Committee on Education and the Workforce Subcommittee on 21st Century Competitiveness Congressional Testimony

Committee on Education and the Workforce Subcommittee on 21st Century Competitiveness Congressional Testimony
Dr. F. King Alexander
President of Murray State University
American Association for State Colleges and Universities Member

Thank you Mr. Chairman and members of the Committee. I am president of Murray State University which is a rural public university with an enrollment of approximately 10,000 students. We primarily serve a large geographic region that includes much of western Kentucky, and a good percentage of students from the neighboring states, including Illinois, Tennessee, Indiana, and Missouri. The majority of families in our service region live below the national average in per capita income and educational attainment. Our university has many attractive attributes such as our consistently high national rankings by Kiplinger, Kaplan, and US News and World Report for providing high quality educational opportunities at affordable costs. In fact, our average annual student tuition and fees are 24% less than the national public university average. Despite these unique characteristics, our university in many ways is very much like hundreds of other public universities in the United States serving a significant number of students from middle and low-income families.

My testimony today, on the issue of rising college costs, reflects my concerns from three distinct perspectives. First, as a president of a public university that is challenged each year to meet the increasing societal and student demands placed on public higher education during poor economic times. Second, as a researcher that has spent a significant portion of the last decade analyzing national and international trends in state funding and institutional tuition strategies while also working to establish tuition policies at two public research universities and one public comprehensive university. Third, as an individual that is still paying back his student loan debts, who just so happens to be a university president.

In responding to the issue of rising college costs, I must say that based on my
professional experiences at numerous public universities and by virtue of my own research regarding the trends in university costs since the mid-1960s, I am well aware of the great need for new policy debate and examination regarding the role of the federal government in supporting higher education, particularly its role in supporting lower cost colleges and universities. This inquiry is long overdue in view of the fact that the last major policy debate regarding the important role of the federal government in supporting higher education access and affordability occurred over thirty years ago. For the purposes of this hearing it is important to briefly review the two primary premises of the last great federal government debate on higher education which occurred in the 1960s and early 1970s and resulted in the development of many of our existing federal policies. The first premise was that a significant federal government role was required to assist in ensuring widespread postsecondary education access to lower-income and other disadvantaged student populations. The second premise was that a significant federal government role was necessary to address increasing concerns from the private college and university sector regarding its future financial viability and competitiveness.
After nearly four decades of federal policy development and augmentation, the issue of providing affordable postsecondary education access to all socio-economic student populations still remains an important question as evidenced by this hearing and the concerns that led to the federally commissioned report on the cost of higher education five years ago. However, since the last federal government policies were implemented, private colleges and universities have made significant gains in the higher education marketplace when compared to public universities over the last three decades. This fact is best evidenced in the recent Brookings Institution working paper by Kane and Orszag and other studies in the late 1990s showing that public university per student expenditures have declined from 70% of private per student expenditures in 1977 to 58% in 1996. Their data and conclusions are further confirmed by other studies that have compared faculty salary disparities between public and private institutions during the same period indicating that the annual salary differential of full professors at private research universities over public research universities has increased in adjusted dollars from $1,300 in 1980 to $22,200 in 2002.

Public Perception and Tuition Realities
In addressing the issue of college and university tuition and expenditure growth, it should also be recognized that the problem of higher education costs and tuition does not affect all parents, students and institutions the same. This fact is evidenced in numerous congressionally -mandated studies of college costs and prices, showing drastic variations in average tuition and fee growth between private and public universities during the last two decades. Instead, public perception of rising tuition costs are shaped by a number of reasons including geographic location and the media which is heavily influenced by high cost institutions in the northeastern region of the U.S. where even lower cost public institutions are significantly more expensive than their peers in other regions. More importantly, however, public perception and concerns also are determined by an overall lack of information in the academic marketplace that prevents students and parents from distinguishing real net costs from “sticker prices.” According to Stiglitz “asymmetries of information result in imperfections and inefficiencies in the marketplace” (p. XI). Such asymmetries are readily apparent in higher education. For example, students and families pay college tuition in dollars, not percentages, yet the vast majority of public discourse by policy-makers and media sources on college cost increases is simply based on percentage growth. In fact, “if you analyze actual tuition and fee dollar increases, instead of simply tuition and fee percentage growth, you will discover that many of the public universities with the largest percentage increases over the last couple of years are the very institutions that are the most affordable and accessible throughout the nation. A small dollar increase may well be reflected in a relatively large percentage increase at lower tuition institutions. Herein lies one of the misleading aspects of the “Key Findings” listed in the recently released report “The College Cost Crisis.” For example, if one were to use percentages instead of real dollars as does the “The College Cost Crisis” report in their findings, you would discover that public universities in such states as Hawaii, Arkansas, Idaho, Texas, Tennessee, Wyoming, North Carolina, Montana, and Kentucky have had the most significant percentage increases in tuition, yet, these are the states where public universities have the lowest tuition costs in the nation. These low tuition states remain low cost in an effort to ensure widespread access and affordability. Also, these same states are among the lowest in the nation in average student loan debt per graduate. To further illustrate this point, Murray State University increased tuition and fees by 15% last year, which was much higher than previous years, however, this increase amounted to only a $398 increase last year. At Vanderbilt University, a private institution with which we compete for many top students in our region, its tuition and fees increased by 6% last year which amounted to an increase in actual dollars of approximately $1,753. Obviously, therefore, percentages are not only misleading to parents and students, but they are deceptive when vast differences in tuition and fees exist by state and institution.

