Issue 3 (December 2010)

 

An Open Letter to President Yudof on this Year's Tuition Increase

Bob Meister

 

So, you’re raising tuition again—reluctantly, and because you feel you have no choice, but, still, you’re doing it. You raised it last year in a dollar amount that was close to what the state had cut from UC’s appropriation during the financial crisis. And this year you are raising it despite the fact that the state has restored half that dollar amount, thanks largely to student protests. I’ll pass over the fact that you’re not using funds from this year’s tuition increase to restore even half of last year’s instructional cuts on UC campuses. Instead, you encourage students to believe that two thirds of their new tuition will help avoid instructional cuts that would otherwise have occurred in some imagined future. It is evident to all, however, that UC’s instructional cost (cost per credit hour) is going down so that UC can channel funds into areas where costs are almost certain to go up—for example new construction projects that are unlikely to pay for themselves or research activities that will need to be subsidized (perhaps increasingly) by enrollment-generated funds. It seems that instruction is one of the few areas where UC administrators know how to economize, and that instructional fees are the only revenue stream that UC is confident of being able to increase, perhaps indefinitely. (1)

Why are you so sure that students will accept ever-increasing tuition even if instructional quality goes down? Well, I’ve never had the opportunity to ask you directly, but in my years of service on UC committees I’ve heard many times the usual explanation. It is, essentially, that higher education produces economic growth, which is why the state should pay for it. But economic growth also produces growing income inequality, which is why certain individual students should be expected to pay if the state does not. This theory made some sense in the late twentieth century when California’s high tech boom produced income growth only in the top 20% of the population (mostly educated), leaving 80% behind. In this context UC might reasonably expect the bottom 80% to be less willing to pay for higher education through taxes and the top 20% to be more willing to pay through increased fees. But in the twenty-first century, when almost all income growth has been in the top 1-2% of California’s population, UC is still marketing income inequality to students as its most important product: it now expects all students to pay more for an ever-shrinking chance of reaping the ever-growing rewards that our economy makes available to the few. Your plan to increase revenue through tuition growth is feasible, of course, only because the federal government still allows students to borrow more for education despite the greater likelihood that they will not be able to repay—student loans may be the last form of subprime credit available in our economy. As long as Californians regard equal educational opportunity as the same as equal access to credit, you can hope that they will borrow more for education as income inequality grows, even (and perhaps especially) in times of recession when economic opportunities are shrinking. If income inequality increases faster than the economy in good times, and also increases in bad times, it would seem that UC has a recession-proof plan for revenue growth, even though debt service on student loans can reduce post-matriculation spendable income for as long as 25 years. This cap is very recent—a reform enacted by the Obama administration, which recognized that students loans are not as easily repaid as they once were and that many higher education institutions are engaged in a form of predatory lending.

You have also recognized that financing higher education through increased personal debt is a growing problem for many students. That’s why you argue that UC tuition increases will not deter attendance provided that the Blue and Gold program, which relieves families from paying tuition increases, is available to a wider income band. Much of the press and the public seem to have bought your claim that higher tuition can actually make UC more accessible by extending UC’s Blue and Gold program to families with annual incomes of up to $80,000. But the tuition burden then falls disproportionately on those just above this cut-off, so you mitigate this obvious by giving students a one-year reprieve on tuition increases if they are otherwise eligible for aid and if they come from families with incomes of $120K or less, after which they will simply have to borrow more. (2) Your claim that higher tuition would leave the majority of UC students (55%) with undiminished or improved access is based on two assumptions: first, that the incomes of UC graduates will continue to grow—and to grow much faster, than those of other Californians, much as they did during the high tech boom; and, second, that Blue and Gold means that most UC students on financial aid will need to borrow less in order to attend.

According to your own, internal, financial aid studies, both of these assumptions are false. The first assumption is false because the income of UC graduates has not increased at all for the past ten years, and neither has the willingness of most students who borrow to take on greater debt. As a consequence of their growing debt-resistance, UC has a growing middle income access problem—it seems that students in the income band that takes on the greatest proportional debt are also transferring down within the Master Plan scheme—and 70% of Community College transfer students now go to for-profit institutions. (3) So, we now have a Master Plan that seems to operate in reverse.

The second assumption is false because raising the Blue and Gold income cap from $60K to $70K, and now to a proposed level of $80K, is not fully paid for by the 33% return-to-aid generated by higher tuition, which the public,  has been led to believe.  It is, rather, funded—and much more so as the cap goes up—by increasing the amount that all students are expected to provide as “self-help” (their “loan/work expectation”). This higher amount will then be subtracted from their total “financial need” before aid packages are awarded.

