Increasing tuition: a look at why costs continue to rise

Wednesday, June 22, 2016 - 7:19pm

Last Thursday, the University of Michigan Board of Regents voted to increase tuition by 3.9 percent for in-state students and 4.4 percent for out-of-state students. This change will result in an increase in tuition revenue of $86.35 million.

Since 2002, tuition revenue has increased by over $800 million —  a 135 percent increase — far outpacing similar institutions such as Ohio State University and the University of California system, both of which have seen approximately 52 percent increases. Both universities also face similar state funding decreases to those within the state of Michigan. This comparison raises the question: Where is this money coming from and where it is going?

State Funding

The increase in projected tuition revenue coincides with a proposed increase in state funding of 4.2 percent for the University. This state-funding proposal is the latest in a series of small increases following a 21.6 percent funding cut the University experienced  in 2011 under Gov. Rick Snyder's first budget, which featured an across-the-board 15 percent cut in funding for higher education.

The latest increase in state funding brings aggregate funding for Michigan’s higher education budget back to pre-2011 levels; however, the University’s individual state funding still remains 7.8 percent lower than 2011 levels.

Various regents at Thursday’s meeting cited state disinvestment as the reason for the tuition increase.

Regent Denise Ilitch (D) called out state officials for this lack of prioritization of higher education, pointing to how funding on an individual basis for prisoners is higher than that of students within the state.

“The state of Michigan spends roughly 25 percent more on prisons than on education,” she said. “The state of Michigan spends roughly $34,000 per prisoner and $11,000 per student. I first would like to use my public responsibilities to encourage Michigan citizens to think about the disinvestment our state, our governor and our legislature have made with respect to the budget in not prioritizing education.”

State Rep. Adam Zemke (D–Ann Arbor) echoed this sentiment in an interview with the Daily, saying there has been no increase in the importance of higher education in his time working for the legislature.

“The increases that have been happening are really insignificant,” he said. “That is to say the emphasis on higher education as a priority in my time has not really changed. An increase at the rate of inflation is not really an increase.”

Despite the clear downward trend in state higher education funding, the University’s total revenue from state funding has decreased by only $55 million since 2003, compared to an $802 million increase in revenue from tuition.

Paul Courant, former University provost and current professor of economics, said it is important to look at how funding has changed on a larger timescale.

“The basic problem is this: there was a time, and it was way more than 14 years ago, when the state appropriation was a substantial fraction of the University general fund budget,” he said. “If you look at it over time, there is a steady decline. Tuition has to replace each one of those declines, but there is an inability of the state appropriation to keep up with inflation, let alone to grow.”

Affordability

The University maintains that it is fully committed to affordability, and the latest budget includes a 10.8 percent increase in undergraduate financial aid, which is the ninth double-digit increase in undergraduate aid in the past 10 years. However, total funding for financial aid across the University has  increased by only $120.14 million since 2003.

University spokesman Rick Fitzgerald wrote in an e-mail interview with the Daily that the University aims to meet all demonstrated need for in-state students.

“No other state university has put as much emphasis on financial aid as U-M,” he wrote. “We continue to be the only state university that meets 100 percent of demonstrated financial need for in-state students.”

In his remarks to the board last Thursday, David Schafer, Central Student Government president, called for more student input on these decisions, as students are the ones impacted by changes in tuition.

“I have yet to hear of any structured student input on these decisions,” he said. “Frankly, I don’t get that. It makes little sense to me. We are the ones these decisions impact. We are the ones who bear the burden of balancing school while having to find an additionally paid work on the side … This is our future we are talking about. This is our education.”

At Thursday’s Board of Regents meeting, University Regent Andrea Fischer Newman (R) criticized this increase for addressing lack of state funds while ignoring underlying societal issues of the rising cost of higher education.

“Whether it comes from the University of Michigan’s general fund or from the government, more financial aid does not solve the underlying problem of rising college costs,” she said. “It only makes the University of Michigan less affordable, especially for middle class students and their families, who are least likely to qualify for financial aid.”

Academic Excellence

Despite the University’s commitment to affordability, the general fund has still increased by approximately $802 million since 2003 from tuition revenue alone — when discounting changes in state funding,

Fitzgerald wrote that, while much of the increase in general fund revenue stems from the increase in tuition, a portion of the increase in the general fund is accounted for by an increase in the proportion of out-of-state students, inflation and investments aimed at improving the University.

