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Original article URL: http://bridgemi.com/2012/01/college-tax-burdens-students-state/

Public sector/Talent & education

‘College tax’ burdens students, state

Caroline Robinson and Barbara Twist are cousins who share far more than bloodlines. They are both seniors in college; each attends one of the top public universities in the nation.

The similarities stop, however, when the tuition bills arrive. Barbara is paying twice as much for her education at the University of Michigan as Caroline must pay at the University of North Carolina.

Michigan families pay more to send their children to state universities than families in almost any other state, according to a Bridge Magazine analysis. Not coincidentally, Michigan also gives less money to its public universities than almost any other state.

“It’s ridiculous,” said Twist, 22, who will graduate in the spring with about $28,000 in student debt — compared to $0 debt for her North Carolina cousin. “All of Michigan needs to take an economics class.”

An economics class would call it what it is – a college user tax paid by Michigan families that can add tens of thousands of dollars to the cost of a diploma.

A decades-long decision to skim money from the state’s 15 public universities means Michigan teens face a higher hurdle to attend college and leave campus with more debt than their peers in other states – both factors that are likely to erode the Michigan’s ability to revitalize a moribund economy.

 The price of learning

College costs across the country have doubled in the past decade, according to the Consumer Price Index, partly because of rising health-care and retirement costs of university employees. But the difference in cost between public higher education in Michigan and other states can be traced to one thing: Budget decisions made in the State Capitol. As state support drops, more of the cost of college is shifted to students and their families — a 21st century “college tax.”

To measure that impact, Bridge split Michigan’s state universities into groups of academically similar institutions across the country (See box at right), and calculated the true price (tuition, fees and on-campus housing minus scholarships and grants) of a year in college.

The results: 12 of Michigan’s 15 public universities had net student costs higher than the median of their peer institutions across the country.

In many cases, the cost differential was sobering.

The University of Michigan in Ann Arbor, for example, had a net cost of $16,888 in 2008-09, the latest year available, compared to the $12,738 for the median of its peer group. That means three years at U-M costs as much as four years at many other high-caliber research universities.

U-M’s net cost was sixth highest among 73 universities in a peer group of public “very high research” universities, ranging from Arizona State to Virginia Tech.

“Lost appropriations” was the catalyst for much of U-M’s tuition increases in recent years, said Phil Hanlon, U-M provost and executive vice president for academic affairs. The Ann Arbor campus has lost $174 million in inflation-adjusted dollars in the past decade — a trend that Hanlon calls “unsustainable.”

U-M created a 16-page report detailing cuts and efficiencies put in place to save money in the past decade.

“It’s tough to get that message out about the work we’ve done to cut costs” when tuition continues to rise, said Hanlon, who also noted that state dollars now make up only 7 percent of U-M’s academic budget.

That has led U-M to the highest student price among a more select peer group of the top 12 public universities in the country, as ranked by U.S. News and World Report. This group includes the University of Virginia, UCLA, the University of California-Berkeley and the University of North Carolina.

UNC has a stellar reputation like Michigan, with identical ACT scores of incoming students. But support from the state of North Carolina is the equivalent of $19,460 per student like Caroline Robinson at Chapel Hill; in Ann Arbor, students like Barbara Twist get the equivalent of $7,119 in state support.

The result: On average, from the time freshmen walk into U-M dorms until they graduate four years later, they’ll spend $33,860 more than a Tar Heel native would at the University of North Carolina for the same diploma.

High costs across the state

Up the road in East Lansing students at Michigan State University also encounter high bills. MSU’s average net cost of $14,708 was the 15th highest among 73 schools in its peer group.

By comparison, Purdue University, a land grant school with high academic standards similar to MSU, has an average net price of $10,620. That means Michigan students will pay $16,000 more for an engineering degree at MSU than an Indiana resident will at Purdue, just because they live north of the 42nd parallel.

The story is the same at other campuses. Central Michigan’s University’s net price of $14,183 was second-highest in its peer group of 30 universities; Western Michigan University and Michigan Tech both had net prices more than 20 percent higher than the median for their peer groups.

“The cost has gone up as a direct result of lower funding (from the state),” said CMU President George Ross. “We’ve gone from state universities to state-assisted universities to state-located universities.”

