Illinois’ growing financial troubles have created a significant problem for students attending state universities who are now paying more in tuition than ever before even as taxpayers are spending more per student, according to a recent article in U.S. News and World Report.
The article, entitled “Despite Increases, States Spend Less on Higher Ed Than Before Recession,” reports only Wyoming and Alaska state taxpayers spend more per student than Illinois on higher education subsidies.
“Illinois is clearly an extreme case,” Ivan Osario, editorial director for the Competitive Enterprise Institute, told the Higher Education Tribune. “Its pension problems are worse than most states, But this is a problem that’s really hard to avoid with defined pension benefits that don’t have any sort of mechanism or controlling costs, and it’s not just in public universities. You have state and local governments that are facing ballooning personnel cost not just from current workers but from retirees whose pensions have to be paid.”
According to State Higher Education Executive Officers, Illinois higher education funding has skyrocketed by 49.5 percent over the past five years -- higher than any other state. By 2014, Illinois was spending $12,293 in funding per student compared to $8,223 in 2009.
For the 2014-15 school year, in-state, undergraduate tuition at the University of Illinois at Urbana-Champaign sat at $15,602 – the second-highest among Big Ten universities.
Unfortunately, students are unlikely to experience much relief anytime in the foreseeable future given the state’s pension crisis and looming higher education cuts. The pension crisis alone is crippling higher education institutions because a huge portion of state funding is being allocated to employee pensions.
Osario said the long-term solution is to move to a different system – either hybrid or defined contributions where employees take control over their retirement accounts rather than getting open-ended payouts.
“Sometimes you end up with no relation between what’s paid in and what’s paid out," Osario said. "You have to tie the two together if you want to bring payouts under control."
One way to do that is to move to defined contribution systems so pensions can’t pay out more than someone pays in.
“Utah has an interesting before-model," he said. "They basically continued to pay out existing obligations but closed out that system to new hires. So new employees got a choice of defined contribution plans. Existing employees were able to get what they were promised because they were already in the system. But what that did is the state stopped digging a hole which is clearly the first step you have to do before you can climb out of it."
When it comes to Illinois, however, the students seem to be paying a steep price for the lack of pension reform.
“I think that’s a very good case for reform – to basically allow state aid to go to people it’s supposed to be aiding, which is students attending the universities." Osario said. "As far as the universities themselves, it seems they have just been put in this position where they have no choice but to increase tuition. So the burden is really on the state to reform the pension system because until pensions are reformed, I don’t see what other option the individual schools have."
Interestingly, the Young Invincibles, a prefunding advocate, characterized Illinois’ higher education tuition budget as “a slight overall uptick” – a description not supported by reports.
The obvious concern for many is how these increases affect taxpayers.
“For the average taxpayer, first it means there’s a possibility that lower taxes aren’t on the horizon because there’s this obligation that the state is obligated to pay – and it’s just to keep meeting its current obligation," Osario said. "They’re throwing money so they can stay in place. From a broader economic perspective, it’s also not good for a state’s business environment because these pension obligations mean in the long run, potentially higher taxes which is not attractive for businesses that might be considering locating in the state."
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