are to be found in institutions that are supported below this level and some—indeed many—fall far below it. Thus, if we assume that standards of performance in higher education correlate with cost, we are led to the hypothesis that there must exist in many of our institutions standards of performance that are unacceptable. They undoubtedly are the best that can be provided with the funds available. But such standards are bound to remain until more funds are made available for better ones, and possibly until the states exercise a greater degree of supervision to ensure the meeting of agreed upon minimum standards.

Student Fees an Economic Barrier

Now what of the sources of support? While there are many institutions that have low student fees, by and large there is a tendency in the country to require students to pay larger fees, many fees reaching to $400, $500, $600 and some even to $700 for an academic year. We find that students are being required to bear an increasing share of the burden of institutional finance. Student fees provided for 26 per cent of the current cost in 1920, 35 per cent in 1940, and an estimated 56 per cent during the current year. The shares provided by philanthropy and by public funds have declined as the share provided by the student and his family has increased. While the share of the cost burden borne by fees is estimated at present to be 76 per cent in private institutions, it is but 38 per cent in institutions publicly controlled. The trend in both types has been to increase the relative burden on the student and his family.

Furthermore, it is generally true of private institutions that the student who can pay a high fee has available an educational opportunity that costs two or three times the fee. On the other hand, for the student of limited means—who can pay but a small fee— there usually is available a low-cost educational opportunity for which he must pay the greater part.

The fee constitutes a rising economic barrier to the student and his family— a barrier which many have been unable to surmount. While entrance to our institutions of higher education is generally based on personal qualifications, there remains this test of financial means. It is destined to remain, each year limiting the number of youth, many of whom are among our ablest, who can go to college until the distribution of the burden is altered.

Role of Philanthropy

What hope is there that the mounting burden on the student and his family will be lessened by philanthropy?

At no time in our history has there been such an outpouring of philanthropic gifts by our people for all purposes as at the present time. This form of support for our social needs will this year exceed two billion dollars. The annual flow of philanthropy rises and falls as the national income rises and falls. But the evidence reveals that the proportion of philanthropy to the national income has been remarkably stable through time, and we may even hazard the guess that it will tend to increase.

Before examining the flow of philanthropy to higher education, we may note these three characteristics of philanthropy: First, it is increasingly attributable to persons with incomes of less than $5,000 per year. In the decade of the thirties this group provided one-half of the total; the proportion rose to 72 per cent by 1940 and is an estimated 80 per cent today. This means that the objectives of philanthropy are now determined by the many rather than the few and that the problem of presenting needs to donors has greatly increased. Second, the amount of philanthropic contributions per capita of the population varies widely from state to state and from region to region. As may be expected, it is great in states of high fiscal capacity; it is small in states with little means. Third, there exists a strong tendency for philanthropy to support local needs and institutions, and thus poorer states can expect little help from their rich neighbors.

What is the outlook for the support of higher education from philanthropy? Several factors are involved here. First, although the total flow of philanthropy comprises a fairly stable proportion of the national income, there is a tendency for the proportion given to higher education to decline. Second, philanthropy is becoming decreasingly important in institutional finance with the development of mass higher education. While in 1920 it constituted 43 per cent of institutional income in higher education, the proportion in 1940 was but 18 per cent, and is considered to be less today. In 1920 it amounted to an average of $158 per student enrolled; it was $74 in 1940, and is probably no higher today than it was then. Third, most of the philanthropic support flows to the universities—and to only a few of these. For example, thirty-six institutions that enroll fewer than 10 per cent of the students of the nation now hold more than half of the endowment possessed by all institutions. The fees in these same institutions are, on the other hand, among the highest in the country. There is, however, a tendency for more funds to be designated for current purposes and less for endowment, and public institutions are being increasingly favored as recipients.

Private philanthropy can no longer be regarded as a basis for financing mass higher education. Its role, now becoming more clearly defined, is to pioneer in both private and publicly controlled institutions, to maintain centers of teaching and research free of undesirable political influences, to provide educational opportunities of high quality, and to serve as a guide in the setting of standards. Its role in supporting minimum institutional standards for a substantial portion of the student body will in time cease to be important.

Thus far we have noted the extent of higher education, how it is controlled and what it costs. We have noted the limitations on support imposed by the lack of means in states of low fiscal capacities and the existence of institutions so poorly financed as to bring into question their standards. We have observed the rising economic barrier of the student fee. We have seen that philanthropy is not likely to lessen to any appreciable extent the burden on the student and his family.

