Overview of Guaranteed Tuition Plans

Transcription

1 ACADEMIC AFFAIRS FORUM Overview of Guaranteed Tuition Plans Custom Research Literature Review Research Associate Anna Coll Research Manager Nalika Vasudevan December 2012

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3 3 of 12 Table of Contents I. Research Methodology... 4 Project Challenge... 4 Project Sources... 4 I. Executive Overview... 5 Key Observations... 5 II. Overview of Guaranteed Tuition Plans... 6 Structure of Guaranteed Tuition Plans... 6 III. Benefits and Drawbacks of Guaranteed Tuition Plans... 7 Benefits of Guaranteed Tuition Plans... 7 Drawbacks of Guaranteed Tuition Plans... 8 Appendix: Master s Colleges (Larger Programs) with Guaranteed Tuition Plans Between 2008 to

4 I. Research Methodology Project Challenge Leadership at a member institution approached the Forum with the following questions: What institutions have offered guaranteed tuition plans? Have institutions abandoned guaranteed tuition plans? How do administrators calculate guaranteed tuition rates? What are the benefits and drawbacks of guaranteed tuition plans? 4 of 12 Project Sources The Forum consulted the following sources for this report: Clark, Kim. How to Cut College Costs by $5,000. U.S. News and World Report, May 24, DeVise, Daniel. "Fixed-rate tuition can minimize college-price angst." The Washington Post, July 17, Diamond, Jed and Moore, Sarah. Transitioning to Flat-Rate Tuition. Washington, DC: The, Insights/Academic-Affairs-Forum/Custom/2012/06/Transitioning-to-Flat-Rate-Tuition. Ellis, Blake. Private college tuition rises 3.9%. CNN, October 4, Guaranteed Tuition Option. Baylor University Student Financial Services. Accessed December 6, Hebel, Sara. "Push for Tuition Predictability." The Chronicle of Higher Education, May 20, Metropolitan College of New York, "Student Financial Services: Tuition Rate Guarantee." Accessed December 6, Morphew, Christopher C. Fixed Tuition Pricing: A Solution That May Be Worse Than the Problem. The Magazine of Higher Learning 39: 1 (2007). National Center for Education Statistics (NCES). Accessed December 6, Northern Illinois University. "Truth-In-Tuition: Public Act Undergraduate Tuition Policy." Accessed December 6, Supiano, Beckie. Locked-In Tuition Is a Win for Families but a Tough Sell for Colleges. The Chronicle of Higher Education, April 14, Tuition-Is-a-Win-for/ Turner, Dorie. Fixed for Four tuition dumped. Athens Banner-Herald, April 15, University of Colorado-Boulder. Percent of bachelor s degree recipients who graduated in 4 years or less. Accessed December 6, University of Oklahoma, "Office of the Bursar: Information for Students and Parents about the Guaranteed Tuition Program." Accessed December 6,

5 I. Executive Overview Key Observations 5 of 12 Guaranteed tuition plans help families accurately budget for the cost of higher education, as students pay a fixed rate determined by administrators for four years. Guaranteed plans also incentivize timely degree completion because the fixed rate typically expires after the specified four-year degree completion period. However, the effect of guaranteed tuition plans on graduation rates is inconclusive. Administrators must accurately predict future institutional budgets and expenses to establish guaranteed tuition rates. Administrators that underestimate projected tuition increases for coming years must pass the financial burden on to incoming classes through higher tuition rates. The financial risk of guaranteed tuition plans is lower at private institutions because they do not rely on fluctuating state support. Public institutions are also more likely than private institutions to abandon guaranteed tuition plans. Underclass students pay a higher tuition rate under a guaranteed tuition plan than they would pay under a regular tuition plan because the guaranteed rate is set high enough to account for projected cost increases in future years. This accelerated cost for first- and second-year students deters program participation although families may pay less tuition over a four-year period. Guaranteed tuition plans also penalize students that transfer or drop out. Students enrolled in a guaranteed tuition plan who do not persist will have paid a higher annual tuition rate than peers enrolled in a regular tuition plan.

