Enrollment at Arizona's three main state universities is projected to increase from 115,000 to 185,000 students by 2020. Under the existing higher education finance system, state and local appropriations to Arizona public universities and community colleges amounted to $1.3 billion in fiscal year 2003 just for operating expenses, which exclude capital and construction funding. Arizona's projected enrollment growth could almost double those appropriations in real terms to an estimated $2.4 billion in 2018. Adding to the strain of Arizona's student enrollment growth is the state constitution's mandate that public postsecondary education in Arizona be as nearly free as possible.
Drawing upon Arizona's existing Private Postsecondary Education Student Financial Assistance Program (PFAP) and Colorado's College Opportunity Fund, this study outlines how a student-grant system of higher education finance could be implemented. Such a system would fully utilize private institutions and save between $7,000 and $14,000 per student annually because private institutions receive no state or local appropriations for capital, construction, or operating costs.
Giving grants directly to students would expand their education options and would help make the delivery of higher education in Arizona more efficient. Under such a system, students could use their higher education grants at any postsecondary institution, public or private, giving institutions powerful incentives to keep costs and tuition prices down or risk losing students to competitors. Beginning in 2006, the $1.3 billion in lump-sum state and local appropriations to public postsecondary institutions for current operating expenses could instead directly fund full-time resident undergraduates in the form of grants; $8,000 annually for students enrolled in four-year institutions, and $5,000 annually for students enrolled at two-year institutions, public or private. Remaining intact would be the $2.4 billion in revenue public institutions currently receive each year from tuition and fees, as well as local, state, and federal grants for capital and special projects, private gifts and grants, and endowment revenue. The proposed system could provide higher-education grants for 100 percent of Arizona's in-state undergraduates and would yield an estimated average annual savings of $768 million.