College is a proverbial milestone in American culture — one that is coming with an increasingly hefty price tag.
But while tuition and fees continue to climb, economists and policy makers continue to scratch their heads, wondering how universities went from “the good old days” of $300 degrees, to requiring tens of thousands of dollars in student loan debt.
The consensus among budget-makers at the University of Connecticut is that the answer is far from simple. While tighter fiscal times may play a role, some assert that rising costs are due to changing student preferences: that is, growing demands and higher expectations.
As generations become accustomed to new technologies and luxuries, each wave of new students demands nicer living quarters, better dining halls, faster wireless Internet and more student services. As more is demanded, the costs climb higher, and the more competitive universities become with each other as they vie to attract the best and brightest students — and their tuition dollars.
UConn and the state
A university’s budget is a complex entity, balancing dozens of different revenue streams with multifaceted expenses. The health of that balance is largely dependent on those student dollars, especially, according to UConn President Susan Herbst, in the face of declining financial backing from the state.
“If the state hadn’t cut 40 plus million (dollars) out of our budget, we wouldn’t be raising tuition. It’s very simple,” Herbst said.
The state allocates money to the university on a yearly basis in what’s known as a block grant. Appropriations to state universities are different than other state agencies because the schools do not have to follow a line item budget with their appropriations.
“UConn has a budget much larger than other agencies and we block grant them, and they use that money with all their other sources of money: tuition, fees, private donations,” Connecticut state Rep. Gregg Haddad, D-Mansfield, said. “We don’t look line item by line item, it would be too difficult to break them down that way.”
But the size of that block grant has waned since the 2008 recession hit — shrinking by about $40 million in recent years. Those funds are used to subsidize the university’s operating costs: faculty and staff salaries, utilities, financial aid and other expenses that the university incurs on an annual basis.
In Connecticut, that means snow removal as well. Herbst said with the amount of snow New England had in 2014, the university virtually ran out of money to keep scooping it all up.
“We’re really down to the bone. Facilities is a great example of that. We used to have 30 to 40 guys working on landscaping. I think it’s down to 10 or 11 on the ground crew,” Herbst said. “A lot of students are unhappy that it’s unplowed or it’s icy. Well, yeah, we don’t have a lot of people working on that.”
In budgetary times when snow removal is virtually deemed a luxury, covering mandatory costs is an even bigger challenge, according to UConn’s Associate Vice President of Finance and Budget Lysa Teal.
“The expense side is often driven by salaries and fringes, and a lot of that is not in the control of the university just because we are a state university and many of our contracts are statewide contracts,” Teal said.
Fringe benefits are the dollars the university must set aside for health benefits, sick leave, retirement and other extra-salary expenses included in employee contracts. The dollar amount of those expenses is decided by the fringe rate, which is set by the state each year.
“We don’t decide what the health plans are, we don’t decide what the retirements are, but we have to pay the costs of that,” Teal said.
The salary and fringe costs are driven by negotiations with the union that represents the employees. For faculty, it’s the UConn chapter of the American Association of University Professors; for staff, it’s the University of Connecticut Professional Employees Association.
While the university has handled some of the negotiations in the past, Gov. Dannel P. Malloy struck a deal with both unions in August of 2011 that covers fiscal years 2013-2015.
“That agreement would supersede anything we did,” Teal said. “In some cases the university is in control, in other cases we have to give up control.”
Sometimes the fringe rate comes as a shock to budget makers at the university, such as in 2013. When the state handed down a higher-than-expected fringe rate in June that year, the university had to scrounge to close a $30.8 million gap for the upcoming fiscal year.
And Teal echoed Herbst, saying the main indicator of the budget’s health largely depends on the size of state appropriation.
“One of the biggest contributors is the state support you’re going to get. You’re going to see that it has changed significantly over time,” she said.
And when that support shrinks, Teal added, that’s when tuition hikes start.