Only Wayne State, U-M Dearborn and U-M Flint had prices below the average for their peer groups.

Public good vs. private benefit

Michigan public universities cost more because they are subsidized less by the state than public universities in most states.

Michigan has slashed about 20 percent of the dollars (adjusted for inflation) for four-year colleges between 2005 and 2010; only Rhode Island and New Mexico cut more.

Since then, the Legislature and Gov. Rick Snyder whacked another 15 percent from the higher education budget for 2011-12. Michigan now ranks in the bottom 10 in the nation in per-capita spending on higher education, doling out $159 per state resident to its public universities.

In the early 1970s, three-quarters of university funding came from the state and one quarter from tuition. Today, those numbers are reversed.Michigan’s public universities now get a greater share of their funding from tuition than public universities do in 44 other states.

“Michigan has been disinvesting in education far before the recession and these catastrophic cuts,” said MSU President Lou Anna Simon. “The priorities were not higher education, when others states were investing in education.”

The poster child for that trend could be GrandValleyStateUniversity, where, over the course of four years, students pay an average of $23,000 more than the median for the school’s peer group.

Among the 161 public universities in GVSU’s peer group, Grand Valley has the sixth-highest net cost — and the third-lowest percentage of state support.

“Grand Valley has essentially been privatized,” said Matt McLogan, vice president for university relations at GVSU*. “It’s publicly owned, but is no longer publicly supported in any way that people would recognize.”

MSU ranks 61st out of 69 peer schools in the ratio of tuition support to state support. U-M is 66th of 69.

“Making college even more expensive is terrible public policy in a state that doesn’t send enough of its high school grads to college now,” said McLogan.

“Elected officials have decided that Michigan will have one of the lowest levels of public support for higher education in the country,” said James Duderstadt, former U-M president and chairman of the Millennium Project, a research center focused on the ways technology affects society. “They decided that college isn’t a public good, but a private benefit.”

That argument, according to Duderstadt, goes something like this: Those earning a bachelor’s degree earn $1 million more than high school graduates on average over their lifetimes, so why should taxpayers subsidize their education?

Michigan once answered that question the way most other states still do: Everyone benefits from more educated residents, explained McLogan.

“My generation and my parents’ generation, who built the universities, thought it was better for the economy to have as many college grads as possible,” he said. “They have better jobs, make more money, fewer are on public assistance and in prison. But today the attitude of the Legislature is ‘It’s up to you, buddy.’”

These cost shifts have not hurt enrollment — enrollment is up at most of the schools. Applications are at record levels. That could mean Michigan families still consider the state’s public schools to be a good value. Or, it could mean that they have nowhere else to turn.

Michigan public universities are still cheaper than most private schools; other states’ public universities that are such a bargain for their residents are pricey for out-of-state students.

U-M student Twist cut right to the basic market economics:

“When there’s a cut in (state) funding, the universities pass the burden to the students. Here’s 45,000 students who can pay more tuition. And if they don’t want to pay more tuition, there are 45,000 more waiting to get in.”

“The demand is high not because it is a value, but because the market is telling students that it’s still a better idea to go to college and pay the tuition than not,” said Jane Wellman, executive director of the Delta Project on Postsecondary Education Costs in Washington, D.C. “Everybody’s got to have some sort of post-secondary education.”

But rising costs at public universities are “hurting the students having to pay the higher tuitions and taking on debt levels that are unsustainable,” she said. “Tuitions are going up and (university) budgets are being cut at the same time; students are paying for more and actually getting less; the money is not showing up in the classroom; the quality of what’s being offered is probably at a breaking point.”

A modest proposal

The cumulative result of years of decisions at the State Capitol is a huge divide between Michigan and the rest of America. Just to reach the middle of the pack in per-capita spending on universities, Michigan would need to increase higher education funding by 56 percent; to reach the top 10, the state would need to almost double the $1.26 billion it now spends on universities.

That could mean more taxes (reaching the top 10 in per-capita funding would mean an extra $154 per Michigan resident). It could mean reordering priorities (The $1.7 billion business tax cut passed in 2011 far exceeds the current higher education budget).

