Budget cuts and tuition hikes are changing schools’ revenue models

Tori Gill has been planning ahead.

A 2009 graduate of UNC-CH, Gill has already begun researching strategies to finance her 11-month-old daughter’s college education. Apart from deciding which savings account to open and which bank to partner with, Gill said one question looms above the rest — how much will it cost?

“I don’t know what it’s going to look like in 18 years when it’s time for us to send her to college,” she said.

A ‘spiral out of control’

Families nationwide continue to grapple with the rising costs of higher education. Public universities, which typically rely on state appropriations as a primary source of funding, increased their tuition and fee rates at a higher percentage than private universities this year.

Tuition and fees for in-state students increased by 8.3 percent to an average of $8,244 at public universities, while private universities increased their tuition and fees by 4.5 percent to an average of $28,500, according to data compiled by the College Board. And that doesn’t include additional costs such as room, board and textbooks.

UNC-CH’s Board of Trustees approved a tuition hike proposal of $2,800 earlier this month that would be phased in during a five-year span, including an increase of 15.6 percent for in-state students next year.

A new Four Year Tuition Plan approved by the UNC-system Board of Governors last year maintained a 6.5 percent cap on tuition increases, but a clause in the plan permitted universities to propose one-time increases above the cap if they justified a need to “catch up” to the tuition and fees of their public peer institutions.

University administrators are using that clause to propose the temporary increase.

But Sandy Baum, a co-author of the College Board report, said if UNC-CH’s tuition increases are ultimately approved, there would be no looking back and tuition would more than likely not return to lower levels.

“Tuition will keep rising,” she said. “It’s pretty unrealistic for them to go back.”

Tuition and fees at UNC-system schools have traditionally been lower than comparable institutions, but families in the state have devoted a larger portion of their income to higher education costs in the last two decades.

While the median family in the state contributed 3.2 percent of their income to tuition and fees at UNC-CH in 1989, that percentage increased to 5.1 percent in 1999 and 10.4 percent in 2009. If UNC-CH raised tuition by 6.5 percent for the next five years in addition to the proposed supplemental increase of $2800, tuition would comprise 18.8 percent of the median family’s income based on 2009 levels.

Median family income is calculated each decade as a part of the federal census.

Sen. Richard Stevens, R-Wake and former member of the UNC-CH Board of Trustees, said middle-class families often bear the brunt of tuition increases.

“The folks that have a lot of money will be able to go regardless of the cost,” he said. “The folks that have no money will have opportunities through various student aid methods. At what point do you squeeze out the middle class from being able to attend one of our campuses?”

All universities must submit their tuition increase proposals to the system’s General Administration by Dec. 9. The board will consider the proposals before sending its recommendations to the N.C. General Assembly for final approval.

Several universities in the system have discussed proposals to increase tuition by a percentage above the cap. Even if those schools would remain in the bottom quarter of their public peers’ tuition and fee rates — a requirement stated in the plan — board members must be sensitive to the impact of tuition increases on families in the state, said Brad Wilson, emeritus member and former chairman of the board.

“We need to act very carefully before we get into the habit of rationalizing a dramatic exception to the policy that we have in place,” he said. “You can start to spiral out of control.”

Defining ‘practicable’

The potential for substantial tuition hikes at UNC-system schools has also raised concerns about the state’s legal obligation to provide an affordable university education.

Suzanne Ortega, the system’s senior vice president for academic affairs, said raising tuition is one of a series of strategies to ensure the UNC system maintains its academic reputation after budget cuts.

A state funding cut of 15.6 percent, or $414 million, prompted universities to eliminate about 3,000 filled positions and hundreds of course sections this year. The UNC system has cumulatively absorbed more than $1 billion in state funding cuts during the last five years.

But rapid tuition increases could begin to violate administrators’ constitutional responsibility to in-state students, said Rep. Rick Glazier, D-Cumberland and a member of the House appropriations subcommittee on education.

The N.C. Constitution states that system schools must provide a free university education for state residents “as far as practicable.”

Increases within the bottom quarter of tuition and fee rates at universities’ public peers will not necessarily prevent them from fulfilling their constitutional mandate, Ortega said.

“One strategy for figuring out what is as free as reasonably practicable is to say if 75 percent of all universities are above where you are, you must be doing a pretty good job of containing costs,” she said. “That seems like a reasonable approach.”

At a panel discussion of former UNC-system presidents and current President Thomas Ross earlier this month commemorating the 40th anniversary of the consolidated system, Bill Friday — the system’s first president — said universities must also be cognizant of the benefits university graduates reap for the state.

“The University, and all of its campuses, is the agent that produces the people who will lead this state in the next half-century,” he said. “We’ve got to be about making certain that it will continue to draw the talent in regards to price.”

Community college transfers

As UNC-system administrators deliberate measures to curtail costs at universities, many have suggested partnering with one of the state’s other educational entities — the N.C. community college system.

Students who attend one of the state’s 58 community colleges for two years would be able to save money and fulfill general education requirements before transferring to a university, administrators say. Collaboration between the systems could also ease the credit transfer process for students.

At the UNC-system presidents’ panel, former president Erskine Bowles said he expects administrators to continue removing the barriers between community colleges and universities to create a “seamless” transition for students.