Traditional Concept of Finance

Traditionally the financing of higher education has been interpreted to mean the financing of the institutions that provide the opportunities for it through their programs of teaching and research. The present provisions for veterans excepted, the financing of student cost of living has generally been considered outside the scope of public interest as expressed by appropriations of public funds. In fact, student fees have had to assume a substantial share of the institutional cost.

To understand this tradition, we must look to the social background of nineteenth century individualism in which it was nurtured. The benefits of higher education in this period were regarded as individual, not social. Small wonder that the philosophy of financing higher education assumed that the student's cost of living—as well as an appropriate share of the institution's cost—was a family responsibility. As a matter of fact, this pattern of finance reaches back through history to the time of the earliest secular universities.

But as the evidence to be presented will show, this traditional concept of financing higher education must now be abandoned. The scope of finance must include not only institutional cost but the student's cost of living as well. Education requires the conjuncture of opportunity and student—an opportunity adapted to a student's need, a student free to avail himself of the opportunity provided. Only with fiscal policy as broad as this will integration! of social and individual objectives for higher education be achieved.

It is now possible to secure a true perspective of the total annual cost of higher education, and the total distribution of the burden. The total flow of capital into higher education is estimated at more than two billion dollars in the year just closed and at more than three and a half billion dollars for the year 1959-60. In public and private institutions alike, the major burden falls on the student and his family. The student's share of the burden in 1937-38 is estimated at an average of 68 per cent of the total cost. Next year, with an estimated increase in public support, it may decline to 65 per cent. By 1960 it is expected to reach 63 per cent. Philanthropy and other private funds provided an estimated 12 per cent in 1937-38 and will decline to an estimated 8 per cent in 1959-60. Public funds which provided about 20 per cent of the total in 1937-38 are expected to bear 29 per cent of the burden in 1959-60.

It is clear that if the burden on the student is to be reduced, and if improved standards of quantity and quality of higher education are to become available for all qualified American youth, public funds must bear an increased burden. The setting for the problem thus becomes, in large measure, that of public economics. We may now consider what objectives and principles of finance of higher education are appropriate for the welfare of American democracy, and the relation of these to present practices.


The Educational Policies Commission of the National Education Association has observed that "Once created and systematized, any program of educational thought and practice takes on professional and institutional stereotypes, and tends to outlast even profound changes in the society in which it assumed its original shape." All of us are aware of the social changes that have been brought about and are under way in our country. These social changes impose on us the need to re-examine our objectives for higher education and the existing principles of finance.

The extrinsic 'features of education required for this modern world have been summarized by the Educational Policies Commission in the following terms: This education must implement the American social policy of democracy; it must lay emphasis on its social obligations; it must serve an associational economy. It must prepare youth for associational Life and activities. It must prepare citizens for participation in associational government. It must aid in upholding social values. It must recognize new functions in connection with unemployed youth. It must serve adults.

The Commission has stated the objectives of education in American democracy to be fourfold: self-realization, human relationship, economic efficiency, and civic responsibility. The aims of self-realization include the inquiring mind, clear speech, efficient reading, effective writing, facility with numbers, habit and ability to listen and observe, good habits of recreation, intellectual interests, esthetic interests, and a growing capacity to give responsible direction to one's individual life. The aims of human relationship include respect for humanity, friendship, cooperation, courtesy, appreciation of the home as a social institution, with ideals for it, skills for it, and the practice of democracy in it. The aims of economic efficiency include, for the producer, a sense of satisfaction with good workmanship, a choice of occupation based on knowledge, job efficiency acquired, maintained, and improved, and an appreciation of the social value of work. They include, for the consumer, economic planning, consumer judgment, efficiency in buying, and prudence in matters of economic values. The aims of civic responsibility include a sensitiveness to social justice, a readiness to act to correct unsatisfactory social conditions, an understanding of social structures and processes, ability to resist propaganda, tolerance of opinion, regard for national resources, zeal for the general welfare, standards for world citizenship, respect for law, devotion to democracy, economic literacy, and political citizenship.

Clearly, the objectives of higher education today are not merely the promoting of individual acquisition and enjoyment, but rather the enrichment of a democratic society through the education and training of its citizens for constructive participation and service. What principles of finance can be identified as appropriate to these objectives? Who is to be educated? How will the cost be borne? What will be the quality of educational opportunity? How widely available will it be? How will the flow of capital into higher education be regulated? And how can its functions and activities be best related to other social institutions and agencies?

