Comparison of Tuition and Fee Increases in Lottery-Funded SREB States. August 6, Prepared for Senator Jimmy Jeffress

Transcription

1 Comparison of Tuition and Fee Increases in Lottery-Funded SREB States August 6, 2009 Prepared for Senator Jimmy Jeffress

2 Table of Contents Context...1 Purpose of the Report on Lottery-Funded Scholarships and Tuition...1 Table 1: SREB States with Lottery-based Funding for Scholarships Table 2: State Merit Scholarship Award Continuation Requirements and Maximum Duration of Award, Question of Relationship Between Lottery Scholarships and Rising Tuition...4 Closer Examination of South Carolina...5 Summary...6 Examination of West Virginia...7 References...9 Appendices Table 3: Median Annual Tuition and Required Fees for Full-Time, In-State Undergraduate Students Chart 1: Percentage of Change in Tuition/Fees Two Years Before and Two Years After Each State's Lottery Debut Chart 2: Annual Dollar Increases Two Years Before and Two Years After Lottery Debut Chart 3: Annual Dollar Increases Two Years Before and Two Years After South Carolina Lottery Debut Project Number

3 Lottery Funded Scholarships and Increasing Tuition p. 1 Context In an era of providing an adequate education to all students, state governments have assumed most of the financial responsibility in ensuring that public higher education is accessible and affordable, with the federal government providing less than 14 percent of the revenue to public colleges and universities (National Center for Education Statistics, 2007). States must find a variety of means to generate revenue for public colleges and universities. One approach, raising tuition, has made higher education less affordable to an increasing segment of American families. This problem has been compounded by the lack of commensurate increases in federal and state assistance. The average Pell grant has fallen from 50 percent of tuition, fees, room and board at a public four-year institution in to 32 percent in (College Board, 2008). While the average state-funded financial aid package grew from $480 to $613 between and , tuition at four-year public institutions increased from $3,766 to $5,804 (College Board, 2008). Further, whereas 17% of state aid in was based on merit rather than need, this figure had risen to 28% by (College Board, 2008). As a result, more families across all income levels must borrow money to pay college costs, and lower-income students are less likely to go to college (College Board, 2008). Purpose of the Report on Lottery-Funded Scholarships and Tuition The current economic exigencies, together with the burgeoning fiscal needs of competing state agencies, have led states to create new revenue streams that fund students rather than institutions, particularly merit-based, lottery-funded scholarships. Beginning with Georgia s Helping Outstanding Pupils Educationally (HOPE) Scholarship in 1993, fifteen other states have implemented various forms of broad-based, merit-aid programs: Alaska, Arkansas, Florida, Kentucky, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Mexico, South Carolina, South Dakota, Tennessee and West Virginia. Many of these states, along with North Carolina and Virginia, have need-based lottery-funded scholarships. State spending from 1995 to 2003 for undergraduate merit-aid rose 20.7 percent, while investments in need-based aid rose 7.5 percent annually (Heller, 2006). These states tend to be characterized by low college attendance rates, high remediation rates, and migration of high achieving students to other states (Doyle, 2006). Scholarship programs developed in these states typically reflect those issues. The purpose of this report is to examine any relationship between lottery-funded scholarships and subsequent tuition and fee increases. Concern has been expressed in several states that there is an emerging pattern of colleges and universities raising tuition and fees, after the implementation of lottery-funded scholarships, to a level that cancels out benefits of these scholarships (South Carolina Policy Council, 2007; Wickline, 2009). To address this concern, the states with lottery-funded scholarships that are affiliated with the Southern Regional Education Board (SREB) are examined. The advantages of examining SREB states include comparison data assembled with the same methodology, educational policy guidance from the same entity, and similar state socio-demographic characteristics and challenges.

