Image: Graduation cap © Brand X Pictures-Photolibrary-PHOTOLIBRARY GROUP LTD

Related topics: college, college tuition, public colleges, college costs, education

Today's college applicants are in for a shock: Not only do their state universities cost more than ever before, but some are now turning away even some of the best local students.

The reason: budget cuts. With government funding slashed, state schools are increasingly favoring out-of-state students, who pay two to three times more in tuition than students from in the state.

This is coming at a time when, for many students, state universities represent the last chance at an affordable education.

"Unfortunately, I think the trend will continue," said Daniel J. Hurley, the director of state relations and policy analysis for the American Association of State Colleges and Universities. "It is one of many, many strategies that public universities have been engaging in" recently to generate revenue.

Brandon Stover, a Seattle high school senior, figured he was a shoo-in for acceptance to the University of Washington, the state's flagship college in his backyard.

He had maintained a perfect 4.0 grade point average, added rigorous International Baccalaureate courses to his schedule and been named class valedictorian. Still, he got the slim envelope, The Seattle Times reported.

But Stover's shock turned to resentment when he learned that the UW had cut 150 state residents from its freshman class to replace them with nonresidents -- students whose parents had not been paying Washington state taxes and who, in some cases, had weaker grades than Stover's. That was in addition to the 150 out-of-state students the university already had added.

Cutting the resident allotment wasn't an easy decision for the UW to make, administrators reported. But the state of Washington, facing a $5 billion shortfall, had sliced its contribution to the university in half, by $217 million over the next two years.

By boosting the number of out-of-state students, who pay $25,300 in tuition compared with the $8,700 residents pay, the university will generate an additional $6.3 million in the next school year. Nonresidents pay so much more, in fact, that they essentially fund the schooling of residents, who will still constitute 68% of the freshman class in the fall.

"That's just good business sense, that we need to squeeze more revenue yield out of nonresident students," said UW spokesman Norm Arkans.

Indeed, it is a perfectly rational and wise decision -- for a boardroom. But when corporate thinking prevails, what's next? The UW, founded with a mission to serve its state, still receives 45% of its core funding from taxpayers.

"If you're going to tell higher education to act more like a business, and you give them flexibility, and you offer them customers who are willing to pay three times as much for that education, it's an unsurprising choice what they're going to do," said Quinn Majeski, a senior in political science at the UW and the director of the Office of Government Relations for the Associated Students of the University of Washington. "They're going to take the customers, the out-of-state students, that are going to pay three times as much."

Dramatic shift in California

The UW is hardly alone. The University of California system, renowned worldwide for its commitment to higher education for its residents, is boosting out-of-state enrollment again to help compensate for a projected half-billion dollars in state aid cuts.

The current reduction follows $637 million in cuts two years earlier, the greatest since the Depression. After that hit, campuses practically halted faculty recruitment, raised tuition, dropped courses and enlarged classes to the point of overflowing. Educators warned that the state's economic growth was in jeopardy.

Most of those faculty members could recall when the state of California contributed 78% of a resident's education -- as recently as 1990. In a dramatic shift, students will now contribute more money to the university system's core funding than the state will, for the first time since the first campus was founded in 1868.

"For those who believe what we provide is a public good, not a private one, this is a sad threshold to cross," Mark Yudof, the president of the University of California system, told the Board of Regents in January. "But in California it's been a long time in coming."

To historians, public higher education is an American ideal and one that made America great. While higher education was once reserved for the privileged few, college doors were flung open after the Morrill Act of 1862 provided land grants for state universities, "in order to promote the liberal and practical education of the industrial classes."

The GI Bill, which arrived late in World War II and paid veterans to attend college, fueled the economic boom and middle-class prosperity that defined America's midcentury. A year after the Soviet satellite Sputnik led to fears that our Cold War enemies would win the arms race, millions of federal dollars tucked into the National Defense and Education Act spurred the generous student aid of the 1960s.

State pays less, students pay more

In 1970, then-Gov. Ronald Reagan imposed tuition for University of California students for the first time (to conform to state law prohibiting tuition, it was called an "education fee"). And in the 1980s, when a shift toward reducing government aid took hold, federal and state funding for higher education began a 30-year-slide, aside from a period in the 1990s.

