Rodney A. Erickson Remarks
Tuition Task Force Report to the
University Faculty Senate
April 23, 2002
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Slide #1 – Title Slide
As you know, I have been chairing a Task Force that has been studying budget issues and forecasting future tuition needs. There are difficult choices to make and the issues we are facing are very complex, but it is critically important that we understand as best we can the road that is before us. My report this afternoon will summarize the findings and recommendations of our study. I appreciate the opportunity to share this important information with the Faculty Senate. There is much information to cover, and I will stick closely to my formal remarks in order to make the presentation as clear and efficient as possible.
Slide #2 – Tuition Planning
Dr. Spanier appointed the Task Force on Tuition because he recognized that the University’s teaching, research, and service missions depend on adequate and consistent funding. To meet Penn State’s strategic goals, the Task Force was asked to consider realistic projections of a large range of tuition options that may be necessary over the next five years to support the continued competitiveness of the University as a premier institution.
Slide #3 – Background Information
I will not go into great detail about the University’s underfunding in relation to peer institutions because this topic is discussed in considerable detail in the Task Force report, and I’ve already presented much of the information to this group in my annual budget reports. However, I will provide you with some background that frames the context in which the University must consider its decisions with respect to tuition.
The Commonwealth’s appropriations have made up a progressively smaller share of Penn State’s budget for several decades. Commonwealth appropriations now make up a mere 14 percent of Penn State’s total budget. I have told you in previous reports that our appropriation per full-time equivalent (FTE) student is the lowest among Big Ten public universities and, on the other side of the coin, our tuition is the highest. No other university among our peer group has such a large gap between the high quality and reputation of its programs, on the one hand, and the low level of resources for faculty and other needs that are available, on the other.
At the same time as revenues have lagged, the University has faced significant cost increases in terms of salaries and benefits, capital improvements and maintenance, information technology, library resources, and regulatory compliance.
Penn State has cut costs through a decade and more of budget recycling, but it has still been necessary to raise tuition in order to maintain academic quality.
Looking ahead, we recognize that the University will continue to face significant cost increases.
Slide #4 – Additional Funding Needs
Additional funds are needed for full-time, tenure-track faculty to reduce class sizes and to improve the student/faculty ratio. We need more modern classroom and lab facilities and funds for our growing deferred maintenance backlog. We need to fund critical academic and administrative support programs and interdisciplinary initiatives, develop library resources and technology improvements, enhance student life and learning experiences, and improve our outreach and technology transfer services to citizens of the Commonwealth.
Slide #5 – General Principles
Several principles guided the Task Force deliberations. In keeping with Penn State’s land-grant mission, we believe that tuition should be held to the lowest level possible, consistent with enhancing the academic quality of the University and achieving its strategic goals.
We must continue to seek new ways to operate efficiently. We should be sensitive to the economic climate, but also take a principled and long-term approach to tuition strategy.
Slide #6 – General Principles, continued
Tuition policies should be set in the context of market factors, the policies of peer institutions, and the competitive regional environments of our Penn State campuses.
We must maintain many points of student access through our multi-campus system.
And, we need to preserve affordability by maximizing the amount of student financial aid that is available.
Slide #7 – Student Demand for a Penn State Education
An important element in any discussion of tuition policy is student interest in the University. We are fortunate that student interest in a Penn State education is extremely strong. Applications for admission have been at record levels of 75,000 to 78,000 over the past three years. The yield rates for freshmen baccalaureate offers remains steady, and total enrollment of about 82,000 students is on target with the University’s enrollment management plan.
Slide #8 – Tuition Increase Percentages 1971-72 through 2001-02
Here is a thirty-year look at tuition increases on a percentage basis. There have been times that Penn State has had to face significant tuition increases. In fact, in 11 of the 30 years, we’ve had to increase tuition 9 percent or more.
The conditions that led to these increases varied over the years. In the late 1970's and 80's, inflation was a factor. We are facing similar circumstances now, in that costs are increasing in the categories of salaries, benefits, equipment, maintenance, and technology.
During the 1980's, tuition increases averaged nearly 10 percent. Over the past 10 years, the increases have been more modest.
Slide #9 – Tuition and E&G Appropriation Per FTE/Student in Constant Dollars
This slide represents Penn State’s tuition and Educational and General Appropriation per full-time-equivalent student in constant dollars. The E&G appropriation is that line item in Penn State’s appropriation that represents the bulk of the Commonwealth’s contribution to our basic instructional mission. Dollar values have been adjusted to a constant base year of 1970 using the Higher Education Price Index. In 1970, appropriation represented about two-thirds of the total expenditure per FTE student, while tuition represented about one-third. Today, the pattern is reversed with tuition representing two-thirds and appropriation one-third.