“At the end of the day, we still have one of the finest sets of universities in the country,” said CMU’s Ross. “It’s a jewel. And we have to protect the jewel.”

Protecting higher education is cheaper than you might think. Consider this: Cutting $1,000 from the annual cost of attending Michigan’s public universities for every full-time, in-state student, would cost each state resident $23, according to the House Fiscal Agency’s Kyle Jen.

That’s 44 cents a week.

Double that – with every resident paying roughly the price of a candy bar more weekly toward higher education – and students would graduate with a bachelor’s degree with $8,000 less debt than they do now.

Duderstadt isn’t hopeful. Other states are beginning to cut back on higher education funding. California’s vaunted state universities suffered a massive cut this year. Florida public universities have raised tuition by 15 percent four years in a row. At the University of North Carolina, Caroline Robinson took part in tuition strikes to protest proposed increases in student costs.

Duderstadt believes public universities will be indistinguishable from private universities by the time today’s college students have children enrolled at MSU.

College cousins Twist and Robinson don’t have to imagine the economic angst that will cause. “The way we’ve talked about college has always been different because Barbara has always had to deal with debt,” said Robinson. “That debt could affect the way she looks in the job market, whether she rents or buys, whether she has a roommate, what kind of car she drives. It changes everything.

“Barbara will be stronger emotionally because of it,’ Robinson said. “But it didn’t have to be this way.”

*Editor’s note: Matt McLogan serves on Bridge Magazine’s Board of Advisers.

23 comments from Bridge readers.Add mine!

  1. DWhyte

    It would be nice to know why UM-Flint, Um-Dearborn, and Wayne State are exceptions to the rule. Are they doing things these other institutions can emulate?

  2. Robert

    This is something I know well, having just paid my son’s tuition bill at U of M. I have the means to afford it, but what about all those who can’t? I am all for improving efficiencies at the universities. In fact, I think our universities are too autonomous, which leads to duplication of programs. Do we really need to graduate four times as many teachers every year than there are jobs available? Do we need to open three new medical schools when there will not be new residency slots in the state to finish their training? It would take a Constitutional amendment, but we really need to have more control centrally over the universities and what programs they offer. Having said that, it is a shame that we fail to support higher education to a level that would allow most students to attend without being up to their eyeballs in debt. We fail to realize that to attract new business, it takes more than low taxes on business. It takes lower operation costs (like utilities) and it takes a state worth living in. But this state fails to invest in itself, in its roads, in its schools, in its people, all in the name of lower taxes. The old adage is right: “you get what you pay for.”

    1. citizen2000

      Representative Bob Genetski has a bill pending, HB5000, that would study the governance of state universities in Michigan. At least we could look at what the current problems are even though it would take further legislation and maybe even a constitutional amendment to change anything.

      It may not recommend a central Board of Education but it might have other suggestions on how to make the governing structure more responsive to Michigan families. One thing I would like to see is a change in how one could run in an election for the Boards. Right now, independents cannot run and the nominations are generally given out to someone that is important to the party for fund raising or they represent a special interest, like a union. Let’s have primaries and campaigns and independents being able to run. Then maybe we will get qualified people on the Boards and not political hacks interested in joining the country club.

    2. Larry

      It is not up to anyone else to support an individual’s desire to earn a college education. It is up to that individual to do it. As many of us did the student can always work and earn their way through college – even if it takes them 8 years instead of 4.

      It is very unfair for the state to use taxpayer money to support a small group of citizens and not provide the same support to the larger group that chooses to go a different route.

