Universities Test 'Tuition Guarantees' to Reduce Debt

A few schools are guaranteeing four-year tuition rates for incoming students while the higher education world watches to see how the experiment works.
by | February 12, 2013
 

This year, when freshmen at the University of Dayton walk into their first class, they’ll already know exactly how much money they’ll spend on tuition for a college education in the next four years. On the dot. No surprises, no unexpected expenses.

That’s because of a new program that university officials have approved for the 2013-2014 school year. It’s more or less a tuition guarantee: at the beginning of their freshman year, incoming students will receive a two-page financial prospectus (see the example below). The tuition price will be set in stone for four years—$16,950 per year, for example, though the exact price will vary for each student—with estimates on costs for other expenses like housing and meal plans. The university then guarantees that tuition price for four years by promising to increase scholarships and financial aid to offset any tuition increases, therefore keeping the net price the same for the student.

It’s a first-of-its-kind effort by a higher ed institution to be transparent about its costs and keep them stable. Dayton officials say they’re conscious of larger conversations about the cost of college and student debt, particularly when it comes to unplanned expenses, and they thought this was something the university could do to add some certainty as prospective students considered whether to attend and what it would cost. University president Daniel Curran went before the school’s board of trustees four times to persuade them it was the right thing to do.

“There’s been a lot of public interest in the cost of college. We’ve been wondering: What’s our role? What’s our contribution? Everybody is acting like it’s somebody else’s problem,” says Sundar Kumarasamy, Dayton’s vice president of enrollment management. “If our parents and students aren’t going to be successful down the road, we’re not helping our university community. So this is the sticker price you’re going to pay for the next four years. We’re hoping the transparency of costs will help them make good judgments.”

The rest of the higher education world is going to be watching closely to see how Dayton’s experiment works. It’s already earned the endorsement of David Warren, president of the National Association of Independent Colleges and Universities. It bears some similarities to the College Scorecard that President Barack Obama proposed in his State of the Union address this week, an idea the White House has floated before. According to the Columbus Dispatch, Ohio University is already considering a tuition guarantee of its own, and Kumarasamy says he’s consulted with administrators there about transferring the policy from a private school like Dayton to a public one like Ohio.

“It gives some predictability. This is going to be what it’s going to cost for four years. It’s about transparency,” says Megan McClean, managing director of policy at the National Association of Student Financial Aid Administrators.

It’s not a foolproof plan, however. For starters, it doesn’t really address the underlying factors that contribute to the rising cost of higher education and exploding student debt—a point that Kumarasamy readily concedes. When housing and meals are included, a four-year education at Dayton is still going to cost more than $100,000, even with the tuition guarantee. Some students could still be leaving with a six-figure debt.

So the issue of access is still out there, Kumarasamy acknowledges. But the hope of the guarantee is that students will know up front what they’re going to pay. Another innovative element of the plan is that it removes student fees—charges, separate from tuition, that are usually tacked on as students enroll in specific classes—from the equation. No surprises, that’s the motto. Dayton is still an elite liberal arts university, and you’re going to pay a price for that education. But you’ll always know what that price is.

“We shouldn’t be controlling college costs by reducing what we offer or what we’re invested in. We can’t throw the baby out with the bath water,” Kumarasamy says. “That’s the risk a person has to take. They have to make a decision about putting themselves in the game. But now they know how much is going to come out of their pocket.”

There is also some skepticism about whether this policy is feasible for public universities. Dayton has theoretically put itself at substantial financial risk—by guaranteeing to cover any tuition increases with financial aid, it could end up spending a lot of money if inflation skyrockets or the school fails to meet its enrollment expectations or federal aid drops dramatically. “We’re totally exposing ourselves. We are giving up that opportunity to pass on any costs,” Kumarasamy says, though he adds that the school considers those to be “manageable risks.”

But public institutions don’t have the deep pockets that private schools often do, and they’re already in a tenuous situation with the state budget cuts of the last few years. According to national estimates from Illinois State University, the United States cut higher education spending by a combined 10.8 percent from FY 2008 to FY 2013. Could public universities really be expected to assume the financial risk that Dayton has? Some are doubtful.

But then again, maybe they can, as Ohio University’s interest might indicate. Regardless, Kumarasamy knows the pressure is on for his school’s experiment in transparency to work.

“Is this model going to scare off the public or attract the public? We’ll see,” he says. “They’ll all be watching, though, if only because they cannot possibly imagine how we can pull this off.”

Below is the University of Dayton's financial prospectus for the 2013-2014 school year.

 

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