Beyond Price Control
The challenge for today's colleges and universities is to reconcile their clear need to remain competitive while controlling their costs, which have been spiraling ever higher in recent years. Achieving academic effectiveness in more efficient ways is a matter of major concern at New York's Pace University, which led to the introduction of a tuition guarantee that locks in first-year rates over the course of five years.
The program was highlighted at a well-attended NACUBO presentation in 2004, drawing comments such as "bold, and innovative--but risky." That assessment suits Pace President David Caputo just fine, because the risk has paid off in increased retention and graduation rates. Caputo recently sat down with University Business to talk about tuition, price control, the Higher Education Act, and accountability.
Because everyone looks at the sticker cost instead of the actual cost. The vast majority of our students are first-generation college students. They're dealing with having to go through the thicket of figuring out all the financial hurdles and various forms. We found that many of them very quickly maxed out their financial aid and other options. As tuition went up--sometimes 4 to 7 percent a year--that meant that by the time they were able to absorb one increase, the second increase was even more difficult. As a result, by their sophomore or junior year they couldn't continue.
We offer a tuition guarantee. We say to our students, "We're going to tell you the exact cost of the largest single factor of attending Pace your first year, and that is tuition." And we'll guarantee that same tuition rate, not for four years, but for five years, because we know many students take five years to graduate. That guarantee will continue as long as they stay in school, make normal progress, and so on. It lets the students know what their base tuition is--at Pace it's slightly under $25,000. If you live in a residence hall, we can't guarantee the cost of room and board because those are real costs that go up for us each year. But we can control the underlying tuition.
I have a marvelous quote from when we originally started this from one of our students. He said, "To me the big advantage is I know I don't have to worry about a sizable increase in the next year and where I am going to get the money from. I can concentrate on my academic work knowing that, economically--unless there is a sudden change in my family economic situation--I'm covered."
Many of our students provide their own funding--they are not on parental support. For them it's even better planning because they know exactly what it is going to cost them. We also said we wouldn't nickel-and-dime them in terms of fees. We have a general university fee that we have tried to adjust, usually around the margins of inflation. That fee is around $300 now, so even a 5 percent increase is only $15 to $20 a year. That's not covered in the tuition guarantee. We also don't impose additional fees, such as the technology fee that many universities add. We think this is a very powerful statement.
It forces us to do a variety of things. It makes our planning much more complicated because we have to figure out what is the mix of fourth-year, third-year, second-year, and first-year students, and so forth. For example, in fall 2003 our first-year rate went up 15.4 percent over fall 2002; in 2004 our first-year rate went up 7.6 percent; and in fall 2005 we went up 12 percent. Now remember that flat rate does not change for those students. So if we went up 8 percent in year one and calculate that--out of five years--it is really a 1.6 percent a year increase. And 12 percent comes out to a 2.4 percent increase. So even though those large initial increases are there, we're way below national averages--the 4 to 7 to 8 percent increases that are happening across the country.
One of the things it forces us to do is to look at what numbers of students are going to be in each of the tuition categories. And that means if we have higher graduation rates--which is one of the things that has happened since we began this--we've got to estimate how many of those students coming in, in year one, will be gone in year four. That helps to determine that revenue.
We spent a lot of time looking at it, trying to model it. And yes, it does take away a lot of flexibility. On the other hand, it also forces you to look in longer terms at your fixed expenses and what you may want to do, and how you do your planning. Our board of trustees, who ultimately approved it, largely comes out of the corporate communities--CFOs and business-oriented people. They thought it was a great idea. We thought we were losing students because of these yearly increases, so we all agreed: Let's be responsive to this concern on the part of students.
It does take a lot more financial planning and consideration. You don't, for example, have the luxury of saying, "This is the year everything is right, we are really going to bang tuition 20 percent and use that money to do something special." I think you have to be much more organized and thoughtful in terms of the whole process.
First it puts much greater emphasis on what I call medium-term planning. We've got to make assumptions about graduation rates, make assumptions about retention rates, and look at this in terms of overall recruitment of students.
It forces us to be much more proactive in planning our overall operating budget. In our strategic plan we have committed ourselves to certain things in terms of faculty salary increases in relation to the cost of living, and various programs we are trying to strengthen across the university. That helps as a guide in terms of figuring out what we are trying to do in each particular year, so the planning process has become sharpened as we try to look at these things.
But the really interesting thing on this is the education factor. Students, especially first-generation students, are concerned about how they are going to meet the first-year expenses, and they're often not looking at the other four years. Other schools may be raising tuition 5 to 6 percent a year, but we are saying you'll pay the same amount. So if you can find a way to meet it this year, you're going to be able to do it in the next four years. To us, that's very practical. We have tried to be responsive to what we think is important in terms of value-added education for our students.