Overall, the funds available to the University per FTE student from these two sources–when adjusted for inflation–are not much higher now than in 1970. In other words, the University’s purchasing power per student is virtually the same as it was 30 years ago. This is a remarkable fact, given the increased demands that have occurred over the past 30 years, such as teaching and learning improvements, environmental and other regulatory compliance, more student services, major maintenance expenditures, technology improvements, and higher expectations from students and parents.
Slide #10 – Recent Tuition Increases
Since 1995-96, Penn State’s tuition increases have averaged 5.2 percent per year, but we’re seeing an increasing trend over the past three years.
Slide #11 – Actual Appropriations
This chart shows Penn State’s actual appropriations from the Commonwealth from 1995-96 to the current year. It also shows the $10.1 million budget rescission that occurred this year and the Governor’s proposed budget for Penn State for 2002-03.
The proposed budget cuts of $16.7 million for 2002-03 would return Penn State to about the level of funding it received three years ago in 1999-2000.
Slide #12 – 1995-96 Appropriation Adjusted for Inflation (HEPI) vs Actual Appropriation
The line with the red diamonds on this chart shows what the appropriation amounts would have looked like if Penn State had received annual increases over the 1995-96 appropriation that were equal to the inflationary increases in the Higher Education Price Index. The line with the yellow squares shows the actual appropriation. When inflationary increases are factored in, the Governor’s proposed budget, if enacted for next year, would set Penn State back $35 million in purchasing power from 1995-96.
Slide #13 – Budget Scenarios
To project Penn State’s budget requirements for the next five years, the Task Force developed multiple budget scenarios based on projections for each of several budget variables such as salaries, benefits, and program needs.
Slide #14 – Budget Planning Assumptions
Salaries make up the largest portion of Penn State’s budget–69 percent when benefits are included. Comparisons with our peer institutions show that Penn State’s average faculty salaries have slipped substantially in ranking since 1995-96. Competitive salaries are important to maintaining a quality faculty. Recovering our lost ground in salaries will require a multi-year initiative.
Slide #15 – Average Faculty Salaries – Peer Public Universities (Main Campuses Only)
As you can see from this table, among Big 10 Public institutions, Penn State’s rank for average salaries dropped from second to fifth at the professor level, from second to sixth at the associate professor level, and we moved from eighth to seventh at the assistant professor level from 1995-96 to 2000-2001.
The same comparison is made between Penn State and 22 public institutions participating in the Association of American Universities Data Exchange (AAUDE). For the same five year period, Penn State’s rank for average salaries dropped from second to eighth at the professor level, from second to tenth for associate professors, and we continue to be ranked twelfth for assistant professor salaries.
Slide #16 – Growing Salary Differences – Private vs. Public Universities
Nationally, faculty salaries at private universities, on average, exceed faculty salaries at public universities, and the gap is growing. Here is some data published in 2001 in Academe for professor-rank faculty. The salary gap for private vs. public university faculty was 12 percent in 1989-90 and had increased to 22.4 percent in 2001-02.
Slide #17 – Growing Salary Differences – AAU Private Universities vs. Penn State
With the growing national reputation of Penn State’s faculty, the relationship between our faculty salaries and those at the elite private universities is becoming increasingly important.
We analyzed faculty salary data for the private universities in the Association of American Universities (AAU) and compared them to Penn State faculty salaries. We found that Penn State faculty salaries are considerably below those of AAU private universities, and the gap is growing. At each level–assistant, associate, and professor–the salary gap increased between 1995 and 2001.
We are feeling the effects of this salary gap at Penn State. We have been losing excellent faculty to some of the AAU private universities, such as Cornell, Harvard, Chicago, Tulane, and the list goes on.
Slide #18 – Budget Planning Assumptions
We also looked extensively at a number of other major factors in our budget planning assumptions.
Employee benefit costs are projected to increase for the coming years for the University’s Educational and General operations. Nationally, health care costs are expected to increase 15 to 20 percent per year over the next several years. Penn State has projected an increase in health care costs from 14 to 16 percent per year over the five-year planning period.
Our budget plans also include providing health care benefits for graduate students that correspond with benefits provided to faculty and staff.
In line with national trends, we are expecting significant increases in property and liability insurances.
We continue to allocate funds to deferred maintenance, and we included funds for new and newly renovated facilities scheduled to come on line during the next five years.
