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Take the Money and Run

November 2, 2011

Economists like to say that there's no such thing as a free lunch, and soon it may be harder to find a free college education.

Cooper Union, a well-regarded art, architecture, and engineering college in New York City that has not charged tuition for most of its history, announced Monday that, due to sustained budget pressures, it would consider a range of options, including charging tuition, to develop a sustainable funding model. The announcement has generated a flurry of angry responses from Cooper Union alumni, faculty, and students.

If Cooper Union decides to start charging tuition in some form, it will leave only a handful of institutions – mostly small work colleges, the U.S. service academies, and new online universities – that students can attend without paying tuition.

Cooper Union’s potential departure from the tuition-free model comes at a time when the burden of paying for a university education is shifting away from states and institutions toward individual students and families, as documented by a College Board report released last week. With states cutting support for higher education and both public and private universities increasing tuition at rates significantly faster than inflation, Cooper Union’s looming discussion raises the question of whether it is possible to provide a high-quality education without charging students, and whether the institutions that remain tuition-free will have to consider changing their models in the near future.

“The bottom line is that you have to have some reliable source of revenue other than tuition or an endowment that’s large enough to generate sustainable returns to keep up with higher education inflation,” said Jamshed Bharucha, who took over as Cooper Union’s president in July.

The main driver behind Cooper Union’s announcement was an escalating structural deficit created by the rising cost of higher education and a decreasing return on investments. This year the college had an annual structural deficit of close to $16.5 million, or almost 28 percent of its $59.7 million budget.

The college, founded by industrialist Peter Cooper in 1859, was originally designed to provide a free education for the working class. The institution has focused on a narrow range of programs, including engineering, architecture, and art. Cooper was able to support itself for so long without charging tuition through a combination of philanthropy and endowment returns. The college has a sizeable endowment of roughly a half-billion dollars, and it generates significant income from rents on New York City property. In 2008 and 2009, about 83 percent of the university’s budget came from private gifts, investment returns, and endowment income, compared to an average of about 21 percent at private bachelor’s institutions, most of which rely on tuition revenue to balance their budgets. On average, tuition revenue made up about half of the revenues at private bachelor's institution in 2008.

But starting in 1989, the costs of providing a high-quality education began to outpace what the college could generate in revenues, particularly the rents. Strong endowment returns throughout the 1990s and 2000s helped put off the current discussion. But with dim prospects for growth in the wake of the 2008 recession are forcing the college to reconsider its model. “The unsustainability in the model has come to a head,” Bharucha said.

The college needs to replace about 25 percent of its revenue with a new stream, Bharucha said. That might come from tuition, but it could come from other sources of revenue as well. Bharucha is convening a task force of faculty, students, and alumni that will develop a plan by the middle of the spring semester.

Charging tuition would not be a completely foreign concept for the university. During its early years, the college’s strong academic reputation attracted wealthy students who had to pay tuition. But after a series of donations it started providing free tuition to all. Bharucha said Cooper’s focus was access, rather than free tuition. “We can commit ourselves to continuing to be leaders in providing socioeconomic access,” Bharucha said. “No matter what steps we might have to take."

Several of the college's alumni have come out against the proposal, saying it goes against Cooper's vision of the college. On the alumni association's Facebook page, several alumni said they would not have attended the college if it charged tuition. “It’s a contradiction to everything we’ve learned about Cooper,” Milton Glaser, a graphic designer and co-founder of New York magazine, told The New York Times. “It’s the last opportunity for free education on that level in the entire country.”

The institution does have several alternatives to raising tuition. It could cut programs and shrink the student body and its expenditures to a level equal with its endowment returns, though Bharucha said that would likely result in a decrease in quality, an outcome he is trying to avoid. For that reason, revenues are the real question on the table. The university might seek new revenue streams by launching new initiatives such as distance education programs. Bharucha said changes to the tuition policy were a "last resort."

The recession, and the slow recovery that resulted, has been a major hurdle for tuition-free institutions, and Cooper Union, if it decides to adopt tuition, will not be the first victim.

Olin College, an engineering college in Massachusetts, was forced to abandon its commitment to free tuition as a result of the downturn as well. The college had offered full scholarships for all admitted students since it enrolled its first class in 2002, partly to motivate capable students to study engineering.

But when the recession struck in 2008 and 2009, and the value of the college's endowment dropped significantly, administrators couldn’t find enough to cut in its budget to make up the difference created by the endowment drop, said Steve Hannabury, executive vice president and treasurer at Olin. “If we cut enough of a difference to retain the full scholarship, the academic program would have been devastated,” he said. As a result, the college cut the award in half starting with the class of 2010. The college now gives each student a scholarship of $19,500, which covers half of the institution’s $39,000 sticker price. For many low-income students, federal and institutional aid covers their remaining need.

Hannabury said the decision to start charging tuition has not affected the college's recruitment and enrollment efforts significantly. The college enrolled its largest class for the 2011-12 school year, he said, despite charging tuition. He said  the college could return to a tuition-free model if finances recover significantly, but that is a long way off.

Cooper Union stands mostly alone among tuition-free institutions for its funding model. The institution spends significantly more per student, $58,124 in 2009, than the average private bachelor’s college, which spent an average of $27,439. Work colleges, a handful of institutions that includes the College of the Ozarks, and Alice Lloyd College, tend to maintain their model through low costs in part by relying on student labor rather than high revenues. Deep Springs College, a two-year institution in the High Desert of California, also uses student labor and low overhead to provide an education without charging tuition.

The colleges, which tend to focus on liberal arts instruction, are lean. They have small faculties, low overhead and few of the amenities that accompany large state institutions. At work colleges, students also tend to serve essential institutional functions. At the College of the Ozarks, for example, students build all the buildings on campus; run farms, food services, and offices; take care of the grounds; and do plumbing and electrical work. As a result, operating budgets tend to be lower than other institutions. Alice Lloyd College spent $18,815 per student in 2009.

In recent years, institutions have tried to seize on new technologies to drive down the cost of educating a student to a level where institutions can offer an education without charging students. University of the People and Khan Academy, two organizations that offer online instruction in various topics, have made headlines recently. But neither offers accredited degrees yet.

The other major categories of tuition-free institution, the U.S. service academies, tend to spend even more per student than Cooper Union. The U.S. Naval Academy spent about $93,000 per student in 2009, most of which was funded by the federal government. And since students at the service academies commit to military service after graduation, comparisons about the payoff on investment  are significantly different.

While the goal of offering free tuition is a noble one, some administrators said it is misapplied in certain situations. Since institutions like Cooper Union award the free tuition based solely on merit, many students who likely have the means to pay end up getting free tuition while low-income students are frozen out higher education.

That is not the case with Berea College, a work college in Kentucky. The institution, which through a combination of federal and state aid programs and scholarship money covers full tuition for 1,600 undergraduate students, only admits students who meet certain need qualifications.

When the recession began in 2008 and Berea’s endowment dropped about 24 percent, the university cut its budget to match, a move that riled faculty members. Larry Shinn, the college’s president, said he took the possibility of charging tuition off the table before discussions even started. Shinn said the college is now better-positioned than it was three years ago, and more able to respond to future challenges.

“You have to think strategically about not trying to preserve status quo but doing what’s financially possible,” Shinn said. “You have to rethink the way you can serve the mission and be agile enough to serve that for a long time.”

 

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