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Grumpy Old Accountants
Privatization of University Education: Impact on the Accounting Profession

March 2012The great experiment in public higher education has failed. Over a century ago, states created public universities and supplied much of their financial support. The idea was to develop the intellectual prowess and skills of the citizenry, so that they might contribute more to the marketplace and public interest. Today, the dream is dead and we wonder what the impact will be on the accounting profession.

Public higher education used to depend on state appropriations; today those appropriations fund only a small percentage of a school’s total operating budget.  As Tamar Lewin wrote in The New York Times, “… state colleges and universities, supported by tax money, have long been a haven from the high cost of private education. But tuition bargains are fading as the nation’s public universities undergo a profound shift, accelerated by the recession. In most states, it is now tuition payments, not state appropriations, that cover most of the budget.”

In addition to the recession, states increasingly have to deal with ballooning pensions and a variety of entitlement programs.  Indeed, watching state legislatures at this time of year creates a certain pathos.  One feels sorry for governors and state legislators given the pitiful condition of their budgets, even though most of the pain is self-generated.  Many states have been spending beyond their income and politicians often have promised beyond their financial capabilities.  No wonder former Michigan president James Duderstadt said, “It is a misnomer to call schools like the University of Michigan ‘state universities.’”  These organizations are looking more and more like private schools.

Penn State is another example.  In academic 1971-1972, 62% of the general funds budget was furnished by state appropriations and 32% by tuition and fees.  By 2010-2011 things changed considerably: state appropriations supplied only 14% of the general funds budget while tuition and fees made up 78%.  And the future likely will include more reductions in state appropriations.

We don’t see a reversal of this trend any time soon as state economies are facing monstrous problems in their economies and social commitments.  While we expect few universities formally to forsake public charters in favor of private charters, the continued erosion of state support will accomplish this result nonetheless.  Tuitions likely will skyrocket and new scholarships won’t make up the gap, causing some students to forego college.  And many students and their families already have borrowed to the hilt; they do not have room for more debt and are defaulting on the loans they currently have.

Students simply won’t be able to afford a private education.  We cannot predict how many of our young people will be denied a university education, but it might be just enough to jeopardize the existence of some colleges and universities.  After all, there will be fewer students.  This may not be bad as higher education today has a much greater capacity than justified by the current demand.

And what will happen to the accounting profession?  After all, accounting firms rely on universities to supply their junior accountants.  The first thing we expect is that the much-discussed impending shortage of faculty will improve in the short run.  Some faculty who had planned on retiring will postpone doing so given that their retirement accounts are not fat enough, particularly with the major risks facing the American economy, including the threat of inflation.  However, in the long run, the faculty shortage will exacerbate as fewer people seek a doctoral education in accounting as higher education markets contract.

As for the student body, we expect fewer and less diverse students.  Many lower income families will simply be unable to afford higher education.  And there are not enough sources for new scholarships to make up the difference.  Alternatives might become more attractive, such as online education or technical schools.

What this means is that the accounting profession might have to look to other candidate pools to fuel its needs for new associates.  For example, students at more affordable online institutions might become attractive to the accounting firms.  The situation is further complicated by the fact that many private school students don’t find the accounting profession a suitable job choice…after all, accountants provide services to their wealthy parents.

We do not have the data to make projections, so we cannot quantify the effects or the timing of these transformations.  What we do know is that state budgets face severe structural problems, and these problems will not be easily or quickly addressed.  State support has blown away like sand in a sandstorm and, de facto, public universities are turning into private schools.

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This essay reflects the opinion of the authors and not necessarily the opinions of SmartPros, The Pennsylvania State University, The American College, or Villanova University.

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