      1. David Waymire

        Larry, you are completely missing the point. When you went to school, the state — i.e., taxpayers — were picking up 75 percent of a college education cost. So your share was small enough you could work your way through. Society accepted the idea that a college education is a public good that benefits us all. That is, of course, completely true. The states with the highest per capita incomes are those with the most college graduates. Today Michigan ranks about 35th in per cap income and 37th in percentage of population with college degrees. Plumbers make more money working in Connecticut, where there are a lot of college grads and incomes are high, than in Mississippi. Think about it…how much is a $15 an hour autoworker going to be able to pay a plumber? Now how much is a $50,000 a year college educated insurance worker going to be able to pay a plumber?
        Today, we’ve dramatically cut taxes in Michigan and as a result cut spending on higher education. So now the state only picks up about 21 percent of the cost of an education, leaving the student to pick up 75 percent. I don’t think you would have been able to pay 75 percent when you went to school, quite frankly. So the upshot is the attitude we see from many in the Legislature: “I got mine when the getting was good, screw you.” The bottom line will be that our state will look more and more like Mississippi or Indiana — poor states, high unemployment, high poverty rate but oh boy, low taxes, instead of a successful states, like Minnesota, the state in the Midwest with the lowest unemployment, highest per cap incomes, highest taxes — and yes, the highest percentage of college graduates in the Midwest.
        And I guarantee you, plumbers, carpenters, electricians, even waiters who haven’t gone to college make more money in Minnesota than they do in Indiana — because they are working for people who have a college degree, instead of $15 an hour factory workers without college degrees.

  3. David Waymire

    First, a disclaimer: I work and have worked with several universities over the years…

    Robert, do you really think central control is the answer? More politicians making more politically-based decisions? We have a transportation system that is centrally controlled today…it’s centrally controlled into one of the worse in the nation. The only reason our universities have been able to maintain their excellence is because of autonomy. If we had politicians controlling our universities today, they would reflect the no-nothing mentality we see in the Legislature daily, focused more on anti-tax, anti-gay, anti-abortion and anti-union actions than moving the state forward.

    The med schools you are talking about are being funded with private dollars — in fact, Western has a $100 million donation, one of the largest ever given to a public university, to help it start its med school.. At a time when the Michigan State Medical Society says we are facing a dire shortage of physicians, it makes sense for universities to step in. Clearly, the Legislature isn’t — in fact, the Legislature has cut funding to support education of more nurses and doctors in the state. Do we need more residency slots — sure. But to ignore the problem completely would be silly (and par for the course).

    A little knowledge is a dangerous thing. And when it comes to higher education, there are a lot of people who think they know a lot more than they do know.

  4. Daniel

    (DISCLAIMER: I’m sure that the UNC system is a fine educational institution. FULL DISCLOSURE: I’m a U-M alum, class of 1982)

    1) I’ve said it before: not everyTHING is for everyBODY. There are educational opportunities for nearly everyone out there, along with the means to pay for it. If you want a shingle from an elite University, go out and earn it.
    2) The writer should comparing U-M to Duke University, not UNC.
    3) Just because you go to WMU or Wayne State or Lake Superior State doesn’t mean your college experience was any less than the experience of a Michigan graduate–just different. I know quite a few successful people who attended small public schools. They became doctors and lawyers and college professors and community leaders, and after a while, few people CARED where they went to school. The rule of thumb is that three years after you graduate, no one cares what your diploma says–it’s what you can DO. You may just have to do it in a different state (or even a different country) than you expected.
    4) Finally–I’m starting work on my second master’s degree in two weeks. I’ll be at a exponentially smaller school than U-M (bachelors) or Western Michigan (my first master’s degree) but it’s what I can afford and it offers what I need–and after doing the research was the best fit for me. I’m not worried about the football team or meeting girls or downing a dozen beers with my fraternity brothers. Look, the Michigan diploma’s nice. I had to bust my butt thru high school AND four years at U-M–but I would have done that for any school I attended.

    1. Ron French

      Hi Daniel. We compared U-M to other elite public schools around the country. Duke is private. We didn’t compare U-M to Harvard or Stanford for the same reason. We felt the best comparison was to look at U-M vs. other “public ivies” and a few others that are ranked as the top 12 public universities in the country by U.S. News and World Report.
      That being said, I believe you make a good point about the affordability of some smaller, less name-brand schools.

    2. ThommyBoy

      Daniel,

      in the 2012 university rankings by us news, Michigan was ranked 28th, UNC was ranked 29th

      http://colleges.usnews.rankingsandreviews.com/best-colleges/rankings/national-universities/spp+50

  5. Larry

    There is no reason that college costs should be subsidized by the taxpayer. It is not a “good’ that is spread across the many as many young people do not choose to attend college. By having the government subsidize college educations the colleges become very, very inefficent and bloated.

    Taxpayer money should not be spent on goods that benefit a few.