But singling out state appropriations as the source of the university’s financial woes is a half-truth, according to Haddad. After all, private universities do not rely at all on state appropriations, and those institutions have not been isolated from tuition and fee hikes.
A report by College Board released in October suggested tuition and fee rates at private institutions climbed by 3.9 percent in 2013 alone, compared to 3.1 percent at public universities.
Market Forces
Analyzing tuition and fee data at UConn over the past few decades also suggests other forces are at work. While state support has seen a major drop-off in the past decade, tuition and fees have seen a drastic increase that began sometime in the 1980s.
It’s a trend that Rep. Haddad said he is attuned to. As a member of the state appropriations committee and a member of its higher education subcommittee, he said he engages in annual discussions with the university, the state Department of Higher Education and the governor about the budget. And, as a member of the New England Board of Higher Education, he attends conferences and meetings where he said discussions often hone in on one question: Why is college becoming so expensive?
Haddad said he fears the reason may be simple: Universities are raising prices because they can.
“I think that part of the answer might be found in supply and demand,” Haddad said. “Education has gotten to be a commodity that people feel they can’t do without, so increasingly we have more and more students committed to getting a college education because, if they don’t, their earning potential will be far less. You sort of need it to survive.”
And if attending college is considered a necessity, Haddad said, there’s no incentive for schools to keep prices low.
But Haddad added that the universities are not the only cost drivers, and educational inflation may be due in part by the students — indicative of a new generation of undergraduates that demand more from their college experience.
“My dad was a union electrician and my mom was a stay-at-home mom, and they put four boys through college. I didn’t pay my tuition bills,” Haddad said. “But when I was a student and lived in Northwest (dorm), we had no thermostat in our room, no phones in our room. There’s no cable or television, and a lot of that is sort of unacceptable or less desirable for today’s students.”
Haddad graduated from UConn with a degree in physics in 1989. Today, he said, attending the university is a different experience.
He pointed to the growth of apartment-style living that has cropped up on university campuses. At UConn, Hilltop Apartments and Charter Oak Apartments sprang up after the new millennium. He also pointed to plans for a new recreation facility that was recently approved by the UConn Board of Trustees. That project will put a state-of-the-art 200,000 square foot amenity on campus, which will cost undergraduates an additional $244 per semester in fees after the facility is open.
“There’s an expectation for amenities that drives up the cost of a college education. You’re sort of voting with your feet. If you don’t get those amenities at one university, you’ll go someplace else,” Haddad said.
Teal, who graduated more than 20 years ago from Penn State, also mentioned student expectations as a factor in the ever-expanding budget she pieces together each year.
“I’m one of five children. My parents had to save for me,” she said. “They were like, ‘oh my gosh, this is a lot of money,’ but I think not only will you find an actual cost differential, because there was a time when it was a couple of dollars to go (to college), you’ll also find the expectations of the individual and the family has changed.”
And for every state-of-the-art recreation facility, some other university is building a larger one padded with even newer technology and more amenities. So while universities aim to attract the best students with their academic prestige, Haddad said it has become a reality that an academic reputation is no longer enough.
“Universities are competing for students and using the amenities to attract students. That comes at a cost,” he said. “That cost is educational inflation. That, coupled with tight fiscal times, which have the states providing less and less support for public education, kind of creates this storm, and what’s ballooning is the amount of money students themselves are paying for their education.”
Because of that increased burden, Haddad added, there’s an increasing reliance on student loans to shoulder it.
“The question now is what the consequences are to the economy to have large numbers of students using large portions of their income to pay off student loans rather than buying houses and cars as earlier generations did,” Haddad said.
Herbst also pointed to expanding student services and technology as a major factor in university spending.
“The more money we bring in with tuition, the more we can do for our students,” she said. “When people say universities are expanding their staff, it’s that: more (Information Technology) people. We need a lot of people working in IT to keep the wireless network up, to keep up faculty computers and to keep security up.
“That’s a very big growth area, and it’s very expensive.”