6 6 of 12 II. Overview of Guaranteed Tuition Plans Structure of Guaranteed Tuition Plans Guaranteed Tuition Plans Fix Tuition Rates Over Four Years Institutions with guaranteed tuition plans allow students to pay a single tuition rate, which administrators determine for a fixed period of time, typically four years. Guaranteed tuition plans are also known as tuition locks, tuition guarantees, stable tuition fees, fixed tuition plans, and flat rate tuition plans. Administrators set rates based on the projected tuition rate average for the next four years. Underclassmen enrolled in guaranteed tuition plans therefore pay accelerated costs that are higher than the regular tuition rates their peers pay. Sample Four-Year Tuition Rates Assuming Six Percent Annual Regular Tuition Increase 12,500 12,000 11,500 11,000 10,500 10,000 9,500 10, , ,000 10,600 11,236 10, , , ,000 Year 1 Year 2 Year 3 Year 4 Traditional Tuition Rate ($) Guaranteed Tuition Rate ($) Guaranteed tuition plans are mandatory or voluntary. For example, every student that attends the Metropolitan College of New York participates in a guaranteed tuition plan. 1 In contrast, state legislation permits first time, in-state, and full-time undergraduate students enrolled in public universities in Oklahoma to participate in a guaranteed tuition rate program or pay the annual rate charged each year. 2 1 Metropolitan College of New York, Student Financial Services: Tuition Rate Guarantee, 2 University of Oklahoma, Office of the Bursar: Information for Students and Parents about the Guaranteed Tuition Program,

7 7 of 12 Master s Colleges Abandon Guaranteed Tuition Programs at a High Rate Eighty-six private institutions and 93 public institutions offered guaranteed tuition programs between 2008 and Some public institutions adopted plans to comply with state legislation. For example, 12 public institutions in Illinois offer undergraduates a four-year tuition guarantee in accordance with the state s Truth-in-Tuition bill. 1 Forty-six Master s colleges and universities with larger programs offered guaranteed tuition programs between 2008 and Of these, only 13 have maintained programs, including Oklahoma City University, which will end its guaranteed tuition program for students that enroll after the fall 2012 semester. III. Benefits and Drawbacks of Guaranteed Tuition Plans Benefits of Guaranteed Tuition Plans Guaranteed Tuition Plans Create Cost-Transparency for Students and Families Between 1999 and 2009, tuition rates increased by an average of 5.7 percent per year at private institutions. 2 Tuition increases since the 2009 academic year have been more modest. For example, tuition and fees at private colleges and universities will increase by 3.9 percent for the academic year. 3 Guaranteed tuition plans allow families to accurately budget for the cost of higher education through consistent annual costs. Guaranteed Tuition Plans May Increase Graduation Rates Administrators adopt guaranteed tuition plans to motivate students to complete degrees within the four-year completion period. 4 Guaranteed tuition plans require students who continue their study after four years to pay the annual regular tuition rate for the remaining enrollment period. The University of Colorado-Boulder implemented a guaranteed tuition plan for undergraduate students paying non-resident tuition in The first cohort of non-resident undergraduate students enrolled in the plan graduated in spring The average four-year graduation rate for non-resident students between 2005 and 2008 was percent. This rate increased slightly to percent between 2009 and 2012, when the first four cohorts under the plan graduated. 1 Northern Illinois University, Truth-In-Tuition: Public Act Undergraduate Tuition Policy, 2 Blake Ellis, Private college tuition rises 3.9%, CNN, October 4, 2012, 3 Ellis. 4 Jed Diamond and Sarah Moore, Transitioning to Flat-Rate Tuition (Washington, DC:, 2012), 6,. Insights/Academic-Affairs-Forum/Custom/2012/06/Transitioning-to-Flat-Rate-Tuition.