4 Lottery Funded Scholarships and Increasing Tuition p. 2 Table 1: SREB States with Lottery-based Funding for Scholarships State Merit-based criteria *Award amounts Florida Academic Scholars-3.5 weighted GPA, 1270 SAT/28 ACT Medallion Scholars-3.0 weighted GPA, 970 SAT/20 ACT Ranges from 75% to 100% of tuition and fees plus $300 for college-related expenses; comparable amount at Georgia Kentucky 3.0 GPA in college prep curriculum, or 3.2 with other diploma types, can qualify while in college by meeting retention criteria Minimum 2.5 GPA; award varies by scores with bonuses for ACT scores of 15+ North Carolina Does not have merit-based - requires residency and 6 credits a semester for scholarships South Carolina Palmetto Fellows-3.5 GPA, 1200 SAT/27 ACT, top 6 percent of sophomore or junior high school class or 4.0 GPA, 1400 SAT/32ACT Life Scholarship-meet two of these three criteria: 3.0 GPA, 1100 SAT/24 ACT, top 30% of high school graduating class HOPE Scholarship-3.0 GPA Tennessee HOPE-GPA 3.0 or 21 ACT/980 SAT ASPIRE-criteria above and parent(s) income below $36,000 Merit Scholarship-3.75 GPA and 29 ACT/1280 SAT West Virginia 3.0 core and overall GPA and 22 composite ACT with 20 or higher on all sub-scores Florida private institution Full tuition and fees plus $150 book allowance if enrolled for at least 6 hours. $1,750 at Georgia private school for full-time study Incremental based on high school GPA and ACT up to $2,500 per year at any instate institution $1,191 average At in-state institutions: Palmetto-$6,700 first year and $7,500 thereafter; LIFE-$4,700 per year plus $300 book allowance; HOPE-$2,800 plus $300 book allowance $4,000 per year at Tennessee institution; ASPIRE-$1,500 supplement per year; Merit Scholarship-$1,000 supplement per year Full tuition and fees at a state public institution or equivalent amount at instate private institution Note: * Award Amounts shown are for full-time undergraduates at 4-year universities. Table 1 shows that there is a diversity of eligibility criteria across lottery-funded SREB states, and several states have tiered awards with varying amounts that are linked to high school academic achievement levels. Georgia and West Virginia scholarships, for example, pay for full tuition, whereas other states have set award amounts.

5 Lottery Funded Scholarships and Increasing Tuition p. 3 Retention requirements are shown in Table 2, where it may be noted that there is also considerable discrepancy in academic standards, but the maximum duration of awards is commensurate across states. Tennessee does allow one more year to finish an undergraduate program with a scholarship than the traditional four years of college classes. Table 2: State Merit Scholarship Award Continuation Requirements and Maximum Duration of Award, State Award Continuation Maximum Duration Florida Requirements Academic Scholars-3.0 GPA, at least 6 hours per term Medallion Scholars-2.75 GPA, at least 6 hours per term of Award 132 hours Georgia 3.0 GPA, 127 hours 127 hours Kentucky North Carolina South Carolina Tennessee West Virginia 2.5 GPA to renew second year; 3.0 thereafter Meets institution s standard of satisfactory performance 3.0 GPA, 30 credit hours per year 2.75 GPA through 48 hours, 3.0 thereafter, or cumulative with 3.0 for preceding term; 6 hours per term 2.75 GPA for first year and 3.0 cumulative thereafter, 30 credit hours per year 8 semesters 8 semesters Palmetto and LIFE-8 semesters; HOPE-freshman year only 5 years 8 semesters

