Merisotis Authors Article on Match Revenue Scenarios
Published May 15, 2014
Jamie P. Merisotis, president of the Institute for Higher Education Policy
From the SEPTEMBER 19 2003 CHRONICLE OF HIGHER EDUCATION REVIEW
Sharp tuition increases in public colleges and universities have prompted a spate of creative marketing mechanisms that seek to distinguish an institution or state system from others in the competitive market for students. The decision in Illinois earlier this year to allow public institutions to guarantee a fixed rate of tuition over four years of college is one example of this drive to stand apart. While such efforts may temporarily create a modest market advantage for individual universities or systems, however, they will do little to slow the troubling long-term trend of unpredictable and seemingly uncontrollable hikes in public tuitions.
For example, City University of New York raised undergraduate tuition for state residents at its senior colleges by 25 percent this year, the first increase of any kind in eight years. While the actual price tag of $4,000 for CUNY tuition may seem relatively modest, such a large single-year jump shocked students and their families.
The factors that have contributed to the price increases are well known. The single most important is that states have reduced their support for institutional operating costs. As my colleagues and I at the Institute for Higher Education Policy pointed out in a 2001 study of college costs and prices for the U.S. Department of Education, that trend actually emerged as a critical issue earlier in the 1990s—well before the recent double hit of an economic bust and cuts in federal support that has had such a draconian impact on state budgets.
Another important contributor to escalating tuitions is that the market permits it. Even though public-sector tuitions have increased faster than the rate of inflation for more than 20 years, enrollments have continued to ratchet upward. Simply put, the students keep paying, thus allowing tuitions to keep rising.
The authority for setting tuition frequently rests outside of a public university—with a state governing or coordinating board, the legislature, or some other entity—so the institution often actually has little to do with setting rates. But the planning and budgeting processes at many colleges haven't helped manage tuition effectively either. Most public institutions still build their budgets by using the baseline of the prior year and simply adding to it, all in the name of increasing academic quality, improving student access, and enhancing overall institutional prestige. Few develop academic plans with any serious consideration of the likely sources and amounts of revenue —including tuition revenues—needed to support those plans.
In thinking about how to construct a public-sector tuition policy, states and public universities should tackle such root causes head on. It would make more sense to set parameters for tuition increases and develop different revenue scenarios first, and then match those with the different strategic goals of each institution.
Another way to make tuition increases more predictable, and keep them within an appropriate range, is to engage in multiyear budgeting, so that year-to-year spikes can be softened. In states that engage in biennial budgeting, like Montana, a certain degree of predictability exists because tuitions for the university system already have been approved for the next two years. However, even in those cases, institutions don't necessarily engage in multiyear budgeting to match the state budget process.
States could also require that tuition increases not rise faster than an indicator of overall state economic capacity, such as per capita incomes or the state's consumer price index. In Missouri, for example, some institutions have recently experimented with limiting tuition increases to the consumer price index. At the same time, freezing tuitions for four years or more may go too far, limiting the flexibility of the institution or state to make modest adjustments up or down as economic conditions fluctuate.
States and public institutions should also allow greater price differentiation by level of instruction and program of study. In particular, allowing higher tuitions at the graduate level and in some professional programs would ensure that subsidies for undergraduate education are protected. Some colleges and universities already do that in an indirect way by charging higher student fees for programs that have significantly higher costs, like scientific and technical programs, through lab and computer fees as well as other add-ons.
Public institutions and state governments need to take a different approach to setting tuitions, one that emphasizes predictability for consumers and does not get buffeted by the fierce winds of economic boom and bust. A more strategic and long-term approach to tuition policy — not short-term marketing gimmicks—would go a long way toward improving student access to public higher education and fulfilling the mission of public institutions to serve the economic- and social-development needs of a state.
– Jamie P. Merisotis, president of the Institute for Higher Education Policy