Athletics and Bond Money
But at UConn, athletic teams can rake in millions of dollars a year, and the state legislature recently announced a $1.5 billion dollar investment plan geared toward building up the school’s science, technology, math and engineering programs. At first glance, it can be difficult to reconcile why those revenue streams haven’t offset the cost burden borne by students.
UConn is largely known for its elite basketball program, and — according to data provided to the Associated Press by the university — the men’s and women’s team brought in $24.2 million in 2011 alone.
That same year, the football team tallied $15.2 million in direct revenue and an additional $6.1 million in indirect revenue — which includes merchandise sales and fundraising (in 2011, the team went to its first BCS bowl game).
Teal said athletics also has a healthy endowment. The UConn Club, a branch of the UConn Foundation dedicated solely to pooling funds for athletics, manages three funds that cover a portion of athletes’ scholarships, operating costs of sports training facilities and other expenses. The UConn Club also recently committed to raising the $32 million necessarily to build a 75,000 square-foot basketball training facility.
But of the 24 sports teams at UConn, only three consistently generate more revenue than they spend. The athletic department must also pay the teams’ transportation to competitions, hotel stays, food and equipment costs and scholarships.
“They have a lot (of expenses in) athletic scholarships, so all of that money that’s donated stays with athletics,” Teal said. “They’re also considered an auxiliary, so they’re self-supporting.”
That means for all the revenue athletics generates, it consumes an equal amount — leaving little profit to help the university at large offset costs.
But what about the $1.5 billion STEM investment plan bestowed by a state legislature in 2013, that has also been forced to shrink its block grant to the university in recent years due to insufficient funds?
The difference lies in where the money comes from. The Next Generation UConn plan is backed by bonds, and it will only fund capital projects (i.e., buildings, labs, dorms). That, as Rep. Haddad explained, is a different type of appropriation than the annual block grant the university receives to offset operating costs. The block grant is part of the state’s overall budget, which — unlike the federal budget — must be completely balanced each fiscal year, putting tight constraints on spending.
“But bonding is borrowing,” Haddad said. “So, like everyone, even folks in their own household, when money is tight you can put money on the credit card. It doesn’t make sense in a long-term fiscal standpoint, but it’s something we can do to help the university. While things are very tight this year, we expect at one point the economy will revamp, and we’ll have the resources necessary to pay off those bonds. But instead of paying it all off in one year, you pay it off over 20 or 30 years.”
And though state laws do control how much bond spending the legislature can do, the limits are looser than those placed on the annual budget.
“We are much freer to spending that kind of money than the budget we have for ongoing expenses,” Haddad said.
NextGen would take up the capital investment reins from UConn 2000, a 20-year $2.3 billion project approved by the General Assembly in 1995. Haddad said that in recent years, while tax revenue has continued to keep purse strings at the capital tight, a long-term capital investment project was seen by lawmakers as a way to keep the university systems moving forward despite budget cuts — cuts that have deepened as Connecticut has lagged behind other states in post-recession recovery.
Haddad said part of the reason recovery has been slower in Connecticut is because of the state’s taxing structure.
“In good times we see the benefits very quickly and in bad times, it hits hard,” he said. “We have a very volatile tax structure that is very sensitive to the economy.”
Haddad referenced report assessing UConn’s affordability.
“The first thing we had to grapple with was the definition of affordability,” said Teal, who aided the investigators with their report. “People have different takes on what it means.”
The PRI researchers grappled with the many factors that affect — but don’t necessarily funnel into one clean definition of — “affordability.” Those factors include tuition rates relative to income level, the amount of financial aid available, the eventual payback the degree has in long-term earnings and how UConn’s tuition rates fare compared to peer institutions.
Among the report’s key finding:
But while financial aid spending is growing, the report also criticizes the university for its “opaque” policies that govern how merit- or need-based financial aid is distributed.
“Policymakers do not have a clear understanding of UConn’s financial aid policies,” the report says. “Information about typical college prices actually paid by students, especially those in difficult financial circumstances, is not easily available.”