6 Lottery Funded Scholarships and Increasing Tuition p. 4 Question of Relationship Between Lottery Scholarships and Rising Tuition To address the question of any relationship between lottery scholarships and rising tuition, the examined tuition and fees data obtained from the Southern Region Education Board s (SREB) State Data Exchange in three ways: (1) percentage changes in tuition and fees 2 years before and 2 years after each state s respective lottery debut (Chart 1), (2) changes in dollars each of these years before and after the state s lottery debut (Chart 2), and (3) annual changes in dollars 2 years before and 2 years after South Carolina s lottery debut among all SREB states (Chart 3). The lottery debut for each SREB state with lottery-funded scholarships is highlighted in yellow in Table 3. South Carolina became the reference state for comparisons after observing the relatively larger tuition and fee increases following their lottery debut (Chart 1). In Florida, Georgia, and Tennessee, for example, the tuition and fee increases were less in the 2 years following their respective lottery debuts than in the preceding 2 years. The differences in tuition and fee increases between years preceding and succeeding lottery debuts in Kentucky and North Carolina are less than 4 percent. Only West Virginia rivals South Carolina in comparing preand post-lottery debut tuition and fees increases, where increases more than doubled in the former and more than tripled in the latter after their respective lottery debuts. Chart 2 shows the annual increases in dollars of tuition and fees for the same years examined in Chart 1. As seen in the bar chart and accompanying numerical table, South Carolina has significantly larger annual dollar increases in tuition and fees after their lottery debut than comparison states. Chart 3 displays the comparison of tuition/fee changes across all SREB states, irrespective of lottery-funded scholarships, for the 2 years before and 2 years after the South Carolina lottery debut. Using the same time frame for all states helps control for the external influences of national economy and policy trends. Chart 3 also indicates that South Carolina increases in tuition and fees after their lottery debut are substantially larger than other states. At the same time, it should be noted that some states without lottery-funded scholarships have larger tuition and fee increases during the same 2 years following the South Carolina lottery debut than they had in the preceding 2 years (e.g., Maryland, Virginia). Taken together, the data represented in these charts do not support a generalization that state lottery-funded scholarships necessarily lead to tuition increases. A review of the literature and research reveals that the linkage between tuition/fees and lottery scholarships is multifaceted, with complex interrelationships between factors such as legislative decision making, statewide governance of higher education institutions, economy, cultural influences, family income and education attainment, and stage of lottery development. Hence, definitive statements about any relationship between lottery-funded scholarships and tuition increases cannot be made. Based on this study of SREB states, it appears that factors in addition to, and perhaps working in tandem with, lottery scholarships provide conditions for tuition increases. A closer examination of a larger scope of social forces in South Carolina may provide clues in trying to construct a plausible explanation of how rising tuition came to characterize South Carolina, which potentially could be of informative value.

7 Lottery Funded Scholarships and Increasing Tuition p. 5 Closer Examination of South Carolina According to the South Carolina Policy Council (2007), once the South Carolina Constitution was amended to allow a state-regulated lottery, lawmakers crafted legislation that established an independent Lottery Commission that is legally separate from the State. The law directs revenue from the lottery to an Education Lottery Account, separate and distinct from the State s General Fund. This revenue can only be directed toward educational projects that fit within the confines of the Act, and the "appropriation must be used to supplement and not supplant existing funds used for education." In contrast, however, the South Carolina Policy Council (2007, p. 1) concludes: Lottery money is being used for a wide range of expenditures, many of which are clearly not supplemental to General Fund spending on education and which involve reoccurring or programmatic spending. This was not the intent of the founding legislation. The use of lottery money has resulted in broader changes in spending habits as well. Rather than merely complimenting existing educational spending, the infusion of lottery money has subsidized reoccurring appropriations for the Universities, who have responded by raising tuition. Most scholarship recipients now pay more out-of-pocket than they would have before the introduction of the Education Lottery. Lottery money is an unstable and regressive revenue source. Sharply focusing this money on programs that supplement core educational expenditures will safeguard operational budgets against a cash crunch when lottery inputs decline. In addition to narrowing the focus of lottery money, policymakers need to ensure that lottery funding does not have the peripheral effect of fueling excessive departmental growth that will require even greater General Fund spending in the future. Nationally, colleges and universities are responding to the pressures of inflation, technology development, and capitol upkeep with tuition hikes (College Board, 2008). There also is a nationwide trend toward greater reliance on tuition and fees as a revenue source for public higher education institutions. However, the tuition increases in South Carolina are about double national figures. Since the introduction of the lottery, the annual growth in tuition at University of South Carolina and Clemson has averaged 13%, compared to 6% nationally (South Carolina Policy Council, 2007). According to the South Carolina Policy Council (2007), despite the $5,000 per academic year in student assistance in from the LIFE scholarship, the tuition at Clemson University was $9,400. This meant a payment of $4,400 for the recipient of the largest LIFE scholarship attending Clemson. In the year of the lottery adoption ( ), the tuition at Clemson was $3,590, or $810 less than what was owed by students with the largest lottery scholarship in The Council (2007, p. 4) concludes, "While the Education Lottery was designed to cut the amount families paid for college, the infusion of money in the form of scholarship (and the resultant shift away from direct General Fund appropriations for operations) has driven up tuition so high that its growth has actually outpaced the savings it initially offered to students in the form of scholarships."