    Let’s get government out of things they should not be involved in. Then individuals can make choices based on what value is delivered. As we can do more and more via the internet we do not have the need for all the infrastructure associated with the average university yet the people that benefit from the status quo will fight to keep it as is.

    1. David Waymire

      Larry, your comment here is simply wrong when it comes to higher education:
      “Taxpayer money should not be spent on goods that benefit a few.”

      If you look at the list of the states where people have the highest per cap income, you will see they are not the states with the lowest taxes or the least government. They are the states with the most college graduates (or oil, which is matter of Mother Nature).

      Would you rather be a waiter in Ann Arbor — where there are a lot of college graduates — or Clare? Would you rather be an auto mechanic working on a new Cadillac in Oakland County — where there are a lot of college graduates — or one working on a used pickup in Alpena? Who do you think is going to be able to pay more?

      Your short shortsightedness is what is dooming Michigan to being a low-income state for the foreseeable future. Unfortunately, it’s shared by most lawmakers, who are equally short sighted.

  6. Scott Roelofs

    I do not place the blame for high costs at Michigan public universities on the Michigan taxpayer. There is little incentive for university boards to contain costs, especially at U-M which brings in students from all over the world. No matter how high they price tuition, they will have far more qualified applicants than open spots. How would you like to operate a business in which you had almost limitless demand, and a fixed supply? You would have tremendous pricing power. U-M has a 35 year history of raising tuition at double the economy’s inflation rate. This pre-dates the state’s fiscal problems. I was a engineering freshman in 1972 and my son was an engineering freshman in 1997. I calculated that during that 25 year period, U-M freshman tuition increased at 9.3% compounded annually! Having said that, even today there are still very good options for graduating high schoolers. The ambitious student can earn community college credit while still in HS, and then earn credits for lower level courses at the community college, and then finish up the bachelor degree at the high priced university. Although I am a 4 year graduate of a U-M engineering program, I advise students today to consider Michigan Tech or Lake Superior State where they can get a good, practical engineering education at a lower cost. There might come a day when the Michigan taxpayer realizes that U-M is so loaded with out-of-state students that it really is no longer a “state university,” and pulls the plug entirely on public funding. And if that happens, the responsibility should fully rest with the regents and university administration for failing to operate a cost efficient operation.

    1. David Waymire

      Uhh….Scott, actually tuition and fees are higher at Michigan Tech than at UM.
      http://www.pcsum.org//Portals/0/docs/PCSUM%202011-2012%20Tuition%20and%20Fees%20Draft.pdf

      Of course, the university has a plus 90 percent placement rate of its students immediately upon gradudation.

      But your larger point is right. Michigan offers a variety of opportunities for parents and students, thanks to the autonomy and competition among universities. If you want the cheapest way to go to college, stay at home, go to 2 years of community college, transfer to one of the lower cost schools, commute, and you get get a degree very quickly.

      Just don’t think you can get a UM degree staying in Ann Arbor and being exposed to all of the positives that that offers for the cost of two years at your local community college. Unfortunately, that’s what many lawmakers want to see..

  7. T. W. Donnelly

    University funding is a complicated matter.I appreciate the research undertaken to write this report. I find it astonishing that U of M’s president Coleman is paid 550,000 dollars per year. Many other salaries at the U are also in the stratosphere.I have heard all the arguments justifying these high salaries: most of them are ridiculous.There is an ever- upward spiral of salaries, not unlike those paid to professional athletes, also underwritten by an adoring public. So long as the public is willing and eager to pay high dollars for sporting events( including the ludicrous college football game costs), that spiral will continue to ascend. There is no one willing to put on the brakes, unless the public quits attending sporting events or quits attending high cost universities.
    U of M has an endowment fund of four billion dollars, I am told. The earnings from this massive portfolio are used to fund certain costs costs. Four billion dollars is a lot of money, and some of that principal could be used to defray student costs. I know that suggesting that the university dip into its savings is a horrifying prospect to the investment managers, who would view it as a simplistic answer to a complex problem. They would be right in their world view, but I would also be right that this massive hunk of money is needed to help the students. I look forward to more probing of university funding. Thanks!