Distribution of Benefits

The first appropriate principle of finance is equality of educational opportunity for those equally qualified. The criteria of entrance must not include place of birth, color of skin, or financial status of parents. In the present practice of finance there are two fundamental barriers to the realization of this principle. In the first place, from one-fourth to one-half of the families of the United States cannot afford higher education for their children. The existing pattern of finance places a heavy burden on the parent to provide both fees and living costs. In the second place, the wide divergence of fiscal capacities of the states will inevitably foster divergent quantitative and qualitative standards of student selection, as each state moves its investment in higher education to the point that the social benefit is adjudged just equal to the cost entailed. Only a fiscal policy by the federal government that will underwrite within the states the desirable standards of student selection from a national point of view can make possible the achievement of this principle of equality of educational opportunity.

Distribution of Burden

The second grouping of principles relates to the distribution of the burden. In the first place, the pattern of finance—whatever it be—should to the greatest possible degree support free exercise of choice of desirable educational policies. Undesirable practices have resulted from the imposition of the major share of the burden on the student and his family. Many students are poorly housed and fed. Many work long hours at non-educative tasks to help pay their way. Many are denied educative social experiences or guidance. The existing pattern of support has placed student standards of living outside institutional control, and this pattern—rather than educational need—has often dictated who should live at home and who at college. This pattern can be charged with lowering of academic standards in some institutions to the level that can be met by those students who must spend much of their time in earning a living. In the second place, the relative weights of public and private interest should be recognized. Under present practice the parents bear the major share of the total institutional and student living cost. But many parents cannot afford the cost, and many more make sacrifices that are socially undesirable. They do this, of course, from family affection. But it must be pointed out that the parents who so sacrifice receive little or no return on the capital they thus invest. The return accrues to the sons or daughters who receive the education and to the society they will serve. We may conclude that the par-r ties of primary interest in the distribution of the burden are the student and the state, and that their shares of the total cost should be fixed in proportion to their respective interests. Surely public interest—now demanding realization of social objectives of higher education—predominates over individual interest and, consequently, public support should exceed private support.

There are those who will at once advocate that the full cost should be assumed by the state. But care must be exercised in effecting change in the pattern of support, so that self-reliance, forethought, and deliberate and free choice by the people will be strengthened, not weakened. The young must grow in their sense of individual and social responsibility. This means that the door of educational opportunity must be capable of being opened and held open by the natural gifts and efforts of youth. It precludes a sacrifice by society without a corresponding sacrifice by youth. As we have said, the amount of sacrifice should be in proportion to interest. This is a matter of judgment, but it is suggested as a first approximation that one-third the cost—both institutional cost and student living cost—be charged to the student, and two-thirds to the state, provided the state stands ready to extend credit to needy students, to be repaid from later earnings.

In the third place, the share of the burden to be provided by public funds should be financed by the use of the progressive income tax. Such a tax, as we all know, bears lightly on low incomes and more heavily as incomes grow larger.

Quality of Educational Opportunity

Our third group of principles concerns the quality of educational opportunity. It is of course essential that quality be maintained consistent with the objectives sought. We must be sure that functions are continuously adapted to needs, that standards with respect to the quantity and quality of staff and equipment are suitable, and that democracy in administration is maintained. Standards' of quality are reflected in cost.

Availability of Educational Opportunity

Our fourth group of principles relates to the availability of educational opportunity. The flow of capital funds for the development of our human resources is to be gauged by the constant demands of maturing youth, rather than by the booms and depressions of the business cycle. Indeed, rather than curtailing the flow of funds during a business recession, society might well consider making more readily available higher education to those who possess the minimum qualifications. In addition to this principle of stability, we must look to an optimum geographic distribution of institutions, with optimum freedom for student migration.

Administration of Funds

Our fifth group of principles relates to fund administration. These principles deal with economy, with fund management, and with the control of the flow of capital into higher education. We want to be assured of the wisest use of our funds, that there is honest, careful, and businesslike management and accounting for them. We want to be assured that—all things being considered—we are spending just the right amount for higher education. Account must be taken of economic conditions, fiscal capacities, trends in employment, income and expenditures, and tax policies and programs. The question of what percentage of the nation's manpower and other resources should be absorbed in teaching cannot be ignored. Wise investment of capital in higher education as with other forms of capital requires continuous study, investigation, and evaluation. The problem at base is an appraisal of the needs of our society in terms of the aims of the democratic state and the best methods of meeting them.