8 Lottery Funded Scholarships and Increasing Tuition p. 6 When colleges and universities began receiving greater revenues through tuition, the South Carolina General Assembly decreased the State Reoccurring Appropriation, starting in , the year of the transition into Education Lottery Scholarships. More recently, beginning in , these reoccurring appropriations have been increased but the tuition rate charged to students continue to rise as well. Tuition and fees accounted for 31% of operational revenue at Clemson and USC in , up from 20% at Clemson and 24% at USC in In the same 5-year period, the state appropriations share declined from 38% to 27% at USC and from 40% to 26% at Clemson (South Carolina Policy Council, 2007). Summary Taken as a whole, the findings of this examination (Chart 1) could lead to the conclusion that rising tuition results from limited state control over what universities and colleges can charge students. The states where tuition increases are less in years following the lottery debut than in preceding years have more putative control over tuition than South Carolina. For example, in Florida the Board of Regents, in tandem with the Legislature, decide tuition, 1 a decisionmaking structure that is similar to the one found in Georgia. 2 The Tennessee Higher Education Commission, in conjunction with the Board of Regents and the University of Tennessee, decide tuition in that state. 3 These are the 3 states where tuition increases diminished after the lottery debut in comparison to prior years. However, the conclusion that post-lottery debut tuition increases were larger in South Carolina because individual institutions have liberty to set tuition levels overlooks the cuts made in state funding for universities and the use of lottery funds for non-educational purposes (South Carolina Policy Council, 2007). At the same time, West Virginia does provide an another example of a state where tuition is largely determined at the local level by individual institutions of higher education, although in all of these states the legislative and executive branches of government have sway by virtue of budge appropriations.

9 Lottery Funded Scholarships and Increasing Tuition p. 7 Examination of West Virginia The State Legislature in West Virginia passed legislation creating the PROMISE Scholarship Program in 1999, but the program was not funded until The enabling legislation for PROMISE established initial criteria for students to receive the scholarship; however, those criteria have changed over time. Full funding of the first four classes of PROMISE scholars was initially estimated to cost $27 million. The actual cost, however, was just under $40 million. Not only had more students than expected qualified for the scholarship, but also more students than anticipated had accepted the scholarship. In response, the PROMISE Board of Control raised standards (by setting minimum sub-scores on the ACT) in October, 2003, beginning with the class of The more stringent requirements, however, had negative consequences. Data from the West Virginia Higher Education Policy Commission indicated that lower-income students would be disproportionately affected by those higher standards. Based on this information, the Board of Control resolved to maintain the original ACT and SAT standards in fall 2005, and cut costs by reducing the dollar value of the scholarship. The proposal was for students to receive a flat rate of scholarship assistance, a well-established practice in most states, instead of receiving a full tuition payment at state institutions. However, the State Legislature did not concur with this decision, and in March, 2006 amended the enabling legislation governing the PROMISE program and mandated that scholars receive full tuition scholarships to state institutions. Furthermore, House Bill (HB) 4049 directed the Board of Control to keep the program within a specified budget. In the event of a projected budget shortfall, the Board of Control was required to raise academic eligibility standards. Despite the decline in the number of overall recipients of the PROMISE scholarship, programmatic expenditures have risen steadily each year since 2004 because the award is tied to tuition (scholarship amount is the tuition amount). Given that projected ongoing costs of the program are a function of tuition levels and enrollment, West Virginia has to consider the size of the high school population when estimating expenditure levels. For the 2008 academic year, 18,029 students graduated from high school. On average over the past three years, 19 percent of these students go on to become PROMISE scholars. These figures are used by the Board of Control in deciding PROMISE award criteria. The attendance patterns of PROMISE scholars mirror the overall enrollment shift. The public four-year institutions have seen increases in number of students, whereas enrollment in the public two-year schools has remained stable and the private schools have incurred losses. The data indicate that Marshall University and West Virginia University together account for over 70% of PROMISE awardees within the public four-year institutions and over 62% of awardees overall. Among these two universities, the proportion of recipients at Marshall University has decreased between 2002 and 2006, while the proportion continues to rise at West Virginia University. West Virginia University s share of all in-state college enrollment increased significantly after the creation of PROMISE. This pattern of awards has significantly increased the cost of the PROMISE program because West Virginia University charges the highest tuition among the public four-year institutions and PROMISE costs are largely tied to its tuition and fees.