8 8 of 12 Four-Year Graduation Rates for Non-Resident Undergraduate Students at University of Colorado-Boulder 2005 to % 60% 59% 60% 59% 57% 53% 59% 60% 65% 50% 40% 30% 20% 10% 0% Guaranteed tuition program implemented in Fall 2005 First cohort of students enrolled in guaranteed tuition program graduates in Spring 2009 Source: University of Colorado Office of Planning, Budget, and Analysis. Four-year graduation rates also increased at the majority of institutions that introduced guaranteed tuition plans profiled in a previous report. 1 However, contacts described that other institutional initiatives may have contributed to higher graduation rates, and that higher rates should not be attributed to guaranteed tuition plans alone. Drawbacks of Guaranteed Tuition Plans Guaranteed Tuition Plans Increase Financial Risk for Institutions Calculation of tuition rates is the most difficult component of the planning process for guaranteed tuition plans. Administrators that offer guaranteed tuition plans must accurately anticipate inflationary expenses including utilities costs, health care costs, and the costs of various institutional initiatives. 2 Provosts and deans should collaborate with the chief financial officer, who possesses a better understanding of revenue streams and future institutional expenses, to select appropriate price points for guaranteed tuition plans. 3 1 Diamond and Moore, Christopher C. Morphew, Fixed Tuition Pricing: A Solution That May Be Worse Than the Problem, Change: The Magazine of Higher Learning 39:1 (2007): 37, 3 Diamond and Moore, 9.

9 9 of 12 Rates must also be high enough to prepare for all budget scenarios. 1 Financial risk is higher for public institutions with guaranteed tuition plans because state appropriations are volatile. Central Michigan University eliminated its guaranteed tuition plan in the summer of 2008 when state appropriation levels became less predictable. 2 Hypthetical Process to Assess Financial Risk of Guaranteed Tuition Plan Is your institution private? Is enrollment at your institution increasing? Can administrators confidently predict increases in institutional costs in the next four years (e.g., health care costs and costs of institutional initiatives)? Are economic conditions relatively stable? If you answered YES to most of the above questions, the financial risk of a guaranteed tuition plan is low. Budgets at private institutions are more predictable because they do not depend on state allocations. Economic certainty and a clear sense of future institutional costs allow administrators to accurately set price points for guaranteed rates. In addition, increasing enrollment rates provide a financial cushion to institutions with guaranteed tuition models. 3 If you answered NO to most of the above questions, the financial risk of a guaranteed tuition plan is high. Volatile levels of state support and unpredictable institutional costs increase the risk of miscalculating future costs to determine guaranteed tuition price points. A negative economic outlook and low enrollment rates eliminate financial safety nets for an institution with a guaranteed tuition plan. 3 Front-Loaded Tuition Plans are Difficult to Market and May Disadvantage Underrepresented Groups Underclass students enrolled in guaranteed tuition plans pay accelerated costs that are higher than the regular tuition rates their peers pay. 4 For example, an incoming student at Baylor University in 2006 that enrolls in the guaranteed tuition plan would pay $289 less in overall tuition over four years than a student under the regular tuition plan. However, the advertised tuition rate for a student s first year is higher under the guaranteed tuition plan. 1 Sarah Hebel, Push for Tuition Predictability, The Chronicle of Higher Education, May 20, 2005, 2 Beckie Supiano, Locked-In Tuition is a Win for Families but a Tough Sell for Colleges, The Chronicle of Higher Education, April 14, Supiano. 4 Morphew, 36.

