University of Michigan Information related to the State Audit Report Tuition and Other Financial Obligations Assessed to Students at Michigan Public Universities
The recent state performance audit on Tuition and Other Financial Obligations Assessed to Students at Michigan Public Universities focused on several important aspects of college pricing and affordability. No one has more concern about this issue than Michigan’s public universities, which must deal daily with attracting and retaining students while providing a high-quality, affordable education in an era of declining state support. The University of Michigan is pleased with the ultimate findings of the audit report, which determined that the University has complied with state expectations with regard to tuition restraint and tuition and fees reporting. However, we believe the audit provided some information in a way that was misleading. The following describes the way the University of Michigan is ensuring that a college education remains within reach of Michigan’s citizens.
Ensuring college affordability requires careful attention to three topics: Tuition and fees, state support, and financial aid.
Tuition and Fees
One of the ways the University meets the goal of affordability is by taking a responsible approach to setting tuition. A responsible approach is one that understands the importance of maintaining the quality of the programs that we offer students while still keeping tuition rates as low as possible. This represents a challenge, but one we believe we have met. A University of Michigan education, whether pursued at the campuses in Ann Arbor, Dearborn, or Flint, remains an excellent value for Michigan residents.
When the University sets tuition rates, we take into account many factors. Tuition rates reflect, in large part, the mission of each institution. For example, as a world-class research institution, the University of Michigan-Ann Arbor is expected to provide a unique kind of undergraduate experience. Such an education requires a critical mass of respected faculty, clinical researchers, and state-of-the art laboratories. It requires expansive library holdings and museum collections. It requires widespread access to research experiences, service opportunities, and academic and career advising. These priorities are expensive, but they are appropriate to the University’s size and strengths.
The University believes that transparency about costs is important for students and their families. At University of Michigan-Ann Arbor, all fees are fully disclosed to students through a variety of media such as Time Schedules, School/College Bulletins, and various unit websites. The provost sends a letter to all parents and students each summer informing them of tuition and all required fees for the upcoming year. Prospective students are provided with cost of attendance information that includes “typical” student expenses beyond tuition and required fees and room and board. Required fees and additional special fees relating to a student’s program of study are factored into the amount of financial aid needed by a student.
We limit the number of additional fees charged to students. At the University of Michigan-Ann Arbor, for example, the only additional required fees assessed to all students are the registration fee and a modest student government fee. These required fees are long-standing ones that often have remained at the same rate for a number of years. The registration fee is still at the same rate in 2006-07 ($80 per term) as it was fifteen years ago in 1992-93.
Tuition & Fee Increases
The University’s commitment to affordability is brought into focus each summer when it sets new tuition and fee levels for students. In years that the state has proposed tuition restraint guidelines, the University of Michigan has met expectations; in years without an explicit guideline the University has shown the same leadership in keeping tuition increases low. In the four-year period covered in the audit report (2002-03 to 2005-06), the average annual tuition and fees rate increases ranged from a low of 7.2% (Oakland University, with University of Michigan-Ann Arbor and Ferris State at 7.4%) to a high of 10.4% (Wayne State) with an increase of 8.7% in the mean tuition across all 15 public universities.
We are concerned that in its discussion of tuition increases, the state audit report could be misleading to readers. The audit report calculated increases in tuition revenue, as opposed to increases in tuition rates. Revenue increases reflect not just tuition increases charged to Michigan resident undergraduates, but those charged to nonresidents and students enrolled in specialized professional and graduate programs, and increased revenue from higher enrollments. Thus, reported increases in tuition revenue may bear little relationship to the tuition increases borne by individual Michigan undergraduates and their families. We believe that the latter are the more accurate measure of ongoing affordability.
State Appropriations
The state appropriations play an essential partnership role in affordability. The recent funding cuts experienced by the University of Michigan and its peers have been very challenging. Between 2001-02 and 2004-05, state appropriations were reduced by $42.9 million in base with another $18.3 million in one-time rescissions for the Ann Arbor campus alone. In that same period, the Dearborn campus experienced a $3.3 million cut to its base with $1.4 million in one-time rescissions, while Flint experienced a base cut of over $2.8 million and a rescission of $1.3 million.
These cuts have come at a time when the University’s level of activity is growing, not shrinking; the University cannot meet budget challenges by downsizing. As the recent Cherry Commission report emphatically demonstrated, the State of Michigan needs more of what its universities are doing, not less. It is not just the expectation of employers and the state which drive those demands. The advancement of technology and the generation of new knowledge in all fields grow at an accelerating pace each year. When state support decreases, institutions have to make hard choices.
To the extent possible, University of Michigan has endeavored to lower expenditures in areas that will not compromise academic programs. For example, the University continues to save money on utilities costs with its commitment to the Energy Star program. We have also developed innovative efforts to reduce the soaring increases in the health care insurance we provide our employees. We have instituted purchasing consortiums, increased the use of electronic media to reduce printing and postage costs, and cut administrative staff.
Unfortunately, the cuts in state funding made it impossible to avoid making some changes to academic programs. The University has made every endeavor to make cuts where they will have the least impact on student programs and their timely progress to degree. For example, at University of Michigan-Ann Arbor we have selectively increased class sizes, eliminated low-enrollment sections, and restrained library acquisitions.
However, the University and its public peers cannot make up for the shortfall by cutting expenditures alone. In FY2002, the state provided 35% of the Ann Arbor general fund and that has shrunk to 28% in FY2005 – and further to 25% in FY2007. The appropriations contribution to Dearborn’s general fund has dropped from 40% to 28% during this time period, and similarly fell from 48% to 34% at Flint. With this kind of funding gap, public universities have little recourse but to turn to tuition.