The emphasis on percentage tuition growth, therefore, constitutes an inadequate measure in establishing a proposed remedy by which federal policy-makers can address rising tuition. To place a cap on tuition increases that is based on a given percentage ignores the fact that vast disparities in tuition rates currently exist among states and types of institutions. For example, a fixed cap or index that is tied to fluctuations in the Consumer Price Index would be disproportionately harmful to all state colleges and universities that have worked diligently to keep their tuition rates and “sticker prices” low. Public colleges and universities that would be negatively impacted disproportionately from such a policy would include the lowest cost institutions that are located in the most affordable and accessible in states such as Hawaii, Kentucky, Florida, North Carolina, Texas, Arkansas, Mississippi, Idaho, Wyoming, Montana, Georgia, Wisconsin, and Iowa. An indexed cap that is based on percentage growth in tuition also would detrimentally impact many private colleges and universities that have also maintained low tuition policies such as Rice University and Berea College. A policy based on an indexed percentage tuition growth would simply give high tuition, high expenditure, and more inefficient colleges and universities a perpetual economic advantage over the institutions that have done a better job at controlling student tuition costs and per student expenditures.

As is the case in my own institution, many of the nation’s lower tuition colleges and universities have had the autonomy to set their own tuition rates and remain more affordable and accessible than other institutions. In these lower expenditure institutions, there has been a conscious effort to keep college costs much lower than many other institutions. These public institutions, like Murray State University, disproportionately suffer in the face of current federal aid policy because lower cost institutions that have kept college tuition and fees low are denied a proportionate benefit of federal subsidies that derive from federal direct student aid programs. For example, data from the National Postsecondary Student Aid Study (NPSAS) in 1996 and 2000 clearly indicate that when holding constant the income of the student aid recipients that students who enroll at higher tuition or higher “sticker priced” colleges and universities receive larger federal student aid grants, work-study, and subsidized loan assistance than do students enrolling in lower cost institutions. Not only will students from similar economic backgrounds receive more funding for enrolling at higher “priced” institutions, but a larger percentage of students enrolling in higher priced institutions receive more federal aid than do students enrolling at comparable low tuition institutions. Ironically, federal programs in totality give incentive for institutions to increase tuition and to set high sticker prices.

In addition to the basic problem associated with using percentages instead of dollars that would generalize for all higher education, the “College Cost Crisis” report significantly underestimates the role of state governments in setting tuition policy at public colleges and universities. Over the last decade a plethora of higher education economic and finance studies have highlighted the instability of state appropriations and the effects of such policy on public institutional tuition changes. According to Hauptman:

Regardless of the role of state and institutional officials in setting tuition and fees or the retention of these funds by institutions, in virtually all states there is a direct relationship among the level of public sector tuition and fees, the amount of state funding, and the cost of providing education. The more a state provides, the lower is the tuition for any given level of costs per student. Put another way, state and local taxpayer support
allows public institutions to charge tuitions and fees far below the actual cost to
educate (p. 68).

The conclusion advanced by Hauptman is one of the more commonly accepted findings by higher education economists and finance experts regarding the influential role of state appropriations on public college and university tuition rates. In a recent report by the State Higher Education Executive Officers, it was stated that “[s]tate general fund appropriations was by far the most significant factor” in determining public college and university resident tuition rates (p. 12).

