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Taking on Robin Hood

February 7, 2012

Ensuring access to higher education is an expensive proposition, and right now, the state of Virginia is debating who should foot the bill.

In his proposed budget, Virginia Governor Bob McDonnell is seeking to cap the use of tuition dollars from in-state students to provide financial aid, a practice employed by almost all colleges and universities, public and private. McDonnell has said he is pushing the cap to spur conversation about aid policies and to keep down the cost of college education, saying the current structure is placing a higher burden on middle-income students.

“A lot of middle-income students might be paying tuition increases that go toward [someone else's] need, but they may not be benefiting from that,” said Laura Fornash, Virginia’s secretary of education, a position appointed by the governor. Under the governor's budget, the state would take more responsibility for ensuring access, increasing general appropriations after several years of declines and adding more money to the state's financial aid program, which has been consistently growing even during the recession. But the budget would prohibits universities from increasing the amount of tuition revenue they use as aid above what they spent in the current fiscal year.

Most higher education administrators declined to criticize the governor, but a handful have spoken out against the plan. They noted that the measure would likely have the opposite effect from the one McDonnell intends, making college more expensive, particularly for low-income students.

“Given that tuition has been for some time used as a source to meet the financial need of students, the university sees the language in the introduced budget as likely to have unintended consequences in terms of the net price and affordability for student and families as well as on the capacity of higher education institutions of the Commonwealth to meet the objectives of the Higher Education Opportunity Act," said Michael Strine, executive vice president and chief operating officer at the University of Virginia.

McDonnell’s proposal gets at a question that several public universities are struggling with as states pull back funding, driving the institutions to rely on tuition for a larger share of their revenues: Who ultimately bears responsibility for ensuring access to higher education? If states aren’t willing to pay, do institutions have the right to charge more to students who can pay in order to subsidize those who can’t?

“It is a policy that has been in place since Harvard opened 350 years ago and since the founding of the University of Virginia,” said Don Heller, a professor of higher education finance and policy and dean of Michigan State University’s College of Education. “Thomas Jefferson raised concerns about keeping the institution accessible for poor students in the state. It’s something well-intentioned public and private institutions do to ensure that poorer students have access.”

‘Middle-Class Squeeze’

McDonnell’s proposal grows out of a commission that met in 2010 and 2011 to discuss the state’s higher education policies. The commission found that the current aid policies were squeezing students who come from middle-class families. Students who come from low-income backgrounds receive a combination of state, federal, and institutional aid that makes college affordable. Students who come from high-income families often have to pay the full cost of tuition, but increases don’t have a large effect on the family’s overall budget. But families who fall between the two groups are having an increasingly difficult time paying for their education, state administration officials said.

Virginia, like most states, has been grappling with decreased tax revenues and increased entitlement costs, such as pensions and health care, over the past four years, leaving less money for higher education. At the same time, lawmakers have been reluctant to increase taxes to maintain historic funding levels, so appropriations have decreased and institutions have had to cut their own budgets and find new revenues to make up the difference. Tuition prices at Virginia institutions doubled on average in the past 10 years.

According to the Grapevine report, which tracks state spending on higher education and is compiled by Illinois State University’s Center for the Study of Education Policy and State Higher Education Executive Officers, state support for higher education in Virginia dropped more than $200 million between 2007 and 2011. At the same time, enrollment increased, so the decline was even greater when calculated on a per-student basis.

The public university model tends to provide for access through state subsides, which let universities keep tuition low. But as state support has slowly declined over the past few decades, public institutions have adopted a policy long used by private institutions -- charging wealthy students more and putting that money toward subsidizing low-income students.

The amount of the University of Virginia’s total financial aid that comes from the institution, rather than the government, is growing. For the 2010 fiscal year, government aid made up 43 percent of the university’s financial aid, while grants coming from tuition made up 37 percent. Last year the numbers swapped, with government support dropping to 39 percent and grants from tuition rising to 41 percent.

Institutions keep track of aid dollars differently, so comparisons across universities are difficult, but, in general, the picture at other state universities looks similar. At William and Mary, about 24 percent of the institution’s fiscal year 2011 budget financial aid came from tuition, according to a presentation the university prepared for a state senate hearing. At Virginia Tech, 30 percent of aid came from institutional aid came from institutional support rather than governmental sources.

Virginia lawmakers have increased funding for the state’s primary financial aid program for several years, and this year the governor called for increasing the program another $13 million to $141 million. But according to institutions, that has not kept up with the need to increase tuition to compensate for general appropriations declines, which is why they need to cross-subsidize students.

Laura Perna, a professor at the University of Pennsylvania's Graduate School of Education who researches access and affordability, said she did not know of another state restricting the use of tuition for aid purposes, and noted that some other states have actually required universities to use a certain percentage of tuition revenue for financial aid purposes. But she said the fact that Virginia is trying to link the various aid streams together into a single policy is something to commend. "To Virginia’s credit, the fact that they are trying to link tuition and financial aid and appropriations to statewide goals and priorities, that is a good thing," she said.

'A Conversation About Aid'

The increased use of institutional aid can have a distorting effect on sticker prices. The sticker price for in-state students at the University of Virginia grew an average of 7 percent annually between 2004 and 2009, and 5.5 percent for out-of-state students. But the average revenue the university derives from tuition after financial aid is applied has only increased an average of 2.2 percent annually, meaning most students are not feeling the full effect of tuition increases.

The University of Virginia regularly competes for students with private universities, such as Duke and Cornell Universities, which often have greater financial resources and can meet more need. In a brief prepared for the media on the governor’s proposal, University of Virginia administrators wrote that it is cheaper for “a family of four with one in college and an income of $70,000” to send a student to one of those universities. The governor’s proposal could make it harder to attract those students to Virginia, administrators wrote. “While financial resources for aid come from numerous resources, institutional aid is the primary strategy for our program and our ability to address unmet need,” they wrote.

The governor’s budget also calls for the governor’s higher education advisory committee to “evaluate the appropriate use of tuition and fee revenue generated from in-state students that is used to support financial aid with the goal of enhancing affordability for low-income and middle-income in-state students and their families.”

Fornash said the main purpose of the budget language is to get policy makers talking about the universities policies. But she noted that the governor felt that some action needed to be taken immediately, which is why the cap would be imposed before the advisory committee reviewed institutional policies. “We didn’t have time prior to the budget being put in place,” she said.

The education subcommittee of the state senate's finance committee already held a hearing on the measure on Jan. 24, where they heard presentations from the state’s universities. At the committee hearing, University of Virginia President Teresa Sullivan acknowledged the need to have a conversation about aid policies, but noted that the governor’s plan would put the universities in an unnecessary bind. “All of us need to have a conversation about how to fund financial aid,” Sullivan said. “The language in the budget prematurely curtails that conversation by restricting the use of tuition for financial aid.”

 

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