Slide #19 – Budget Planning Assumptions, continued
In terms of program needs, we included funds to complete the funding commitments over the next three years for our academic initiatives in the Life Sciences, Materials Science, Environmental Studies, and Children, Youth and Families.
Program investment funds of $6 million per year have been included for such things as new faculty positions, start-up packages for replacement positions, competitive graduate assistant stipends, and selected expansion of baccalaureate programs at some campus locations.
The budget scenarios include $1 million per year to complete the funding for the School of Information Sciences and Technology, although we certainly hope that the Commonwealth will provide additional funds for this important venture, which they have previously supported through a $5.3 million base budget allocation.
The Information Resources and Technology fee will provide $2 million per year for library information resources and student computing and telecommunications needs.
$1.5 million per year has been included for other priority needs, such as the President’s Opportunity Fund, instructional workload funding, and the parking and transportation programs.
Slide #20 – Budget Planning Assumptions, continued
The equivalent of one percent per year in departmental operating funds will be reallocated within each unit as part of the next cycle of strategic planning. Over the last ten years, we recycled over $87 million, which represents approximately twelve percent of our departmental operating budgets.
We are also planning to increase funding for student aid by an average of $1.2 million each year to mitigate the effects of tuition increases for our neediest students.
Slide #21 – Five-Year Budget Scenarios
To project Penn State’s expenditures over the next 5 years, we made multiple projections with different levels of state appropriation and personnel costs. We projected state appropriation changes of minus 5, minus 3, zero, plus 2, and plus 4 percent. We also projected personnel cost increases at three different levels–an increase below the peer group average which we know would cause further slippage in Penn State’s salary rankings, a level which would match the peer group average increase, and an increase of one percent over the peer group average which would start to improve our salary rankings. To place this in context, we believe that an increase of 3.0 percent in the basic merit pool plus 1.0 percent each in the President’s Excellence Fund and the Faculty/Staff Excellence Fund will be necessary just to stay at the peer group average next year.
In each scenario presented, we used a mid-range figure of $6 million per year for program investment funds.
Slide #22 – Resulting Tuition & Fees Increase Percentages
Here are the results. Varying appropriation changes at five levels and personnel cost increases at three levels results in 15 different scenarios for tuition and fees increases ranging from 7.8 percent to 14.7 percent. You can see the devastating effect that a 5.0 budget cut will have on the tuition rate that we would need just to maintain our current relative standing.
Slide #23 – Possible Tuition Models
We analyzed the pros and cons of four possible tuition models that could generate enough income to meet the University’s projected five-year financial needs. The models are:
1. Incremental increases, adjusted each year to meet economic conditions and University needs
2. One-time, significant increases for all students, followed by more modest increases, in order to provide significant catch-up funding
3. Significant increases for incoming freshmen, with more modest annual increases for continuing students
4. Expanded differential tuition by student level and by campus location
Slide #24 – Incremental increases
Incremental increases would allow tuition levels to be adjusted each year to meet economic conditions and University needs. No students would receive significantly larger increases than other students. This does not constitute a significant departure from our current practice.
However, the incremental increases will need to be higher than inflation, and this option still may not provide the necessary income to meet the University’s goals. Over time, we would also predict problems for campus college locations that are competing with local and regional institutions.
Slide #25 – One-time, significant cost increases for all students, followed by more modest annual increases
The second model, implementing one-time, significant increases for all students, followed by more modest annual increases, would provide an immediate inflow of income to meet the University’s needs, and it would accomplish the change in the tuition structure quickly.
However, this option impacts current students much more than the other options, and it has the greatest potential impact on access. Student aid would become an even more critical issue.
This option would also have a serious impact on our campus locations, and may price them out of some markets in comparison to their local competitors.
We believe that a better solution to meeting the University’s fiscal needs is through gradual increments over a period of time.
Slide #26 – Significant cost increases for freshmen, with more modest annual increases for continuing students.
The next model is significant tuition increases for freshmen, with more modest increases for continuing students, similar to those they have experienced in the past. The income would be spread out over a four-year period, providing more effective use of the funds. Freshmen students would be advised of the increases before making their decision to come to Penn State.
On the downside, this model would have an impact on accessibility for new freshmen and student aid would continue to be a critical issue. It could again cause a problem for the fiscal competitiveness of our campus locations.