Murray State University: State Appropriations, Expenditures, Fixed Costs & Net Tuition
In the case of my own institution, Murray State University, Kentucky’s state general fund appropriations have been and will continue to be the most significant factor in influencing resident and non-resident tuition rates. During the last two years Murray State University has postponed setting tuition and fee rates for the following year by nearly 8 months each year in deference to state budgeting schedules in establishing levels of appropriations. During the last academic year the uncertainty of the potential budget cuts that we anticipated, and the extended duration of the legislative process, combined to require our Board of Regents to pass tuition and fee ranges to compensate for the potential budgetary cuts that had been rumored but not acted upon.

In lower tuition states where institutions like ours charge much less than the national average, state appropriations generally account for a much higher percentage of educational costs than do student tuition and fees. Therefore, in order to offset losses in state appropriations, student tuition rates must be raised at much higher rates to replace a portion of lost state allocations. The impact of this shift from state appropriations to student tuition and fees is apparent when reviewing changes in our general fund budgeted revenues over last three years. In 2001/02 state appropriations to Murray State University accounted for 64.5% while student tuition and fees accounted for 29.8% of all general fund budgeted revenues. In 2003-04, state appropriations declined to 58.4% of all general fund budgeted revenues forcing student tuition and fees to increase to 36%, representing a 6% shift from Kentucky’s taxpayers to students.

To more effectively manage and address these state budgetary constraints over the past three years, Murray State University, much like the majority of public universities throughout the nation, has taken many steps to reduce its educational expenditures and to implement cost saving measures. We have made these expenditure reductions while expanding our student enrollment by approximately 10% during the same period. Expenditure reductions and cost saving measures that have taken place include:

• Elimination of over 10 budgeted faculty positions.
• Elimination of over 15 administrative, professional, and support staff positions.
• Elimination of 29 graduate assistantships.
• Freezing of 15 faculty positions and three librarian positions that remain unfilled.
• Cutting of operational budget throughout the University.
• Closure of University-operated television station.
• Reductions in class/course offerings.
• Reductions in distance education course offerings.
• Reductions in professional support and development program.
• Halting of heating and cooling equipment upgrades connecting the campus system to the central plant heating and cooling system.
• Dramatic reductions in professional travel expenses.
• Restricting overtime payments to employees to extraordinary events, or priority projects with short timelines.

Despite these ongoing expenditure reductions and cost saving measures that we have undertaken during the last several years, externally driven fixed costs have continued to drastically impact our overall university budget. First, health insurance and other medical related costs continue to consume a much larger share of our institutional budget. During the last two years alone we have been compelled to expend an additional $1 million to simply maintain our institution’s commitment to providing our employees with affordable health insurance. Currently, Murray State University allocates nearly 6% or $6 million of its operational budget to subsidize the health insurance costs of our employees whose premiums have also increased by over 60% during the last three years.

Second, energy related costs have continually increased negatively impacting the heating and cooling costs of every campus facility. Third, campus and federally mandated security costs have significantly increased due to national and state safety concerns. During the last three years our university has increased its security-related expenditures by nearly $500,000. Fourth, technology and technology-related costs continue to increase at rates that far exceed the consumer price index.
However, not all of the increases in institutional costs have been externally imposed. The primary self-imposed expenditure that has required a significant amount of resources has been internal institutional student aid. Due to our commitment to maintaining affordable and accessible educational opportunities, our institutional expenditures in aid to students through scholarships, graduate assistantships and fellowships has increased from $1,058 per full-time equivalent student in 2001 to $1,391 per full-time equivalent student in 2003. This represents a 31% increase in institutional aid to all students and resulting in a budgetary impact of 2.6 million in additional institutional expenditures since 2001.

Yet, Murray State University has not allowed the poor economic conditions to force it to place enrollment caps on student access. Nor have we opted to dramatically shift the educational costs away from the state and to the federal government indirectly through the student by inflating tuition like many higher cost states and institutions have done over the last two decades. Instead, we have remained committed to providing affordable and accessible high quality educational opportunities as have many other relatively low tuition universities, without indirectly transferring the costs to the federal government or overburdening our students with student loans.