  8. Jeffrey Poling

    My wife and I love the beauty of Michigan’s college campuses. In our particular case, we have a special affection for U of M in Ann Arbor, my Alma Mater. Every time we visit the campus, there are cranes in the air. The building and expansion of the Medical Campus, the Atheletic Campus, North Campus and Central Campus with the new and incredible North Quad and Business School is breath taking.
    But while I am in awe of the beauty and proud of my University, I cringe at the cost which must be astronomical just in maintainenance alone. How much does it cost to clean, repair, supply, staff, heat and cool these buildings? How much of this cost burden can be absorbed through tuition by students and their families, state taxes, and alumni contributions?
    Our economies are fragile. I worked at Chrysler in the mid 70′s when half the restrooms were padlocked to save money just before they shut the entire corporation down. I don’t want to see that happen to Michigan.

  9. kele

    No one is saying what everyone knows. Michigan is seen as a less expensive Ivy League alternative, so the price of tuition is set in the East. The tuition is low compared to the Ivies and the renown is almost the same. So stop about the high cost of tuition; Michigan is an Ivy substitute, and priced accordingly.

    1. Ron French

      Mark you are right about U-M’s reputation and the demand it creates for limited number of openings. But MSU is also more costly than its peers; so is CMU, EMU, Michigan Tech, Grand Valley, etc. There are causes for higher costs beyond U-M being a highly ranked school that impact student costs in Ann Arbor and other campuses in Michigan. That could be a policy the state supports. But residents need to know the reasons behind the higher costs so they can make an informed decision.

  10. crease

    “That argument, according to Duderstadt, goes something like this: Those earning a bachelor’s degree earn $1 million more than high school graduates on average over their lifetimes, so why should taxpayers subsidize their education?” But what Duderstadt really means is,republican lawmakers like Snidley Whiplash Snyder don’t want to subsidize higher education for those liberals who are just going to VOTE against him and future republican lawmakers!!!!!

  11. Matt

    The interpretation that the areas with the highest incomes have the highest number of college graduates therefore we need to increase college graduates is suspect. Maybe high incomes lead to higher that average college attendance? This is an equally valid interpretation of your data with different conclusions. The UP has three major universities among a small population and land area. If all it takes is generating bunch of college graduates for an area to be prosperous, why is the UP an economic basket case?

  12. Bob Martel

    Good point Matt. Without taking anything away from the basic point of this article: that subsidizing public education will be good for the State of Michigan in the long run, I do think that cause and effect (i.e., “chicken and egg”) are often confused by people in an effort to bolster their position on a subject.

    Your UP observation is a good case in point. I wonder what proportion of students at the UP universities you mention actually come from UP high schools? Probably not all that high, especially at the engineering oriented schools. If this is indeed the case, then the location of those schools is essentially unrelated to the UP population. The lack of prosperity in the UP despite the apparently abundant ratio of university students to the general population may have more to do with climate, cultural and employment opportunities and the lack of a major metropolitan area which young people seem to crave than anything else. Which, if extrapolated State-wide, opens up a whole new can of worms as to Michigan’s future prospects for prosperity.

  13. Don Roy

    It is flat out not true factually that Michigan public universities have been negatively impacted by state funding cuts. These same universities that have lost $400 million comparing state funding to ten years ago have jacked up tuition $2.4 billion more! The problem is not health care costs, energy costs, retirement costs, etc. (I do not have informtion on faculty costs, but I would be surprised if they were greater than the rate of inflation over the past 10 years.) The problem very clearly is the ridiculous growth models (grow it and they will come), excessive administrative overhead, building sprees, amenities, etc. while at the same time being in a no growth demographically stagnant state. How many of these universities give serious consideration to whatever the future high end, knowledge economy will be? This is not some crude Governor Snyder university training courses for jobs argument. This future economy will be fundamentally liberal arts based, providing students with flexibility and leadership.

    1. J

      Liberal leadership, flexible wow. Is’nt that just wonderful, we’ll be total financially broke but so what great leadership. All dress up and no place to go

  14. DFH

    As a parent of an out of state student at UMich/Ann Arbor, I find the complaints about in-state tuition costs to be laughable. Add in everything the state pays in to the in-state tuition and the in-staters are still paying $10,000 or more less per year. The school makes its budget on the backs of the out of state parents. In state students, you are not paying enough.

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