Slide #27 – Expanded differential tuition by student level and by campus location
The last model involves expanding differential tuition by student level and by campus location. Expanding the tuition differentials between University Park and other campuses, for example, would be the best solution to the price competitiveness issues facing the campus locations. Further differentials by student level would better reflect the costs of upper division and graduate education. Differentiation by student level and location could be implemented in conjunction with any of the other three models.
Some cautions to consider–tuition differentials might inhibit movement within the Penn State system. For example, a sophomore at a campus location moving to the junior level at University Park would face a substantial tuition increase.
Another disadvantage is that the differences in cost among Penn State locations might be misunderstood as representing differences in educational quality.
Slide #28 – Observations and Recommendations
The next part of my report sets forth the Task Force’s observations and recommendations after evaluation of the four tuition models.
Slide #29 – Tuition Model
The Task Force made two primary observations.
First, the strong student interest in Penn State and the significant tuition rate increases planned by peer institutions suggest that enrollments can be maintained in the face of higher tuition, particularly at University Park.
Second, the flexibility to increase tuition is more limited at some other campuses due to local economic conditions, student demand, and the pricing policies of competing regional institutions.
Accordingly, we have endorsed the following two recommendations–first, that the most promising alternative to meet the University’s budget requirements is a combination of increased tuition differentials by campus location and by student level, and incremental increases as needed.
Second, we have concluded that higher tuition should be phased in beginning with incoming freshmen, rather than for all students. Freshmen would be advised of the increases before making their decision to come to Penn State.
Slide #30 – Prospective Tuition Levels
For the next academic year, 2002-2003, we are proposing that all students receive the same percentage tuition increase.
Beginning in 2003-04, we are proposing to increase tuition differentials by location and by student level. Incoming freshmen would receive a higher tuition increase in 2003-04 and again as sophomores in 2004-05. Two consecutive years of the “freshmen bump” would become
the new higher tuition base that works its way progressively through the student body year-by-year. The existing tuition differential for upper division and graduate students would be increased over two years, and University Park students would receive higher tuition increases than students at other campus locations.
Slide #31 – Prospective Tuition Levels
Here is some more detail about the planned increase for incoming freshmen in 2003-04 and 2004-05. At University Park, freshmen would receive a basic tuition increase plus an extra increase in the range of $400 to $600 per year.
At other locations, freshmen would receive a basic tuition increase for their location plus an extra increase in the range of $50 to $100 per year.
As I indicated, the increases for freshman would be announced well in advance so that students could consider the cost of tuition in their enrollment decision.
Slide #32 – Prospective Tuition Levels, continued
Larger differentials for upper division students would also be implemented in 2003-04 and 2004-05. For upper division students at University Park, we project a basic tuition increase plus an extra increase of $180 per year.
For other locations, upper division students would receive a basic tuition increase for their location plus the upper division increase of $180 in 2003-04 and again in 2004-05.
Slide #33 – Student Aid – Tuition Reduction From Grants or Scholarships, Fall 2001
In any discussion of tuition increases, we must consider need-based student aid and its importance to financially needy students.
During the 2000-01 academic year, Penn State students received a total of $482 million in student aid from federal and state grants, loans, and institutional and private sources.
These bar charts show the percentage of full-time degree-seeking undergraduate and graduate students who received grant and/or scholarship assistance that covered at least some of their tuition in the fall semester 2001. These data do not include loans.
Fifty-three percent of full-time undergraduate students receive some tuition reduction from grants or scholarships, 27 percent of full-time undergraduate students receive the equivalent of 60 percent or more of full tuition, and 12 percent receive amounts equal to their full tuition charges or more.
Seventy-one percent of full-time graduate students receive some tuition reduction from grants, scholarships, or fellowships, and 96 percent of these students receive full tuition awards.
Slide #34 – Annual Unmet Need for Undergraduate Students at Penn State
We have carefully studied the amount of student aid received and the unmet financial need for full-time undergraduate students. In this analysis, unmet need is defined as the balance of direct costs of tuition, room, and board after considering grants, scholarships, federal loans, and the expected family contribution.
As we might expect, the unmet need was greatest for families with incomes under $65,000, but there were other significant differences, as shown here. The unmet need for commuting students averaged $170 per year. Thus, campuses other than University Park will continue to be important points of access, especially for commuting students.
The unmet need for Pennsylvania resident students living on campus averaged $1,200 per year, and the unmet need for nonresident students living on campus averaged $6,450 per year.
Slide #35 – Total Undergraduate Debt 1999-2000
In 1999-2000, the median debt for Penn State students who have debt upon completion of their baccalaureate degree was $17,125. National survey data indicated that the median undergraduate debt at public institutions was $15,375 and at private institutions was $17,250.