Due to widespread public concern about increases in college and university tuition rates and the lack of information regarding the difference between college “sticker prices” and real tuition costs, we have implemented a strategy to better inform students, parents, and the public at-large about what our students actually pay to attend Murray State University and the multiple ways to acquire increasing amounts of tuition-based government assistance. Table 1 shows how MSU students have been impacted by various federal and state direct student aid programs as well as how recently adopted federal tax credits have impacted each student. The figures in Table 1 are not based on actual awards but instead are averaged throughout the campus by full-time equivalent students.
Each of the categories in Table 1 indicates increases in the amount of total funding per FTE student at Murray State University over the last eight years. The table shows that despite an overall gross student tuition and fee increase per FTE student of $1,861 or 62%, federal grant increases per FTE student of $266 or 47%, Kentucky merit and need-based grant increases per FTE student of $411 or 354%, and federal tax credit increases per FTE student of $926, have all combined to negate most of the gross tuition and fee increases during the eight year period. In fact, when adjusting for the various forms of tuition-based assistance programs that have been increased during the eight-year period, the net tuition and fee increase per FTE student at Murray State University was only $258 or 11%. This equates to approximately 1.6% per year during this period. When increases in room and board costs for students are factored into the increases, MSU’s costs only increased by $585 per FTE student or 2.4% per year during this period.

Finally, when factoring in institutional aid and scholarship increases into the benefits that Murray State students have received during the eight-year period, an average MSU student today is still paying less than he or she did for tuition, fees, room and board in 1996. Murray State institutional and scholarship aid increased by $672 or 93% from 1996-2003 and has played a important role in keeping actual “net costs” low for students.

Table 1: Increases in Gross and Net Student Tuition & Fees per FTE when adjusted
for increases in Federal and State Tuition-based Aid per FTE, 1996-2003

Gross Tuition Federal Kentucky Federal Tax Net Tuition MSU
FY Year & Fees Grants Grants Credits & Fees Aid
1996 $2,983 $568 $116 0 $2,299 $719
1997 $3,144 $589 $126 0 $2,429 $887
1998 $3,250 $631 $124 0 $2,495 $819
1999 $3,421 $687 $161 $887 $1,686 $921
2000 $3,693 $646 $204 $899 $1,944 $1,008
2001 $4,119 $702 $322 $908 $2,187 $1,058
2002 $4,427 $792 $430 $917 $2,288 $1,326
2003 $4,844 $834 $527 $926 $2,557 $1,391
Net $ change $1,861 $266 $411 $926 $258 $672
since 1996

Gross Tuition & Fees = Gross avg. tuition & fee revenues collected from each student (per FTE).
Federal Grants = Pell, SEOG, and SSIG direct student aid grant revenue increases per FTE.
Kentucky Grants = Merit-based and need-based state student aid grant revenue increases.
Federal Tax Credits & Incentives = Hope Tax Credit & Lifetime Learning Credits per FTE after
adjusting for non-qualifying students and families.
Net Tuition & Fees = Net average tuition & fee revenues collected from each student (per FTE) after adjusting for federal student grants, tax credits, and state student grants. The Net Tuition & Fees do not include increases in institutional/MSU aid.

As Table 1 clearly indicates, Murray State University students are receiving a great deal more tuition-based assistance from a variety of sources. The largest contributor to these increases has been the government through tuition-based assistance programs. These federal and state programs have contributed an average of $1,603 or 230% more in federal and state tuition-based assistance for each Murray State University student than they did eight years ago. However, despite the influx of this important student assistance, more students attending higher cost institutions or institutions with higher “sticker prices” actually receive larger amounts of federal and state direct student aid than do our Murray State students.

By making available this type of actual or net cost information to students, parents, and taxpayers, institutions can play an essential role in ensuring that the higher education marketplace functions more effectively and efficiently. The federal government should seek to clarify tuition-based policies to assist students and families in making the better decisions about their educational investments.

Concluding Remarks
As indicated earlier, the marketplace for education cannot function efficiently without adequate information. Unfortunately for public and other lower cost colleges and universities, misleading information can perversely shape public perceptions about college costs. This fact is evidenced when the public discussion focuses on percentage increases in tuition instead of real dollar increases. The dangers associated with the lack of information also are evidenced in the increasing institutional and governmental use of “sticker prices” instead of actual costs to allocate public funds in student aid programs. Sticker prices do not reflect actual cost of higher education. Using “sticker prices” distorts and creates a flow of misinformation to consumers and students further confusing the economic realities of college attendance and investment. If the federal government is to help improve the efficiency of the marketplace of higher education it can contribute materially by collecting, calculating, and distributing actual program cost information by types of institutions, and, then, use such information as a more viable basis for its allocation of federal subsidies. Such an initiative would simplify federal policies while not penalizing states that continue to commonly finance their higher education systems and institutions that have kept actual costs down.