10 10 of 12 Tuition Rates for Past Academic Years at Baylor University Academic Year Regular Guaranteed $10, $11, $11, $12, $11, $13, $12, $13, $13, $14, $14, $15, $15, $15, Source: Guaranteed Tuition Option, Baylor University Student Financial Services, accessed December 6, 2012, Administrators struggle to market guaranteed tuition plans because they appear more expensive at face value. For example, only 14 percent of students at Oklahoma City University chose to enroll in the University s guaranteed tuition plan in Families may also choose regular tuition plans over guaranteed tuition plans because they are concerned about students who transfer or withdraw. A student with a guaranteed tuition plan that withdraws or transfers as firstor second-year student will have paid a higher cost for those years than a peer under the regular tuition plan. According to Christopher Morphew, a scholar in higher education policy, guaranteed tuition plans are more likely to Morphew advises that administrators front-load financial aid to offset the potential negative effect of guaranteed tuition plans on underrepresented groups. negatively impact low-income, minority, or first-generation college students, who represent the majority of withdrawals. 2 Guaranteed Tuition Plans Have Mixed Effects on Revenues Guaranteed tuition plans at institutions profiled in previous research provided a short-term increase in tuition revenue of one to several million dollars. 3 However, other institutions have lost revenue through guaranteed tuition plans. The College of St. Joseph in Vermont launched a guaranteed tuition program in 2009 but later abandoned the program because it lost approximately $5,000 in tuition over each enrolled student s College career. 4 The University System Board of Regents in Georgia also suspended its Fixed for Four guaranteed tuition program after three academic years. The Board predicted that the elimination of the program and other changes in tuition policies would save the state approximately $60 million in revenue over the fiscal year. 5 1 Supiano. 2 Morphew,38. 3 Diamond and Moore, Kim Clark, How to Cut College Costs by $5,000, U.S. News and World Report, May 24, Clark.

11 Appendix: Master s Colleges (Larger Programs) with Guaranteed Tuition Plans Between 2008 to 2011 Institution Location Type Program Abandoned 1. California Polytechnic State University San Luis Obispo, CA Public 11 of California State University Polytechnic University Pomona, CA Public 3. California State University - Bakersfield Bakersfield, CA Public 4. California State University Chico Chico, CA Public 5. California State University Dominguez Hills Carson, CA Public 6. California State Univerity- East Bay Hayward, CA Public 7. California State University Fresno Fresno, CA Public 8. California State University Fullerton Fullerton, CA Public 9. California State University Long Beach Long Beach, CA Public 10. California State Univeristy Los Angeles Los Angeles, CA Public 11. California State University Northridge Northridge, CA Public 12. California State Univeristy Sacramento Sacramento, CA Public 13. California State University San Bernardino San Bernardino, CA Public 14. Concordia University Irvine, CA Private 15. San Francisco State University San Francisco, CA Public 16. San Jose State University San Jose, CA Public 17. Sonoma State University Rohnert Park, CA Public 18. Armstrong Atlantic State University Savannah, GA Public 19. Brenau University Gainesville, GA Private 20. Columbus State University Columbus, GA Public 21. Georgia College & State University Milledgeville, GA Public 22. Kennesaw State University Kennesaw, GA Public

12 12 of University of West Georgia Carrollton, GA Public 24. Valdosta State University Valdosta, GA Public 25. Chicago State University Chicago, IL Public 26. Eastern Illinois University Charleston, IL Public 27. Governors State Unviersity University Park, IL Public 28. Northeastern Illinois University Chicago, IL Public 29. Southern Illinois University Edwardsville Edwardsville, IL Public 30. University of Illinois at Springfield Springfield, IL Public 31. Western Illinois University Macomb, IL Public 32. Notre Dame of Maryland University Baltimore, MD Private 33. Fontbonne University Saint Louis, MO Private 34. Southeast Missouri State University Cape Girardeau, MO Public 35. Missouri State University Springfield, MO Public 36. D Youville College Buffalo, NY Private 37. Metropolitan College of New York New York, NY Private 38. East Central Unviersity Ada, OK Public 39. Northeastern State University Tahlequah, OK Public 40. Oklahoma City University Oklahoma City, OK Private Last Guaranteed Tuition Plan for Students Entering Fall Unviersity of Central Oklahoma Edmond, OK Public 42. Western Oregon University Monmouth, OR Public 43. The University of Texas Pan American Edinburg, TX Public 44. Tarleton State University Stephenville, TX Public 45. Norfolk State University Norfolk, VA Public 46. Lakeland College Plymouth, WI Private Source: National Center for Education Statistics