The investigators levied a state law to back the report’s recommendation that the university begin providing reports to the state legislature beginning in January 2015 that detail the allocation process for financial aid money.
Accountability
While reports such as the one the PRI hopes to require of the university is a step toward closer financial oversight of the public university systems in Connecticut, Rep. Haddad said because UConn’s budget is more complex than other public institutions — and dollars are often moved around on an ad hoc basis — there is not really a spending oversight mechanism in place as far as the state is concerned.
“There is no systematical review process of the university’s spending,” Haddad said. “Sometimes things crop up in the press that the General Assembly will roll their eyes at.
“An infamous case was when the previous (UConn) President (Michael Hogan) wanted to overhaul his own office and spent a lot of money on (renovations) to the house on campus. That was with non-state appropriated money, but it’s not entirely lost in the mix. And it just seems insensitive when kids are having to pay more for their education,” he said.
Haddad added that when questionable spending practices make headlines, there isn’t a lot legislators can do aside from writing a letter or back-door conversations — because even if wrist slapping won’t make a UConn president back off insensitive spending, lawmakers are hesitant to take punitive actions by reducing the block grant out of fear that the cuts will adversely affect students.
“I think that the block grant and the way we appropriate money and the good will the university enjoys can’t be taken out of the equation,” Haddad added. “People at the capital are very excited we have great sports teams and use that goodwill that people naturally feel about the university can be to its advantage. That insulates them from the kind of tough scrutiny that other (state) agencies may feel.”
But the General Assembly isn’t the last line of defense against bad spending practices. The UConn Board of Trustees includes members appointed by the governor and elected by alumni and students.
“I think our best hope for the accountability we need to see comes form the board of trustees, because it’s they’re ultimate responsibility to run the university and monitor and be the supervisors of the university president who controls the purse strings,” Haddad said.
And carrying out that responsibly is something President Herbst said she’s committed to doing. Deemed one of the champions of the NextGen bill, Herbst said she pushed for that bond money not only because it would build up the university, but because it would build up the state economy.
“This state has lost its population and manufacturing base,” Herbst said. “Tax revenues are going. Companies are going. We need to start new industries, and there are a few that look very promising for us.”
She added that new STEM graduates “might be able to start companies and take those ideas to market and hire employees that stay and work in Connecticut” and bring in large federal research grants that can help kick start an idle economy.
Private Funds
Haddad noted Herbst has also been more focused on raising private funds than her predecessors. According to Herbst, she travels all over the country with UConn Foundation President Josh Newton to solicit donations from wealthy alumni.
“When I’m with Josh, it’s back to back,” she said. “That’s meeting with alumni and donors especially, talking about their interests and what they might want to do for UConn, asking them for money.”
And Herbst said that’s exactly how it should be.
While the athletic department does enjoy substantial private donations, UConn’s unrestricted endowment (which is money that can be used on any school expenses) is lower than its peers, according to Teal, and private funds do not currently provide a substantial revenue stream.
“I wanted to change a lot about UConn so that I could spend a lot more time building the endowment,” she said. “Because state appropriations, no matter how wonderful the governor or legislature are, we’re not sure they’re going to restore that money. We have to get it ourselves.”
The bigger the endowment, Herbst said, the less the school has to rely on fickle state money and the more the university can offer students in terms of financial aid. But as far as tuition prices go, Herbst doesn’t see them stagnating anytime soon. Even if the hikes are just to keep up with inflation, she said, they’ll have to go up.
But as the rates change, so do the context of the dollars. And UConn’s budget master Lysa Teal said because “affordability” is such an abstract concept, it comes down to making the decision to get a college education because it’s better for your future — regardless of how much it will cost — echoing Haddad’s notion that higher education has morphed into a necessary good.
“It all goes back to affordability, and I think it also has to do with a mindset and that’s my personal opinion,” Teal said.
