Higher ed-aches: states are searching for ways to control the ever-increasing costs of a college education.

• Author: Weiss, Suzanne
• Position: HIGHER EDUCATION

Today, nearly 60 percent of the 20 million Americans who attend college each year borrow money to help cover costs. Tuition is skyrocketing, state funding is sinking and the average student borrower graduates with more than $26,000 of debt. Loan default rates are rising, and only about half of those who start college graduate within six years. That's why a growing number of states are taking a radically different approach to funding colleges and universities that could change forever the way we look at higher education.

At a time when a college education has never been more expensive--more important--a rising chorus of critics argues that many students are graduating ill prepared for a rapidly changing and increasingly competitive job market.

"Our higher education system is antiquated--we have to face it," says Senator Dean Cameron (R) of Idaho. "These schools are providing students with degrees, but with degrees that will not necessarily get them a job. Up until now, it feels like all we've done is chase down rabbit trails here and there, looking for ways to make the system more functional, but it just ends up being an exercise in futility." Idaho is one of the states that are considering, or have already established, a new way to fund public colleges and universities.

"We've tried to protect our higher education system here in Idaho," he says. "We know it's an asset and how important it is to our future. But the demands on our tax dollars are so great right now that colleges and universities simply have to figure out how to deliver a better product. I'm not sure what it's going to take to make that happen, but it needs to happen."

Declining Subsidies, Rising Tuitions

State appropriations have historically been the most important source of funding for higher education, but over the past two decades that support has steadily waned.

Between 1987 and 2012, in real dollars, government support for public colleges and universities declined from $8,497 per student to $5,906 per student, according to the latest report of the State Higher Education Executive Officers (SHEEO). In the past five years alone--since the onset of the Great Recession--state fiscal support for postsecondary education has fallen 10.6 percent nationwide, with cuts ranging from 4.5 percent in South Dakota, to nearly 50 percent in Arizona, Florida and New Hampshire.

As state subsidies declined, institutions made up the difference by raising the price of attendance, shifting costs that once were a social investment onto students and their families. Since 1990, tuition costs at public four-year institutions have increased by 112 percent and at community colleges by 71 percent. Today, tuition constitutes roughly half of postsecondary institutions' educational revenues, compared with just 23 percent 20 years ago.

With rising tuition and stagnating incomes--the median household income grew by just 2.1 percent over the past two decades students and their families have taken on record levels of debt. Student loan debt in the United States has nearly tripled since the mid-2000s, topping $1 trillion and encompassing roughly 39 million borrowers. It is now the largest form of consumer debt outside home mortgages.

At Least a Slowdown

The latest report by the College Board shows that tuition continues to rise, but at a somewhat slower rate--2.9 percent at public four-year institutions and 3.5 percent at community colleges in the 2013-14 school year. The slowdown is due at least in part to higher-education budget increases in many states in 2012 and 2013--modest increases, for the most part, but exceeding 10 percent in five states, according to a recent NCSL report on state budget and tax actions.

The new funding reflects a brightening financial picture in many state capitols. Tax revenue in 47 states rose in 2012 by an average of 4.5 percent, U.S. Census data show. "Historically, funding for higher ed...