October 10, 2007

As University Tuition Grows, Administrative Costs Do, Too

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The average graduating Cornellian in 2006 carried a $25,000 tuition debt on their shoulders, according to a calculation to be released soon by the Division of Planning and Budget.
The ticket price of attending Cornell in 2005 exceeded more than half of the median family income in the United States, compared to only 28 percent in 1980, according to Prof. Ronald Ehrenberg, industrial and labor relations and economics, author of Tuition Rising and a member of the Board of Trustees.
Although the rising cost of a Cornell education is reflected regularly in tuition increases — such as the January 2007 Board of Trustees approval of 5.5 percent rise in endowed tuition — the funds Cornell receives from tuition and fees only cover a 23.6 percent slice of the University’s 2007-2008 $2.8 billion revenue pie.
The $2.7 billion in Cornell expenditures slated for this year indicates that the costs of running the University far exceed resources generated by tuition. But where does the rest of Cornell’s revenue come from, how does Cornell allocate this revenue and what forces are pushing budgetary needs ever further up?

Over the past 10 years, as published in the 2007-2008 Financial Plan for Cornell, the percentage of the operating budget devoted to individual colleges and academic programs dropped from 72.9 to 71 percent and “financial aid and student services” edged down from 11.3 to 10.4 percent, while “administrative and support costs” rose 4.5 percent, from 7.8 to 12.3 percent of the overall budget.
Vice President of Planning and Budget Carolyn Ainslie warned against hasty efforts to understand shifting budget allocations or the reasons for why tuition has been increasing so much more rapidly than market indicators like the consumer price index would suggest.
She explained that all colleges on Cornell’s Ithaca campus operate under one of three budget models. They are either “general-purpose” colleges, the privately endowed colleges, government-subsidized “statutory” or “contract” colleges, “tubs,” a phrase that derives from Harvard’s approach to allocating funds and refers to various units each acting as “a tub on its own bottom,” for example the Hotel School and the Law School.
The so-called “tubs” are responsible for their own revenues and direct expenditures, as well as their share of communal services such as police, library costs and so forth. They operate the most autonomously of the three models. General-purpose colleges pool their resources into a central fund, and then the Provost’s office works with the college deans to redistribute funds back out to individual colleges.
The “state” or “contract” colleges and rely both on specific, non-transferable government revenue as well as allocations from the central administration. The division of budgeting tactics may be a reason why students attending state colleges are only financially permitted to enroll in a certain number of credit hours outside their college.
Ehrenberg explained that “[public colleges] have to pay the central University for … the excess … credit hours their students take in the private colleges relative to the number of credit hours that the students in the private colleges take in the public ones.”
None of the three modes of budgeting operates independently of the annual process of getting next year’s budget approved by the Board of Trustees. This budget, though the product of cooperation between multiple planning groups, emerges from Provost Biddy Martin’s office.
“At the end of the day,” said Ainslie, “the Provost is responsible for the budget of the Ithaca campus.”
General assumptions for the year are reviewed at the January meeting of the board, and a more detailed and refined version is re-submitted for approval in May. Student-elected Trustee Kate Duch ’09 said that although she does not serve on the Finance Committee that would approve policy changes such as tuition increases, she is in the position to contact committee chairs or voice students’ concerns, complains or ideas during the May meeting, should students or student organizations come to her with serious concerns, complaints or ideas.
According to Ehrenberg, the sources of rising University costs that contribute to a rise in tuition can be whittled away to a crucial handful. Responding to the key need to retain and attract top professors and students in an adverse economy is primary: “First and foremost,” Ehrenberg said, “the faculty-student ratio doesn’t change over time. I don’t educate more students one year than I did in the previous year, so in the sense of teaching, my productivity didn’t go up [unlike workers in other sectors of the economy, which benefit from technology and new capital equipment].”
Therefore, in order for universities like Cornell to retain the brightest faculty, they must offer salaries higher than those merely reflecting the rate of inflation in order to make professorship professionally appealing. “Small classes and low student-faculty ratios are the essence of high-quality education,” Ehrenberg said.
Tim Krueger, senior staff member at the Cornell chapter of the Roosevelt Institution, a nationwide student think-tank, agreed that stellar professorship is crucial to Cornell’s rankings and world-class image, stressing the importance of Cornell revenue being funneled back into teaching as much as possible and administrative sectors as little as necessary.
Krueger, who is also a Sun columnist, stressed the impossibility of retaining Cornell’s selectivity and integrity as an institution valuing diversity if it does not pursue equally aggressive financial aid packages to recruit economically disadvantaged students, who could be turned off by a high price tag and a financial aid package less grant-based than competitor universities.
Close observers of the tuition climb mention that the offsetting effects of financial aid are key when judging the affordability of name-brand universities. For example, Harvard, Stanford and the University of Pennsylvania all offer grant-only aid below certain income levels. Princeton offers grant-based aid only, regardless of family income.
Ehrenberg, Krueger and Student Assembly President Elan Greenberg ’08 agreed that the size of Cornell’s endowment is crucial to how generous and grant-based Cornell’s financial aid package can be. Better-endowed schools can use endowment payoff to offset tuition costs at levels Cornell cannot afford.
“Cornell’s endowment, a little over $4 billion, pales in comparison to Harvard, Princeton, Stanford and Yale,” Greenberg said. “Princeton theoretically can afford to not charge students tuition.”
Another chief reason prices and tuition continue to grow, agreed Ainslie and Ehrenberg, is that as colleges compete for the most cutting edge research, students and faculty, no market mechanism prevents competitive spending from spiraling upwards, a phenomenon Ehrenberg calls the “arms race of spending.”
Greenberg said he hopes to see more student engagement in tuition and budget issues.“If you want to be a responsible citizen, you should know what is going on around you … At places like Cornell, everyone has a stake in what happens.”
Increasing tuition does not change Cornell’s need-blind admissions policy in any way, Ainslie stressed.