Reframing the conversation about tuition.

Chancellor Rebecca Blank has spoken recently of the desirability of raising out-of-state tuition to help make ends meet on the UW-Madison campus.  Her proposal offers one of the few potentially viable pathways to budget stability in a landscape dominated by declining state support and a freeze on in-state tuition imposed by the legislature in the wake of the supposed reserve scandal.  The Chancellor logically assumes that calls for higher tuition only on non-resident students will  be more palatable  to taxpayers and legislators than many alternative solutions might be.

While Chancellor Blank has presented her comments largely in terms of the market value of a UW-Madison degree compared to that of its peers, it can be argued on other grounds as well that our tuition policies are in bad need of an overhaul.  It is currently too easy to disparage decisions to raise tuition as capricious.  A rational conversation about the University budget — and especially about tuition — has been difficult in recent years.  Some politicians have  succeeded in painting the University as a bloated, inefficient bureaucracy whose own poor management practices are  responsible for sharply rising education costs and whose finances therefore need to be increasingly micromanaged by the legislature, even though Wisconsin’s support per student now ranks 39th in the nation, and even as the University edges ever closer to becoming Public In Name Only (PINO). Opacity in how tuition is set only reinforces this narrative.

It’s time to change the way the tuition question is framed and to do so in a way that accomplishes two things:  1) giving the University a transparent and objective basis for setting tuition, and 2) drawing a clear line of accountability to the state government for rises in in-state tuition.

First, let’s stop treating resident and non-resident tuition as if they were two unrelated revenue streams.   Instead, let’s take as our starting point the principle that resident tuition is nothing more, and nothing less, than state-subsidized non-resident tuition.  If the state subsidy were to dry up completely, the University would become fully private, and the two tuition rates should be exactly the same, period.

Seen this way, the correct approach to calculating the starting point for non-resident tuition is to take the total portion of the University budget earmarked for the educational mission of the University and to divide that by the total number (full-time equivalent) of students, both in-state and out-of-state.

For our back-of-the-envelope demonstration, let’s start with the sum of current state General Program Revenue (GPR) and student tuition collected.  For UW-Madison in 2013-14, that sum is $949 million.  Let’s round this to an even $1 billion. (To sweeten the deal, let’s further consider pledging to keep that number constant in 2014 dollars over at least the next five years.)

Let’s then take the number of full-time students paying tuition (this excludes many graduate students on RA and TA support) to be a round 30,000.   (The reason I am using fictitious rounded numbers is to avoid the appearance of trying to exactly reproduce UW-Madison’s figures, since this would require accounting for part-time students and many other complications.)

According to the above rounded figures, the base tuition rate for out-of-state students should be $33,333 per year.   If  UW-Madison were completely private and had an undergraduate student body of 30,000 paying full tuition at that rate, the revenue collected would exactly equal the $1 billion deemed necessary to  sustain the educational mission of the University.

Now, to the extent that part of the total budget is in fact GPR supplied by the state, those funds should be viewed as directly subsidizing the tuition of in-state students. In 2013-14, UW-Madison received $477.8 million in GPR, which is very close to half of the total of GPR plus tuition.   Let’s simplify this to $500 million, or exactly one-half of our $1 billion.

Further assume that exactly 22,000 students are in-state.  Dividing the state-provided GPR by that number yields a state subsidy of $22,727 per student.   Subtracting this number from the out-of-state rate yields an in-state tuition cost of $10,606 per year.

The thing to notice is that the methodology described above establishes a direct linkage between what the state provides in GPR and how much less an in-state student pays than an out-of-state student.  It also allows objective criteria (how much total funding is needed to sustain the educational mission, and what share of that is paid by the state) to determine both out-of-state and in-state tuition.

Now consider the following scenarios:

  • The state cuts GPR by 10% in the next biennium.  The tuition subsidy per in-state student would thus also shrink by 10%.  They would now pay $12,879, a 21% increase!    Non-resident tuition wouldn’t change, because it doesn’t depend in any way on state GPR.   Given the current ratio of tuition revenue to GPR, every 1% reduction in state support should inevitably lead to a 2% increase in resident tuition if the overall budget is to remain constant.
  • The cap on the number of out-of-state students is increased from 8,000 to 10,000 (out of a constant total of 30,000). The state GPR would then be divided among 20,000 resident students rather than the previous 22,000, leading to a 10% increase in the average subsidy, or a 21% reduction in resident tuition to only $4,613!  The flip side is that 2,000 fewer Wisconsin students could attend UW-Madison.  Access and affordability cannot be separated from one another when the total subsidy from the state is fixed.
  • The state invests $230 million of new money (out of a currently projected $900+ million “surplus”) into UW-Madison.  The result would be a near-total elimination of in-state tuition for 22,000 students or, alternatively, the ability to sharply increase affordable access to UW-Madison for qualified in-state students with no impact on the University’s overall budget.

To summarize this proposal:

  1. Let the overall budgetary needs of the University, constrained by market considerations (e.g., comparisons to peer universities) and/or a voluntary growth cap, objectively determine out-of-state tuition.
  2. Let the state subsidy to the University, divided among the number of in-state students, objectively determine the reduction in in-state tuition relative to the out-of-state cost.

With tuition decisions framed in this way, reductions in state GPR will no longer destabilize overall university finances as they have for the past decade, but they will be much more visibly linked to reductions in affordability and/or access for in-state students.  Will this new clarity inhibit the Legislature’s propensity for pulling back financial support with one hand even while they continue micromanaging University policies with the other?  We can only hope.

Note that none of the above addresses the question of how to reallocate resources to provide financial aid to needy students.  That requires a layer of decision-making superimposed on the above framework.  For example, one could add a surcharge to out-of-state and/or in-state tuition to fund financial aid initiatives.  Such surcharges should remain explicit rather than being quietly rolled into the tuition bill so as to preserve transparency and to emphasize the direct linkages between the tuition costs, state support, and base budgetary needs.

While there is no magic bullet to solve the fiscal pressures of the present and future, improved stability, transparency, and rationality are surely preferable to what we have today.

[Next up:  Before the next round of budget cuts comes as expected in the next biennium, it’s time to start talking openly and insistently about the many ways in which the University is already bleeding from the cuts of the past ten years.]

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