Your Financial Aid Directors have therefore criticized Blue and Gold as a “a political plan, not a practical plan” for improving middle income access, (4) because, as the Blue and Gold eligibility increases, the 63% of UC students now on financial aid would each receive smaller aid packages, and thus be expected to earn or borrow more for their education. So, yes, the “full financial need” of students will be funded, but the definition of “full financial need” will be changed so that all students currently eligible for financial aid, including those from very poor families, will be expected to pay more. (5) No wonder UC is expecting to lose middle income students, despite Blue and Gold. And no wonder you are changing UC’s admissions policy to replace those students with out-of-state students who now pay more to attend less prestigious universities in other states that do not have anything resembling the California Higher Education Master Plan. (6)

In June 2010 you asked your financial aid staff to report on the “middle income problem” in the aftermath of last year’s student protests against tuition increases. They studied the possibility of raising the Blue and Gold cap to families with incomes of $120K. This promise of discounted tuition would have provided 8000 additional students an average fee offset of $4.4K, but it would have cost $37M in new financial aid funds or in reductions to the aid packages of existing recipients. But you were not willing to use $37M of the funds Governor Schwarzenegger unexpectedly restored (or any other funds at your disposal) to mitigate last year’s fee increases for these students—and the UC Education Finance Model (EFM) Steering Committee was reluctant to proceed with what amounted to a public relations gimmick that added no new funds to financial aid, and would be paid for by reducing packages for existing recipients. They eventually compromised with you on a “Blue and Gold” guarantee of $80K that will require them to take much less out of student aid packages than the amount necessary to fund a $120K cap on Blue and Gold, which would have made a much bigger political splash. , The June financial aid study also presented a more radical alternative that would have capped the parental contribution at 10% for family incomes up to $120K. That approach would have cost $120M and benefitted 20,000 students by an average of $5.9K. (7) But it was not in the cards if you were looking for a public relations pitch that would give the appearance of greater middle income access to UC while costing it nothing, even as tuition goes up. That’s what your November 8 letter really does.

What do I think you should have said on November 8? The two of us would probably agree that UC should be tuition-free and tax-supported; that the tax system should be fair and progressive, and that the burden of debt (or savings) that many taxpayers already bear for social goods that should be public, such as healthcare and education, makes it hard for them to pay new taxes on top of their existing debt service. Our disagreement is over what you should say now—at the November Regents meeting and at every future Regents meeting. For you, it seems, the question is how fast to wean UC away from state funds. For activists on your faculty and staff (and here I speak for many) your constant, ongoing, task should be to articulate and embody the values of a public university as distinct from those of privates and for-profits. Some for-profits prey upon the fear of being left behind to drive students so deep into debt that they may never get ahead.  If you really want more taxpayer support for UC, you must come out against that fear. This means that you should stop selling income inequality (along with new technology)as UC’s most important product  and start selling greater equality. In every revenue model and in every spending priority UC needs to repurpose itself as the driver of greater social and economic equality it once was. Here are some modest steps you could take if your goal is to avoid UC privatization rather than to hasten it:

1)    You could ask the Regents to cap parental contribution at 8% (the amount paid by the poorest) for all families reporting income of up to, say, $140K.   A methodology of capping family contributions would at least introduce a hair’s breadth of difference between UC’s approach to middle income accessibility and tuition discounting that is offered by many privates that now have a lower “net tuition” than UC.

2)    You could ask the Regents to increase the return-to-aid portion from undergraduate tuition and put those funds into student grants.  Doing this could generate sufficient funds to finance a cap on parental contributions without having to increase the amount students are expected to provide in “self-help.”

3)    You could propose a free tuition option for all students, regardless of financial need, who are willing to pay a percentage (5-6% ?) of any future income above, say, the 75th percentile for a period of time, say, 15-20 years. This proposal could be funded with no additional revenue from the state if UC were to use its excellent bond rating on Wall Street to fund student access rather than new buildings that will in many cases raise its operating costs. (8) Issuing “tuition bonds,” rather than construction bonds, would signify a clear shift in UC’s priorities—and, as an alternative to higher student debt, it would mean that Wall Street and UC are willing to assume the risk that post-graduate income will grow faster than the economy, rather than placing all this risk on student borrowers, as is presently done. If Wall Street and UC think that such bonds could not be priced attractively, because of the high probability that the average income of UC graduates will remain stagnant, then UC has already reached to point where it should discourage students from taking on more debt to attend—and should publicly admit that higher tuition financed by greater student borrowing is no longer a viable plan for UC revenue growth.

I make this policy suggestion (which is mine alone) as a challenge to you and your Wall Street backers: I doubt that either UC or lenders would be willing to bet that the benefits of rising income inequality will be so widely shared among future UC graduates that bond financing could be used to finance free tuition up front for anyone who is willing to pay for higher education by taxing future income, or who is entering a profession where incomes are likely to be low. As a critic of funding public universities through tuition growth I am willing to be proven wrong on this, and, with reluctance, to accept the availability of a free tuition option as a rationale for imposing on steadily increasing tuition on those who decline this option, even if their tuition is funded by personal debt. (9)

To make steps 1-3 work, you would have to make educational access a much higher fiscal priority for UC than it is now, and to forego other priorities, including construction projects, that add costs to UC that may be more appropriate for private universities. You would also have to get favorable pricing on UC bonds that financialize the expected growth of income for college graduates, rather than (as presently) the ability of UC to raise tuition.  I doubt that you can, but this is what it would take to make greater middle income access compatible with higher without taking the money out of everyone’s financial aid as Blue and Gold would do. Here’

