My sense is that, conditional on funding level, looser connections are best. Michigan gets one check from the state legislature; at Maryland, everyone's salary was a line item on the state budget. Michigan is better off, and not just in the sense of fewer resources wasted on administrivia. Michigan plays a game each year in which it tries to raise tuition (so that it can better price discriminate between well-off and less well-off students) and to raise the fraction of out-of-state students, who pay Ivy League tuitions to come here while the state legislature tries to prevent us from doing either of those things by making threats about the university's budget allocation.
Full privatization would be amazing though the transition would be bumpy and there are tough issues regarding all the property and buildings associated with the university to be sorted out. Probably best to think about privatization in good times when a special "If you love them, set them free" fund-raising campaign could be undertaken.
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