10 Lottery Funded Scholarships and Increasing Tuition p. 8 Summarily, as a result of a host of proposals to alter PROMISE during the 2008 regular legislative session, and a request by Governor Joe Manchin, the West Virginia Higher Education Policy Commission (HEPC) has convened an assemblage of educational leaders from across the state to review issues pertaining to the PROMISE Scholarship Program (West Virginia Higher Education Policy Commission, 2008). As a result of this review and HEPC's recommendations, in 2009 the West Virginia legislature moved to cap Promise scholarships. To contain costs, the governor proposed instituting an award limit for the merit-based PROMISE scholarship program. In response, the Legislature approved Senate Bill 373, placing a cap of $4,750 per year or the cost of tuition (whichever is less) on awards; the cap does not apply to students who received awards prior to January 1, In conclusion, it should be noted that South Carolina and West Virginia are not the only states where tuition and fees have been impacted by lottery-funded scholarships. A Harvard economist (Long, 2004) studied the impact of Georgia s financial aid policies on decisions made by its colleges and universities. She found that institutions, both public and private, responded to the new (indirect) infusion of money by ratcheting up spending and raising tuition, fees, and other student charges. Furthermore, these institutions also cut back on their own forms of student assistance by 20%. Officials at the Georgia Institute of Technology have complained that expansion of the HOPE scholarships, paired with formal caps on state tuition, causes lawmakers to further reroute money from the general reoccurring appropriations to lottery scholarships in order to sustain the latter. Footnotes:

11 Lottery Funded Scholarships and Increasing Tuition p. 9 References College Board (2008). Trends in College Pricing Washington, DC: The College Board. Doyle, W.R. (2006). Adoption of merit-based student grant programs: An event history analysis. Educational Evaluation and Policy Analysis, 28, Heller, D.E. (2006). Merit Aid and College Access. Paper presented at the Symposium on the Consequences of Merit-Based Student Aid, Madison, WI. Long, B. (2004). How do financial aid policies affect colleges? The institutional impact of the Georgia HOPE Scholarship. The Journal of Human Resources, 39, 1-4. National Center for Education Statistics (2007) and Integrated Postsecondary Education Data System, Spring 2004, Spring 2005, Spring Retrieved on August 3, 2009, from, South Carolina Policy Council (2007). Supplement or Supplant: Is South Carolina spending its education lottery revenues wisely? Retrieved July 24, 2009, from, Southern Regional Education Board (2009). Legislative Report, No. 5. August, Retrieved on August 6, 2009, from, West Virginia Higher Education Policy Commission (2008). Final report of the Promise Scholarship Ad-Hoc Advisory Committee. Retrieved on July 24, 2009, from, Wickline, M. (2009). Lottery panel warned on tuition rises Council co-chairman urges safeguards for scholarships' long-term value. Arkansas Democrat/Gazette, July 15, 2009, p 9.