Coordination of Objectives, Functions, and Activities

Our sixth and final group of principles relates to the coordination of objectives, functions, and activities. What should individual institutions do? How should they do it? How should the work be related to other public and private agencies of the community? While the necessary coordination is achieved in part by organization, in part by well-defined policies and procedures, the most important force is the wise counsel of men and women of good will.

These principles of finance are considered appropriate for the best development of American democracy. But often they do not prevail in practice. Instead of equality of educational opportunity we find wide variation in opportunities among and within the states. Instead of a burden distributed according to the interests of the student and the state, the charge to the student is often what the traffic will bear. Instead of high standards of educational opportunities, we find too many institutions with low standards. Instead of flow of capital to meet the regular maturation of youth, we find the rise and fall of expenditure in conformity with the booms and depressions of the business cycle. Desirable student migration is curtailed; much of that which now exists is impelled by high costs or low standards in local institutions. Instead of economy we find uneconomic practices. Only meager beginnings have been made in assuming public responsibility for the flow of capital into higher education. Although the need for coordination is great, there is little relationship between autonomous private institutions and public institutions, between institutions of higher education and many other social agencies, individuals, and groups, and concerning a multitude of problems. We must conclude that there as need for sweeping change in the practice of financing higher education in the United States.


Two proposals for change can be advanced. The "first has to do with change in the pattern of support of higher education. The second has to •do with the exercise of public responsibility.

If we would realize objectives for higher education appropriate to our time, the scope of fiscal policy must be broadened to include the financing of both institutions and students who attend them, and the student and his family must be relieved of the major share of the burden. This will mean a corresponding assumption of the burden by public funds.

I propose that two-thirds of the total cost be borne by public funds and •one-third by the student and his family. Credit for the student should be available as needed in order that entrance into higher education may truly be based on personal qualifications.

If such responsibilities are assumed by the public, how can they best be allocated? It appears to me that the federal government should exercise two major functions in financing higher education: first, appropriate funds to the states for the equalization of educational opportunity to a level of minimum national standard of support; and second, exercise direct responsibility for educational functions at the national and international levels. I would have the federal government discontinue all direct appropriations to institutions and individuals except those directly under federal control. I am persuaded that, in addition to the responsibilities for education now carried by administrative agencies of government, federal responsibility should be assumed for the coordination of the intellectual, educational, and cultural cooperation and understanding of our people with those of the other nations of the world, for training of federal personnel for governmental services, for fostering interstate exchange of governmental practices, and for advancing research in the physical and social sciences deemed desirable for national welfare. To administer these responsibilities, I suggest the establishment of an appropriate administrative agency by the federal government.

The individual states should assume responsibility for organizing and administering higher education within their own areas, including the determination of ends, of means, and of methods, due recognition being given to such minimum standards as may be defined by the federal government.

Recognizing that private institutions are legally secure from state interference, these guides to an appropriate relationship of the states to private institutions are suggested:

First: Public funds may not be appropriated to church-controlled private institutions, for specifically theological instruction, nor to institutions that maintain unacceptable standards.

Second: Selected private independently controlled institutions desirable in a state system may be taken under public control pursuant to their own request, and, as public institutions, receive public funds.

Third: Selected private independently controlled institutions whose functions serve to fulfill state objectives for higher education may be offered state long-term contracts, say for thirty-five years, to achieve the objects sought. Such contracts would be renewable, say ten years before their termination. This would have the effect of freeing philanthropy for pioneering in teaching and research.

The state must carefully guard its. prerogatives. Its actions must at all times be in fulfillment of its responsibilities for a satisfactory state system of higher education.

I know that these proposals are controversial. They are intended to indicate the direction of needed change, in the hope that they will stimulate discussion of an important problem now facing us. This is the time. State systems of higher education are forming now. Our concern is that in our time we may achieve appropriate policies for financing higher education.

1 A lecture given July 30, 1947, in the All-College Series at Teachers College, Columbia University. The material in this lecture is based on the author's Financing the Future of Higher Education (Bureau of Publications, Teachers College, 1946).

Cite This Article as: Teachers College Record Volume 49 Number 1, 1947, p. 19-30
https://www.tcrecord.org ID Number: 5416, Date Accessed: 12/8/2021 4:47:09 AM

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