Wednesday, November 7, 2012

Tuition myths

There have been many, many articles written over the past few years bemoaning the rapid rise of college tuition. Often there is an implication that the budgets of colleges and universities have ballooned. While it is true that personnel budgets have grown faster than inflation, this is primarily due to the increased cost of healthcare. The real culprit behind most tuition increases at public colleges and universities is a massive decrease in state spending per student. In this post, I will try to illustrate the reality of this for my own institution, the University of Minnesota Duluth.

It is currently Minnesota law that "the state must provide at least 67 percent of the estimated expenditures" for resident undergraduate students, including those from other states such as Wisconsin with which we have a reciprocity agreement (link to statute). There is a cutoff for people who rack up too many credits without graduating, but the law would cover almost all of the current students at UMD.

The actual state contribution is much, much smaller than the law requires. Currently the state provides around 20% of the "O & M" (operations and maintainance) costs for UMD students.

The plots above show, in 2012 inflation-adjusted dollars:
  • The nominal tuition at UMD over the last five years (in blue).
  • The actual average tuition (in green). This is the actual tuition taken in by UMD divided by the number of students (data is from fall enrollment).
  • The black line is what the tuition would have been if the state had maintained its 2007 spending levels for UMD, in inflation-adjusted dollars. This is based on the total dollar amount from 2007, so it does not account for the increase of enrollment at UMD.
  • The red line is what tuition would be if the state obeyed its own laws and funded 2/3 of the costs of undergraduate education (for residents of MN and its reciprocity partners). This would have kept tuition constant in real terms at about $5000/year.

How much would that last scenario cost? For UMD, it would cost about $6,750 per student per year. If we use this amount for the whole state, we can estimate the impact on the state budget. Every year about 25,000 MN high school students enter a public university or community college. Let's assume they all eventually get four-year degrees (the "worst"-case scenario from a budgeting point of view, since many do not finish). Then this program would cost approximately $675,000,000 per year. That's a lot, but it isn't a crazy number, considering the current MN higher education budget, excluding loans, is around $200 million.

Thoughtful comments are welcome.