Because it doesn't work. For example, under the current version of the higher ed reauthorization being debated, the financial reporting requirements mean our rising tuitions would throw us out of whack. They are looking at tuition from year to year, and not what it costs students from year to year. I think what the supporters of cost containment are ultimately interested in is making sure that higher education remains successful, but by doing what some of their proposals do, it will have the opposite effect--it will add costs on university campuses.
So, here we are with what we think is a bold, imaginative and innovative program--one that forces us to do a lot of planning and, in many cases, hold costs down--but we would be subject to reporting requirements because we would exceed the annual increase in tuition. To me, that is really an oxymoron--why should we be punished for being innovative and trying to be very student-centered?
I don't see cost containment, even though it is well intended, having the desired impact at all. I think we can go back and look at other efforts of price controls--they just don't work. They never have, even going back to the 1970s with "Whip Inflation Now" under the Ford administration--it just didn't work. There are too many factors, and it becomes counter-productive.
My position is that, yes, the Feds need to be very concerned about the question of access, but they ought to foster the ability for institutions to deal with that in innovative and different ways. I would argue that price control is not one of those ways.
Well, along with our tuition guarantee, one of the things we wanted was to assure students that they could graduate in four years. The Pace Promise says that, providing you maintain good academic standing, and you regularly work with an academic advisor, if ever a required course is closed, we will make sure that it is either opened for you, add a section, or figure out another way for you to get it so that doesn't become an impediment. You won't lose a semester or a year waiting for a required course. That's one of the real problems students have in many cases.
We have a number of students every semester who are late for whatever reason--they don't register when a class is open, but it is a class they need. So we'll ask the instructor to go, say, from 22 to 24 in this class. But, if we're bumping up against what we think is an unreasonable number, we'll add sections in order to do this.
We think it helps the student in a number of ways. A student who is making steady progress in terms of meeting the requirements doesn't have to worry about spending an extra semester or an extra year--and paying those additional costs.
It gives them some flexibility as they try to structure their education. We don't require them to declare their major until their sophomore year. And if they still need courses to qualify for that major, we'll get them in time. It permits them to do a lot of their own academic planning, which is very important.
I think there is a possibility that we might, and I think that is a mistake for a variety of reasons. I think there are many already existing bases for accountability. And one--which I would think Republican lawmakers especially would be attracted to--is, in fact, the market.
There is a market out there, and the market does tend to self-regulate. If the student is not well prepared and subsequently doesn't do well, that's communicated. People know that and that affects enrollment as well. I also think colleges and universities both as groups and individually are doing a lot in terms of accountability. There are various national studies that are going on, such as the National Survey of Student Engagement (NSSE) work that is being done at Indiana University-Bloomington, and the work that is being done by Rand Corporation in looking at liberal arts education and learning outcome. My concern about testing is that it looks too much at what I would call "inputs." We know that institutions that start with the better students will likely end up with very high test results. But what is more important is the value added to a student's education, and most testing programs don't get at that.
What NSSE and others try to do is gauge how students relate to their initial first-year experience, and then their senior experience. It helps to look at whether or not the university or college is tracking and adding value in the student's perspective. Second, most universities have their own internal score cards, where they can judge whether they are improving in terms of overall student quality.
So it is not as if accountability is not occurring. And don't forget, the basic and probably the most critical way accountability occurs is with the periodic accreditation, the institutional accreditation done by various organizations.
Our feeling is that we want to make sure that our programs are among the most rigorous, so where there is accreditation available, we go for it. But we don't stop there. We have built into our evaluation periodic reviews of programs in schools. We hold our department accountable for the objectives they have set. If they said they were going to do X and Y, and they haven't done X and Y, that becomes a factor when we have resources to distribute, whether it be new equipment, money, or other things.
Now to try to mandate this nationally, I think, is next to impossible to do.
I favor language in the legislation that requires each institution to have an evaluation plan in place. I think that works very well. It requires everyone to do it. If it is not successful, institutions are going to know it. But to have an outside body do it would just create a series of bureaucratic reporting requirements.
A couple of years ago in New York State, there was a discussion about going to a statewide scorecard. But when they actually sat down and tried to work it out, they came to the realization--which I think was the appropriate one--that you can't do that. You'd be comparing apples and oranges, and sometimes comparing apples and oranges to meat and potatoes. So, not just different fruits, but very different categories. It's very difficult to make that kind of comparison.
And, to go back to our earlier discussion, I think a lot of this concern, on the part of the lawmakers, is again related to the question of accessibility and cost--the idea that if we can just make everyone accountable, we are going to get the cost down.
There is a lot of misplaced political posturing going on that really should not enter into it. I don't want to say that higher education should be subject to no regulation, but I think we are already very much regulated. We're regulated by the state, we're regulated federally in terms of what we have to meet to get into various federal programs, we are regulated internally, and I think we're ultimately regulated by the consumer.
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