Slide #36 – Featured Objectives in the Grand Destiny Campaign
Of the $1.3 billion dollar overall goal of the Grand Destiny Campaign, $545 million is targeted for support of ongoing programs and $755 million is targeted for support of four featured objectives–Undergraduate Students, Graduate Students, Faculty, and Programs. Undergraduate and graduate support make up $393 million, or 52 percent, of the $755 million for featured objectives.
Penn State’s Campaign goal for Undergraduate Support is $320 million and the goal for Graduate Support is $73 million.
Slide #37 – Featured Objectives in the Grand Destiny Campaign
As of February 2002, we have raised $270 million or 84 percent of the Undergraduate Support goal. A majority of the funds in this category support undergraduate scholarships.
As of February, we have raised $53 million or 72 percent of the Graduate Support goal. Graduate support helps fund graduate fellowships which are a critical need in recruiting students for all of Penn State’s academic colleges.
Slide #38 – Importance of Private Fund Raising
Private fund raising is increasingly important as a source of student aid funds. In 1996, endowed scholarships and annual giving funds provided 3,268 awards totaling $6.1 million. By 2000, these figures had increased to 4,632 awards totaling $12.1 million, thanks to substantial gifts from the Grand Destiny Campaign.
We are projecting that awards totaling $16.2 million will be available in 2006, as additional gifts from the Grand Destiny Campaign are received and activated.
Philanthropic support is critically important in helping Penn State compete for the most talented students. Through the efforts of the Campaign, we are providing assistance to needy students with tremendous potential.
With the help of federal and state based student aid, loans, institutional funds and private philanthropy by Penn State alumni and friends, our goal is to ensure that all prospective students in the Commonwealth who want to attend this University can continue to do so.
Slide #39 – Summary and Conclusions
The next few slides will summarize the main points of the Tuition Task Force’s report.
Slide #40 – Summary
Comparative rankings show that Penn State is seriously underfunded in relation to its peers, both nationally and within the Commonwealth. This underfunding shows in virtually all comparisons of University activities.
We are a very efficient university and we rank highly in productivity and administrative efficiency.
Years of budget reallocations and recycling have contributed to this productivity, but have left us with limited flexibility to generate internal funds.
Slide #41 – Summary
The Grand Destiny Campaign has been very successful, but it is not designed to provide funds for basic operating costs. It does help to provide funds for a margin of excellence in academic programs and critical financial support for students.
Because of state budget constraints, Commonwealth appropriations now account for less than one-third of Penn State’s general funds budget and only 14 percent of our total budget. It is highly unlikely that the state appropriation will increase enough to meet the University’s needs.
The demand for a Penn State education should continue to be robust, and it should be
possible to sustain enrollments with the tuition increases in most of the ranges considered in this report.
Slide #42 – Summary
The planned tuition strategy will enhance Penn State’s academic quality and reputation. Peer public institutions are planning significant increases in their tuition rates over the next few years. Limiting tuition increases below the mid-range scenarios in this report would almost certainly result in erosion of academic quality and reputation of the University.
We are recommending larger increases for entering students over a two-year period and relatively lower increases than might otherwise be the case for current students.
Our analysis supports greater differentials among campuses, programs, and student levels, based on the actual costs of educational programming. Differential tuition would permit Penn State to compete effectively in regional markets while permitting University Park to secure the financial resources necessary to support its mission. The campus colleges would take on an even greater role in providing access to higher education in the Penn State system.
Slide #43 – Summary
Penn State will continue its strategy of cost containment and continuous quality improvement. As Graham Spanier indicated at the last Senate meeting, a small task force has been created to look at the overall university budget and find new places to reduce costs. Gary Shultz and I are co-chairing the task force and we want to make sure that every stone is turned over to see if we can find additional cost savings that will not adversely affect our academic mission.
The University will need to place even greater emphasis on private fund raising for student financial aid.
Even with significantly higher tuition rates, a Penn State education remains an excellent investment for students. While no one likes to raise tuition, there appears to be no reasonable alternative to provide the financial resources that will be required to support the University’s continued competitiveness and its development as a premier academic institution. Penn State’s potential and goals are high, and we owe our students the highest quality education.
Slide #44 – Online Tuition Task Force Report
I would encourage you all to take time to review the full report of the Tuition Task Force at this web site.
201 Old Main, University Park, PA 16802
Phone: (814) 865-2505
Fax: (814) 863-8583
Web page last modified September 30, 2011