Competition is good.
In sports, competition forces athletes to strive harder and get better in order to succeed. In business, competition encourages firms to serve the needs of their customers more efficiently. Likewise, more competition in Oklahoma's higher education system would be beneficial.
In FY 2009, the State Regents for Higher Education will allocate nearly $900 million to support Oklahoma's public colleges and universities. Unfortunately, the method by which these funds are allocated limits the degree of competition in the higher education system.
This occurs for two reasons. First, the current system mainly benefits the public colleges and universities, thereby limiting the competition these institutions face from private schools. When one considers that the purpose of higher education funding is to help Oklahoma's students learn so that they may become more productive, creative, ethical, and engaged citizens, there is no reason to exclude private schools. There is no reason that a degree from the University of Tulsa is less worthy of support than a degree from the University of Oklahoma. There is no reason that an OCU education is less beneficial to Oklahoma than a UCO education.
In fact, students choose to attend a private university because for those students, the private university best meets the students' needs. Whether it is because of a unique location, a special program, smaller class sizes, or other student services, private universities offer their students important and valuable benefits — many of which should be emulated by Oklahoma's public universities. Unfortunately, by not providing equal support to Oklahoma's private universities, the state is effectively limiting the competition public universities face from private institutions. That lack of competition creates less of an incentive for Oklahoma's public institutions to improve.
The second way the current system limits competition for students is that the system creates a disconnect between enrollment and funding. Under the current system, state funding to public institutions is determined by a funding formula that does not make sufficient adjustments for enrollment changes. As a result, if a university enjoys an increase in enrollment, the state funding does not adjust enough to keep per-student funding from falling. Unfortunately, this means that universities that more successfully meet student needs are not financially rewarded for doing so. This can hardly be an optimal public policy.
The good news is that it does not have to be this way. There is an alternative that would promote competition and be simpler, too. Suppose instead of giving money directly to the institutions, we gave it directly to the students in the form of higher education vouchers. These vouchers could be used as a tuition credit at any Oklahoma college or university — both public and private. Notice that, under such a system, the more students a university is able to attract and retain the more revenue it will receive. Essentially, the money will follow the students.
Under such a system Oklahoma universities would have a strong incentive to recruit and retain Oklahoma student — which is exactly the outcome we want.
It turns out that we do this already with higher education, albeit on a smaller scale. Oklahoma's Promise, formerly known as OHLAP, promises to pay 100 percent of tuition costs for students who qualify, and a portion of the tuition at private universities. The Oklahoma Tuition Aid Grant and the federal Pell Grant programs give low-income students a grant to offset some of their tuition. Each of these programs is essentially a higher education voucher that allows the student recipient to determine where the money will go. The money follows the student.
If we truly want to encourage Oklahoma's colleges and universities to recruit and retain Oklahoma students, then we should use a voucher system modeled after Oklahoma's Promise for all of the state funding that goes to Oklahoma's colleges and universities. Since the cost of delivering educational services differs from the research institutions to the community colleges, the vouchers could provide different tuition discounts at different tiered institutions. For example, all Oklahoma residents attending OU, OSU, and the University of Tulsa should receive equal voucher amounts. However, Oklahoma residents attending any other four-year institution should receive a smaller voucher amount.
By placing the focus where it belongs — on the student — a system of higher education vouchers effectively rewards institutions for attracting and retaining students, thereby increasing the competition for students. As a result, Oklahoma's higher education institutions will respond by finding new ways to meet the needs of students-a policy goal we should embrace. All we have to do to reach this more competitive, innovative, and simpler future is to let the money follow the students.
Mickey Hepner (Ph.D., University of Oklahoma) is an associate professor of economics at the University of Central Oklahoma. He was named the 2007 Oklahoma Professor of the Year by the Carnegie Foundation for the Advancement of Teaching.
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