Let’s Make a Deal

When it comes to higher education, there’s no hotter topic for politicians than price. State lawmakers regularly fret about the rising cost of a college degree, and lowering the student debt burden has become a talking point on the presidential campaign trail.

And the pressure isn’t just coming from politicians. Recent studies, particularly a survey by Sallie Mae earlier this year, show some reluctance on the part of families to continue to pay high tuition prices. As a result, public universities attempting to increase tuition are under increased scrutiny, even as states reduce their investment in higher education.

Some public universities have acquiesced over the past few years, holding tuition level despite concerns from faculty, students, and others that cuts are damaging the overall quality of the education. Many academic leaders warn that tuition freezes without increased money from other sources can lead to larger classes, fewer course sections and professors lost to other institutions.

But a handful of public universities have started taking a different approach. Recognizing the pressure to keep prices down, several have proposed budgets that would hold tuition level if states agree to up their financial commitment to the university, hoping to shift the pressure to state lawmakers. Others have put programs on the table that would keep students’ tuition costs level if those students make progress toward graduating in four years.

The result is a set of policies that try to spark a broader discussion about the cost of educating students. Politicians, families, and students can have low tuition, and consequently low debt, but it comes at a price.

“Too often it’s not clear the linkage between reductions in state appropriations and increases in tuition,” said Eric Kaler, president of the University of Minnesota, who recently proposed a budget that would freeze tuition if lawmakers increased their investment in the university. “This makes that linkage crystal clear.”

The Board of Governors of Higher Education in Rhode Island will vote Oct. 29 on whether to freeze tuition at the state's three public institutions. And earlier this month, Texas Gov. Rick Perry proposed freezing tuition at all state universities.

Higher education researchers say the raft of freezes is likely the result of the widespread scrutiny on costs. “Tuition is going up, financial aid isn’t growing, people are borrowing more, everybody may be feeling the heat of it,” said Joni E. Finney, a professor at the University of Pennsylvania’s Graduate School of Education.

“I think colleges are looking for any publicity they can get to try to offset the criticism of tuition prices,” said Donald E. Heller, dean of the Michigan State University College of Education.

Getting Lawmakers to Pay

Several studies since 2008 have shown that the increase in tuition prices at public universities is primarily attributable to the decrease in per-student state appropriations.

Kaler and the University of Minnesota are trying to reverse that trend with their most recent budget. The university’s Board of Regents adopted Kaler’s biennial budget proposal Friday. The plan would freeze undergraduate resident tuition prices at the 2012-13 level if the state agrees to invest an additional $42.6 million over the next two years. The university is also asking for various other state investments that bring the total increase requested to $91.6 million over the next two years. (Note: This paragraph has been updated to correct the amount of the university's request.)

“We want a realistic conversation about cause and effect,” Kaler said. “That is, the lack of state appropriations drives tuition increases.”

The tactic of trying to publicly tie tuition prices to state appropriations has been tried before in other states, with varying success.

The University System of Maryland has several times gotten state lawmakers to “buy down” potential tuition increases. The University of California system tried last year to increase state investment by proposing 16 percent tuition increases over the next several years if the state did not reverse its disinvestment. That effort was ultimately unsuccessful. 

This year, administrators at the California State University system have said that unless voters pass a tax-increase referendum on November's ballot, the system will be cut $250 million and will have to increase tuition 5 percent (on top of an approved 9 percent increase) to make up the difference. University of California officials, also facing a potential $250 million cut if the ballot measure does not pass, predicted an increase of 20 percent.

A major problem with this approach, Finney said, is that many states simply don’t have the money or the political will to invest in education at the moment. “Getting the state to reinvest is going to be really hard to do,” she said. “Higher education isn’t at the top of a lot of priority lists.”

Heller said freezes tend to work when money is there. During times of revenue constraints, however, state lawmakers tend to go back on the agreement and cut the budget, leaving institutions to make up the difference.

Most states are still suffering from depressed tax revenues and face increasing costs related to health care, public safety, and pensions.

According to a recent report, Minnesota state revenues are coming in slightly above projections, meaning the state might be able to invest more in higher education if lawmakers view it as a priority. Kaler said he and other university leaders are beginning to meet with lawmakers and other state “thought leaders” to push the increased funding.

The state legislature begins its session in January and typically completes its budget by the start of the fiscal year (though last biennium it missed that deadline), so administrators expect to know whether they have to raise tuition before July.

Paying for Progress

Because state funding is likely limited in many other states, other public universities are trying to find some other benefit they can extract in exchange for holding tuition steady.

Indiana University system administrators proposed a plan last week that would freeze students' tuition levels after their sophomore year if they have earned 60 credits – in other words, if they are on track to graduate within four years.

If students don’t graduate by the end of their fourth year, they will have to pay the increased tuition price for any additional semesters.

The policy grew out of a concern about rising levels of student debt. According to a June 2012 study by Vasti Torres, a professor of educational leadership and policy studies at Indiana University, the average senior at the Bloomington campus had almost $26,000 in debt. Students at the Indianapolis campus had almost $2,000 more. The university also found that much of the debt that students incurred was due to living expenses, not tuition.

“We want to make it clear to people, to be as transparent as possible, that if you want to hold down student debt, there are things you can do,” said Neil D. Theobald, senior vice president and chief financial officer at Indiana.

The tuition incentive is one of several measures university administrators proposed last week to try to curb the debt problem.

The University of Texas at Austin, which earlier this year launched a big push to raise its four-year graduation rate, is considering a similar program. Students at UT-Austin register for an average of less than 14 hours a semester, which would leave them about 10 credits short of 120 after four years.

UT-Austin found that students who graduated in four years and took out loans averaged just over $19,000 in debt, significantly lower than the average. Students who took five years had about $24,500 in debt. And students who took six years had more than $32,000 in debt.

Next year the university will select 200 students who receive Federal Direct Unsubsidized Loans -- which carry an interest rate of 6.8 percent and accrue interest during the time a student is in school -- for a pilot program that will award those students loan forgiveness on $1,000 of the principal along with whatever interest accrued on that amount for each semester they complete 15 hours.

Tom G. Melecki, director of student financial services at the university, said the program, including interest, could save students as much as $12,000 over the course of their education.

Getting more students to graduate sooner provides multiple payoffs for universities. First, higher four- and six-year graduation rates have the potential to boost a university’s spot in various rankings. They lower the average debt level of students, assuaging parent and student concerns. Higher graduation rates also make room for more incoming students.

Texas is focusing the program on students with demonstrated financial need.  Needy students are more likely to work full time while in college, enter college with less preparation, and deal with financial burdens and family issues, all of which contribute to lower graduation rates. If the benefit applied to all students, it would disproportionately benefit those students with the least need. Since the university only has a finite number of dollars, Melecki said, it wanted to put them where they would do the most good.

Melecki said the university will study the program over the next year to see whether it has an effect on persistence and graduation rates. If it is successful, Melecki said, Texas administrators will try to lobby the state to increase funding for the program.