12 Table 3: Median Annual Tuition and Required Fees for Full-Time, In-State Undergraduate Students United States $2,076 $2,235 $2,402 $2,523 $2,601 $2,850 $2,929 $3,067 $3,206 $3,407 $3,728 $4,199 $4,579 $4,982 $5,264 $5,469 SREB Median 1,649 1,770 1,833 1,958 2,067 2,210 2,372 2,533 2,700 2,965 3,253 3,660 4,043 4,351 4,636 4,980 Alabama 1,617 1,786 1,920 2,024 2,160 2,355 2,475 2,852 3,007 3,294 3,532 3,842 4,243 4,466 4,706 5,040 Arkansas 1,560 1,700 1,888 1,970 1,992 2,156 2,736 2,972 3,046 3,209 3,458 3,851 4,468 4,700 5,210 5,689 Deleware 2,755 2,957 3,116 3,268 3,533 3,692 3,765 4,057 4,237 4,486 4,873 5,397 5,965 6,389 6,743 7,148 Florida 1,701 1,757 1,791 1,798 1,884 2,023 2,132 2,264 2,392 2,556 2,696 2,908 3,092 3,268 3,353 3,514 Georgia 1,686 1,730 1,785 1,884 2,004 2,124 2,212 2,296 2,410 2,478 2,576 2,784 2,906 3,044 3,236 3,601 Kentucky 1,580 1,750 1,831 1,970 2,050 2,145 2,267 2,404 2,549 2,787 3,126 3,590 4,176 4,814 5,320 5,817 Louisiana 1,820 1,981 1,987 2,017 2,017 2,068 2,136 2,206 2,368 2,441 2,515 2,928 3,240 3,346 3,438 3,595 Maryland 2,646 2,874 3,024 3,260 3,480 3,804 3,966 4,122 4,312 4,504 4,974 5,564 5,976 6,376 6,412 6,550 Mississippi 2,308 2,308 2,385 2,385 2,385 2,425 2,687 2,687 2,787 3,205 3,536 3,536 3,837 3,994 4,236 4,447 North Carolina 1,246 1,383 1,457 1,618 1,664 1,737 1,793 1,889 1,993 2,350 2,795 2,927 3,273 3,410 3,811 4,045 Oklahoma 1,379 1,504 1,523 1,666 1,688 1,850 1,871 1,977 1,993 2,180 2,346 2,763 3,007 3,270 3,493 3,841 South Carolina 2,650 2,950 3,036 3,060 3,112 3,270 3,350 3,410 3,624 3,868 4,704 5,460 6,100 6,668 7,234 7,735 Tennessee 1,670 1,770 1,697 1,932 2,014 2,200 2,384 2,566 2,813 3,190 3,454 3,852 4,134 4,500 4,688 5,062 Texas 1,322 1,534 1,636 1,790 1,992 2,210 2,407 2,534 2,692 2,892 3,278 3,830 4,182 4,788 4,914 5,428 Virginia 3,427 3,773 3,907 4,022 4,088 4,129 4,219 3,604 3,645 3,670 4,277 4,899 5,291 5,730 6,194 6,597 West Virginia 1,731 1,888 1,988 2,050 2,116 2,184 2,276 2,408 2,486 2,585 2,816 3,168 3,621 3,922 4,177 4,462 Note: Georgia Median Annual Tuition/Fees obtained from SREB - State Data Exchange for calculating 2 years changes in Diagram 1. The SREB median is the average of the two SREB Median states. This value is based on the Median Annual Tuition and Required Fees for all 16 SREB states, not just those with lottery scholarships Cells highlighted in yellow indicate year the lottery scholarship was adopted/implemented Source: SREB- State Data Exchange; SREB analysis of the National Center for Education Statistics data tapes.

13 Chart 1: Percentage of Change in Tuition/Fees Two Years Before and Two Years After Each State's Lottery Debut Before After FL GA KY NC SC TN WV Before After

14 Chart 2: Annual Dollar Increases Two Years Before and Two Years After Lottery Debut After 1 After 1 Before 2 Before FL GA KY NC SC TN WV 2 After After Before Before

15 Chart 3: Annual Dollar Increases Two Years Before and Two Years After South Carolina Lottery Debut After 1 After 1 Before 2 Before AL AR DE FL GA KY LA MD MS NC OK SC TN TX VA WV 2 After After Before Before