4)    As UC’s President, you could ask our Governor-elect, Jerry Brown, where he stands on the issue of middle income access and student debt before he joins the UC Regents and becomes part of the problem. He hasn’t yet made funding cuts that UC and its students should protest; he hasn’t said that UC should regard tuition as its main source of revenue growth. You thus have an opportunity to offer a long-term compact with our new Governor to reverse UC’s path to privatization (for example by rolling back tuition) in return for greater state support if and when the state economy improves. (10) If this discussion occurs, offering the free tuition option described above might be a good-faith gesture by UC to keep such a compact alive.

These are some suggestions—constructive, I hope—that build on the advice of your financial officials who must work to maintain middle income access as tuition rises. It’s disappointing that you have thus far rejected their advice by deciding to raise tuition without making financial aid a higher priority. Many faculty and staff within UC still believe in the values of the Master Plan and will not be silent when you make decisions that depart from those values. We know what we know, and we will talk. And as tuition rises more students may object to UC’s present path. The question is whether you will listen to them.

With best regards,

 

Bob Meister

President of the Council of UC Faculty Associations and Professor of Political and Social Thought at UC Santa Cruz

 



1. See Meister, “They Pledged Your Tuition” http://www.cucfa.org/news/2009_oct11.php 

2. This reprieve only softens the immediate blow of the tuition increases for some students in this income band (probably no more than 40%) and is irrelevant to the permanent effect of the increases on student access and student debt.

3. Colleen Moore and Nancy Shulock, “Divided We Fail: Improving Completion and Closing Racial Gaps in California’s Community Colleges,” http://www.csus.edu/ihelp/PDFs/R_Div_We_Fail_1010.pdf

4. In 2008, just before the financial crash, you commissioned a study on how to improve middle income access if UC followed your plan to increase tuition indefinitely.  The commission, which was chaired by Berkeley Chancellor Birgeneau, reported that family contributions toward a UC degree for those on full financial aid came to about 8% of their income in 2008, but that they steeply rose to 17% at the $90K income level financial aid phased out and full tuition phased in; it then fell back to 8% for incomes at c. $200K, while continuing to decline as family income rose and tuition remained constant. (If the top 1% paid 17% of their declared family income for each child attending UC their total cost of attendance would be $306K, which is 9x what they presently pay.)

  The commission concluded that students from families earning $70-140K were (or would soon be) at a “tipping point” in terms of willingness to borrow more to pay for tuition increases, and recommended the return-to-aid from undergraduate tuition from 33% to 45%  in order to put more money into financial aid as tuition grew. This recommendation came just before the financial crash, when tuition shot up by 32% (to c. $10K) even as student financial need was dramatically increasing. But you did not follow it. Instead you decided to repackage existing funds (Pell Grants, Cal Grants and UC Grants) as UC’s “Blue and Gold Opportunity Plan”—which is essentially a tuition discount based on family income alone (i.e., without considering other need factors. UC Financial Aid Directors have opposed Blue and Gold as “a political plan, not a practical plan” to address the middle income squeeze identified by the Birgeneau commission. One reason for their opposition is that UC’s Blue and Gold eligibility formula is based on a single factor (family income), and thus implicitly diverts the UC grant funds generated by higher tuition away from students whose financial need is based on other factors. A deeper reason, discussed above, is that funding to raise the Blue and Gold cap will come increasingly from reduced the financial aid packages that go to all students in need. “Strategic Options for Guaranteeing Long-Term Financial Accessibility for UC Undergraduates,” (March 2008), posted at http://www.ucop.edu/sas/sfs/docs/affordabilityrpt2008.pdf .

5. “Report on Financial Aid and Scholarships” (October 10, 2010), posted at http://cucfa.org/archive/2010-UCSC-Report-on-Financial-Aid.pdf .

6. UCOP has already decided that, by 2012, only 10% of in-state graduates will be guaranteed admission to UC—down from12.5%.

7. UCOP, “Options for Extending Financial Aid to Middle Income Undergraduates,” posted at http://cucfa.org/archive/2010-Middle-Income-Options.pdf.

8, See Meister, “They Pledged Your Tuition.”

9. NB I am in principle against this option. My preference as a citizen is still to tax all the rich—not just those who are educated—to support higher education; and my preference as an educator is to spare uneducated college freshmen the need to bet on what the future will hold for them. But, unless students have the opportunity to model and experience the choice between exposing themselves to a levy on their future income if things go well and exposing themselves to the risk of greater debt if things go badly, I don’t see how California taxpayers will come to understand that this is the choice they are implicitly making in not funding a whole range of public goods, including higher education.

10. A template for the rollback of Master Plan privatization can be found Glantz and Hays, “Financial Options for Restoring Quality and Access to Public Higher Education in California,”  http://keepcaliforniaspromise.org/553/working-paper