“Much of the revenue increase comes from the rate increase, but there also will be an increase in the total number of students, undergraduate and graduate,” he wrote. “And we anticipate an incremental increase in the proportion out-of-state students based on the rate of acceptances we’ve had from those students. The cost of running the University rises each year in part from inflation and in part from new initiatives and investments in technology and all the things that make U-M a world-class university.”

At Thursday’s regents meeting, Shauna Ryder Diggs (D) said that for the University to continue to improve, increasing the general fund is necessary, a view shared by Regent Laurence Deitch (D).

“Divestment is not going to lead us anywhere; that is not going to lead us to the future that we need,” Diggs said. “And in order to do that we need to spend the money, as Regent Deitch said, that will invest in our future.”

In an interview with the Daily, Schafer echoed this sentiment, saying there is a balance between affordability and quality.

“I think it’s so important to balance having an accessible and affordable education with maintaining the rich quality of our institution,” he said. “I think (the budget’s) attention to academic excellence and the high quality of this University, and, subsequently, the value of our degrees is important.”

Despite University’s highlight on maintaining quality, other similar institutions have not seen the same large increase in tuition revenue as the University.

Since 2003, aggregate state funding for the University has decreased by 15 percent while the tuition revenue has increased by 135 percent.

Ohio State University — another large, public research institution — has seen a 17 percent reduction in state funding between 2006 and 2015, but the institution maintained only a 52.8-percent increase in tuition revenue in the same timeframe. Ohio State has not increased tuition since 2012.

The University of California system saw a 15 percent cut in state funding between 2006 and 2013 and experienced a 52.8 percent increase in tuition revenue during that time frame. The UC system also maintained a three-year freeze in tuition between 2011 and 2014, when its Board of Regents voted for a five percent tuition increase per year for the next five years.

While it is clear that the University has increased its general fund at a much faster rate than other comparable institutions, according Miles Kimball — a University economics professor — increasing the budget is essential to maintaining a high quality of education. Kimball cited the increasing wage premium for highly skilled labor as a source for the expanding budget, as higher salaries are becoming necessary to maintain a high-quality faculty.  

Kimball said the UC system is now facing fiscal challenges because it has not adjusted its budget to rising costs.

“You can always ruin your University, and basically the UC system has been going in that direction,” Kimball said. “It is actually very troubled by the kind of budget straightjacket that it has been put into.”

Courant echoed these sentiments, citing the so-called “cost disease phenomenon” in which the cost of highly skilled labor has increased rapidly while the productivity of this group has not changed. According to Courant, the University needs to pay higher salaries to faculty members to retain them and the quality of education they provide for students.

“The relative price of University activity, of University faculty in particular, as well as other skilled labor at the University, tends to rise relative to the economy as a whole,” he said.

Alternatives to Raising Tuition

According to Kimball, the University does not need to raise tuition to increase its revenue and budget size. Instead, Kimball said the University could systematically increase enrollment so that there is a both a larger student population and a higher proportion of out-of-state students. The larger student body and the increase in the number of out-of-state students could then circumvent any need for tuition increases.

“There’s a missed opportunity where we could easily keep the tuition from going up simply by increasing the number of students,” he said. “I think that is a big missed opportunity, and, to the extent that, you miss that opportunity, you’re not doing an appropriate thing, because the appropriate thing would be to seize that opportunity.”

Fitzgerald wrote that the University does anticipate an incremental increase in the number of out-of-state students; however, while enrollment numbers have fluctuated in the past 15 years, the proportion of in-state students has remained consistently higher than that of out-of-state students.

The incoming fall 2015 freshmen class had 6,071 total students, 57 percent of which came from in-state and 43 percent out-of-state, compared to fall 2000, which saw 5,418 total students, with 58 percent in-state and 42 percent out-of-state.

“You’re going to have to increase the budget,” Kimball said. “But increasing the budget doesn't mean that you have to increase tuition.”

According to Courant, to prevent rising tuition, faculty salaries would have to rise at a much slower pace across the board. However, Courant said this could lead professors who chose careers in academia to elect different professions, which could decrease the quality of University faculty.  

“You could imagine a world in which faculty salaries rose more slowly and there was less competition among universities for faculty,” he said. “And in that world the rate of growth of tuition necessary to cover the cost of the University would be lower. However, it might also be the case in that world that some of the faculty that are essential to the quality of the place now would choose to go into other lines of work.”