“I think in the future you’ll see more and more kids start there if for no other reason than economics and then end up transferring to one of our 16 institutions,” he said.

For the 2009-10 academic year, 87 percent of students who transferred from community colleges performed as well as or better than students native to UNC-system schools, said Megen Hoenk, spokeswoman for the community college system, in an email.

But increased enrollment at the state’s community colleges could begin to strain the system’s resources. Enrollment increased by 28 percent from 2007 to 2010, and community colleges received a state funding cut of 10.7 percent this year.

“When you experience this amount of growth, physical capacity is strained,” Hoenk said. “Class availability becomes limited and students are unable to immediately enter into the courses or programs of their choice.”

Transferring from a community college might also begin to undermine the traditional four-year university experience, Stevens said.

“They would miss that first two years of on-campus experience,” he said. “But given the financial times we’re in, the University is going to have to continue to look at alternative options moving forward.”

Academic-industrial complex

Administrators have also recommended utilizing online courses and technology to provide a seamless and cost-efficient university education.

Jim Woodward, former chancellor of UNC-Charlotte and N.C. State University, suggested universities develop an online course pool and system-wide registration tool for students in a report presented to the Board of Governors earlier this month. The system has announced that it will hire a new director of online services by March.

The expansion of online services will stunt growth of the system’s “academic-industrial complex,” said Hannah Gage, chairwoman of the board.

Board members declined to approve the construction of a new pharmacy school for UNC-Greensboro last year, opting instead to extend instruction at UNC-CH’s Eshelman School of Pharmacy to satellite programs across the state. Their decision represented a turning point for the board, Gage said in an email.

“This was when we decided as a board to move away from the stand-alone model towards a collaborative model,” she said. “We can no longer afford stand-alone schools when high-quality education can be delivered less expensively with technology.”

Technology has been the focal point of evolving instructional methods at N.C. Central University’s School of Law, one of the only law schools in the country with a virtual classroom for legal clinics.

The school secured a federal stimulus grant of $1.8 million last year to finance construction of the “telepresence” room.

Broadband technology enables NCCU’s law students to interact with their clients in real time and advise them on a number of legal issues, such as foreclosure prevention. Students have already served more than 1,900 clients at 20 locations across the state, said Pam Glean, assistant dean for clinical and professional skills at NCCU’s law school.

Glean said the clinical programs provide poor residents with free legal aid, another item in the state budget that has received less funding in recent years.

“There is absolutely no substitute for every person who needs to have a lawyer, to have a lawyer,” she said. “What this does is allows us to use our resources and our expertise to serve more people.”

Although universities have begun to integrate technology into their programs, questions remain about implementation on a system-wide scale. Rep. Glazier said schools should exercise caution before shifting all of their programs to an online format.

“Online is not a panacea,” he said. “There are certain courses you can do online and certain students who are available to really benefit from online capacity, but there are limits to that.”

But Raymond Pierce, dean of the NCCU law school, said universities should view the use of online technology as a potential source of revenue. NCCU’s telepresence room could generate enough revenue to sustain itself and support the school’s legal education program in the future, he said.

“Every university in the state should have a responsibility of identifying and executing plans to generate revenue beyond raising tuition and taxing people,” he said. “That’s how we’re going to remain competitive and remain relevant.”

Restoring state support

While universities consider several measures to cut costs and minimize tuition increases, administrators say their hands are tied unless the UNC-system’s traditional source of funding — state appropriations — is restored.

State funding comprised 39 percent of UNC-CH’s revenues in the 1989-90 academic year, as opposed to 7 percent for tuition and fees. But the gap between those percentages has narrowed in recent years, with state funding accounting for 23.4 percent of University revenues and tuition and fees accounting for 10.7 percent by 2009-10.

When the first Republican majorities at both chambers of the state legislature since 1898 convened in January, administrators feared that a gaping budget deficit of $3.7 billion would result in more state funding cuts for universities. The deficit later decreased to $2.4 billion, and legislators opted to sunset a one-penny sales tax.

The sales tax would have generated about $1 billion in revenue for the state, which would have reduced the UNC system’s budget cuts by almost half, Gage said. The deeper cuts to education might begin to “thaw” public sentiment toward tax increases, she said.

“I sense that there is a change in how people feel, primarily because those that have kids in K-12 are seeing more crowded classrooms,” she said.

But there are limitations to focusing the system’s lobbying strategy on raising taxes.

“Nobody’s going to step out and say we want taxes,” Gage said.

Sen. Stevens said legislators aimed to lessen the impact of a difficult economic period for state residents by balancing the budget and expiring taxes. The state’s unemployment rate of 10.4 percent ranks among the 10 highest in the nation.

Revenue in the state’s General Fund is expected to register about 3 percent growth in fiscal year 2011 — bringing revenues closer to 2007 levels — according to analysis by the Office of State Budget and Management. Tuition and fees increased by 1.1 percent at UNC-CH in 2008-09.

“I hope the worst is behind us, and that we’ll be able to get back to more of the full state funding,” Stevens said. “I don’t know that will necessarily mean there won’t be any tuition increases.”

For Gill, a resident of Charlotte, tuition increases will create an element of uncertainty surrounding her daughter’s future until she begins to apply for schools.

“We can start planning it now, but are we going to be completely under by the time we get there?” she said.

Contact the State & National Editor at state@dailytarheel.com.

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