By 2008, a majority of public four-year universities in the U.S. had crossed the line that the University of California system now faces: Students and their families were contributing more than the states. In the preceding decade, average resident tuition at public research universities had risen 46%, while state appropriations had decreased 5%, according to the Delta Cost Project, an independent research foundation in Washington, D.C., that analyzes higher-education costs and spending. The percentages were adjusted for inflation.

"In inflation-adjusted dollars, we're spending today almost exactly what we were spending 20 years ago to educate a student," said Arkans, the University of Washington spokesman. "However, 20 years ago the state paid 80%, and the student paid 20%. Today the state pays 45%, and the student pays 55%. Next year, it'll go to 35% and 65%."

In Massachusetts, another pioneer in public education, the flagship UMass Amherst announced in 2009 that over 10 years it would double its number of nonresident undergraduates, to 6,500, while maintaining its in-state numbers at 16,000, all to generate revenue. At the current nonresident annual tuition of $23,628, adding 3,250 students would eventually generate $76.8 million a year.

"It's an important shift, one we haven't really done in the past," Chancellor Robert Holub said at the time, according to The Boston Globe.

Most schools are careful to avoid publicly stating that additional nonresident students will translate into fewer resident students, said Donald Heller, the director of the Center for the Study of Higher Education at Penn State.

But in practical terms, that's the outcome. "It's a zero-sum game," Heller said. There are only so many slots. Courses fill up. Students need housing.

At UMass Amherst, for example, first-year students must live on campus. The university knows it will need to build new dormitories. Faculty members -- already battling a staffing shortage -- say additional teachers will be needed.

University of Arizona President Robert Shelton publicly reasoned that nonresidents would add diversity to the student body. But the numbers speak louder: Nonresidents pay $24,596 in tuition; Arizona residents pay $8,238. Even the lower number is becoming out of reach for many. At the three public universities in that state, incoming freshmen will pay 45% to 72% more in tuition than their counterparts did in 2008.

Most college students in the U.S. today attend public institutions of some form: universities, state colleges or community colleges. But tuition at four-year schools has risen more than 320% over 20 years, far more than private college tuition, income or goods and four times the overall rate of inflation, according to research by the Delta Cost Project, which tracked spending from 1988 to 2008.

When schools have raised tuition, it has not translated into more spending by universities and has offset only losses in state appropriations, the study said.

Graduates of public universities now take, on average, $20,500 in student loan debt along with their degrees, according to the Project on Student Debt, an initiative of the Institute for College Access & Success, an independent research nonprofit.

Amid the day-to-day budget battles, legislative discussions about a university's public mission can be overlooked, with little to no objection to efforts to recruit additional private funding in the form of nonresident students.

"The governors and legislators are just backing off and saying, 'Yes, we understand why you're doing it. What options do you have left?'" Heller said. "It's become a much more accepted practice."

In Arizona, the state's three public universities won legislative approval this year to raise their caps for nonresidents to 40%, up from 30%, in response to a proposed $235 million state budget cut. The reduction was more than the past three years' cuts combined and dropped per-student funding to 1967 levels.

Click here to become a fan of MSN Money on Facebook

Studies indicate that when tuition is raised during a recession, it does not go back down once the economy picks up. In fact, once a new income stream is realized, states feel comfortable making additional cuts, experts say. Universities raise tuition again. More resident slots go by the wayside.

"It can get to be a downward spiral," Heller said. "It gets to where the universities in essence become de facto privatized institutions."

When nonresidents fall short

But here's a kicker: Attracting and accommodating those high-paying out-of-state students costs money in itself. Universities now invest millions of dollars in recruitment efforts, often disbursing partial scholarships to top-performing nonresidents instead of to needy state residents.

And what happens if the university can't attract enough nonresidents?

This year, the University of Rhode Island learned that 260 fewer out-of-state students than expected had signed on for the fall and found itself staring at a $6.9 million shortfall.

The university's solution: It raised tuition for in-state students. Resident tuition at the university will increase 8.5%, to $10,476. Nonresident tuition, meanwhile, will rise just 1%, to $27,182.