The state audit pays very little attention to the context of state funding. Failing to acknowledge these cuts provides a distorted picture of University behavior when it comes to setting tuition and fees.
Financial Aid
A key component in maintaining affordability is the University’s long-time commitment to financial aid. For at least the last thirty years, it has been the University’s policy to fully meet the demonstrated financial need of all Michigan resident undergraduate students. In addition, the University seeks to maximize grants and to limit the loan and work burden of resident students. To protect this policy, the University increases its annual institutional aid budget by at least the rate of the tuition and fee increase, and in many years even more. This long-standing policy was recently codified by the Michigan legislature. In FY2006, the Legislature added a section to the higher education appropriations bill (Section 436) that states that universities must annually increase their general fund financial aid budget by at least the same percentage that they have increased tuition.
The University’s commitment to financial aid is substantial, combining funds from numerous sources to make a University of Michigan education affordable to students from all walks of life. By far the largest portion of the University’s gift aid to students is in scholarships and fellowships. These awards go to students in the form of grants, scholarships, and stipends. Many of these funds come from the University’s financial aid offices and the individual schools, colleges, and departments across campuses that award aid. In addition to what is allocated from the University’s operating funds, these figures include money the University distributes from state and federal grants, research contracts, and gifts and bequests from donors. Unlike loans, these funds do not need to be paid back, and are awarded on the basis of both need and merit.
In recent years, the University has devoted increased attention to gift aid and its role in affordability. The University has invested seed money to initiate the new financial aid program, named M-PACT, that increases grants and reduces loans for more than 2,400 in-state undergraduates at the Ann Arbor campus. M-PACT increases the need-based grant assistance for students at the lowest income level—those from families whose financial circumstances make the students eligible for a full Pell grant. M-PACT aid tops off the University's existing financial aid package with additional grants of up to $5,000 depending on the family’s income. In every case, the new aid produces a dollar-for-dollar reduction in loans. For an estimated 400 of the university’s lowest-income students, it has eliminated loans altogether.
Although this program offers the greatest amount of assistance to families at the lowest end of the income scale, M-PACT also is designed to support students whose families may earn slightly more than the amount needed to qualify for a Pell grant—typically in the range of $50,000 to $70,000 per year.
Financial aid programs like M-PACT make a college education more affordable for low-income families. This directly addresses the concern raised by the National Policy Center for Higher Education that college has become less affordable for the poorest students. These programs reflect our belief about financial aid, which is that it is an important tool in providing access to higher education, and that it is our institutional responsibility to fund it.
Discussion of our financial aid policies would be incomplete if we did not also mention the role that non-institutional funds play in increasing access to higher education. A total of 43% of University of Michigan-Ann Arbor’s 2004-05 undergraduate financial aid was funded through federal sources such as Pell and Student Educational Opportunity Grants, Perkins loans, and federal work-study. Additionally, 7% of undergraduate aid was funded from state sources, and another 14% came from external organizations.
Affordability in the State of Michigan
We feel we should make special mention of a national report on college affordability. The audit report cites the failing grade the State of Michigan received for college affordability in the 2006 “Measuring Up” report issued by the National Center for Public Policy and Higher Education. Although it is true that Michigan did receive a failing grade, virtually no state received an acceptable passing grade. Forty-two states besides Michigan received a failing grade, while the remaining seven states received grades ranging from “D-“ to “C-“.
One reason why many states do poorly on this measure is related to how the authors calculate a hypothetical average net cost. They subtract from an “average” tuition price an average financial aid amount. What is not considered is the fact that financial aid programs aren’t applied evenly and without regard to need. They take into careful account a student’s ability to pay based on his/her family income and other financial circumstances. Thus, a poor family would not pay any amount close to the average net cost in the “Measuring Up” calculation, while a wealthy family would pay considerably more. Therefore, this measure does not accurately reflect the degree to which institutions within a state are able to meet the demonstrated financial need of students who come from lower-income families—that is, families most impacted by concerns about college affordability.
The “Measuring Up” report suggests that one reason Michigan fails on the affordability scale is that the state’s investment in need-based financial aid is very low when compared to higher performing states. Indeed, the state relies heavily on Michigan’s public institutions to make large investments in financial aid from institutional resources. As we reported in our discussion of financial aid, only 7% of the aid provided to students at University of Michigan-Ann Arbor came directly from state-funded financial aid programs. Most of the federal (84%) and external (51%) aid is in the form of loans and work study. Thus, Michigan’s reputation as a “high tuition/high financial aid state” comes more from what institutions are expected to invest in financial aid than from what the state itself invests directly. To some extent, the collective financial aid investments of Michigan’s public institutions must be working, as the “Measuring Up” report notes that Michigan undergraduates had one of the lowest borrowing averages in the country.
It is also important to consider the cost of college in context of the lifetime value of the college degree. The differences in earnings between those who obtain a college degree are profound. Some estimates suggest that in today’s dollars, a bachelor's degree is worth more than $2.1 million over 40 years. Furthermore, a college degree can lead to a lifetime of increased opportunities, career mobility, and job satisfaction. According to the U.S. Department of Labor, all seven of the job categories that are predicted to grow faster than average during the next decade require a bachelor’s degree.
Summary
In summary, the University of Michigan is proud of its ability to provide an affordable education on each of its three campuses. However, this is an issue that requires important partnerships. Solutions that sustain college affordability must combine efforts from the federal government and its policies and funding for financial aid, from state government and its direct support of institutions through appropriations and indirect support through state-sponsored financial aid programs, and from institutions themselves via their investments in financial aid programs from institutional funds and their efficient use of all resources available for general educational purposes. The University of Michigan has an excellent record on maintaining affordability, and our commitment to doing our part remains unchanged.
February 28, 2007