Finance crunch in US universities

It should be no news that American universities are facing a financial crunch. In today's economic scenario, one would expect state funding to be cut and donations not easy to come by. One would also expect universities to cushion the impact through higher fees. All three are happening, as an article in the Economist points out.

The details are interesting (and both these are quotes from the journal):

• The average cost of college per student has risen by three times the rate of inflation since 1983. The cost of tuition alone has soared from 23% of median annual earnings in 2001 to 38% in 2010."
•  Federal support for higher education remains at historically high levels, but states have cut back

The article contains an interesting nugget: for-profit universities (which are doing well) also get subsidies from the government. Apart from raising fees, universities are responding by trying to prune administration costs and merging colleges across various campuses.

But raising fees forever cannot be an option. How are universities to restore their finances? One answer may be to eliminate extravagant expenditure on libraries, hospitals and the like (they need some of these but can make these facilities more utilitarian). A more radical option may be to make research focused on specific goals or to reduce the size of tenured faculty. In other words, a new balance between teaching and research may have to be found. US universities will balk at such solutions on the ground that they would lose their pre-eminence. But then they may find that a full-blown financial crisis forces even more unpleasant solutions.