Contact: Monty Jones, (512) 499-4363

Date: January 20, 2004

Prepared Remarks by Mark G. Yudof, Chancellor

Delivered: January 20, 2004; Revised: January 21, 2004
Subject: Tuition Deregulation: A New Era of Excellence and Opportunity

The University of Texas System is grateful to the Committee for this opportunity to present information regarding tuition and financial aid. We welcome the Committee's ongoing oversight and look forward to discussion with members of the Committee and their staff.

The System has worked hard to implement the tuition deregulation law (HB 3015) in a manner that will fulfill multiple priorities, in accordance with the will of the Legislature. These include maintaining affordability and accessibility, providing needed revenues to maintain and enhance high-quality educational services, and developing tuition policies in an open and transparent manner.

AN OPEN AND INCLUSIVE PROCESS

When the Legislature last spring granted the authority to set tuition to the Board of Regents, UT System committed itself to undertake the new responsibility in an open, inclusive, fair, transparent, and accountable manner. Each component institution of the System developed its tuition plans through a consultative process that I believe is a model not only for Texas higher education institutions but for all the nation as well. [See Slide 2]

We made sure that students had a full opportunity to participate in the process. The campuses fulfilled that important mandate and have engaged students in every phase of the process. The System Administration also consulted with students as it reviewed campus proposals, and we published detailed tuition information on our website to encourage full public discussion of the issues. (www.utsystem.edu/news/tuition/)

The institutions submitted to the System in August their plans for consultations on tuition issues, and these were reviewed to make sure they fulfilled our requirements of openness and comprehensive campus discussion. Each campus varied in the details of its process, but they employed similar techniques such as panel discussions, town hall meetings, special committees that included students, and website postings to ensure wide discussion and understanding of tuition proposals. Campus tuition proposals were developed through the give-and-take of discussions, including decisions by presidents to change the proposals in response to student input. The presidents forwarded their completed proposals to the System by early November, and all the plans were posted on the System's special tuition website.

We also formed a System-wide Tuition Commission, including student membership, to review and analyze the campus proposals and make recommendations to me. Another group, a committee of faculty experts on tuition, has advised me on long-range strategies related to tuition policy. In addition, Terry Sullivan, executive vice chancellor for academic affairs, and I made numerous visits to the campuses to discuss the issues with students.

The final stage of the process involved sending the campus proposals to members of the Board of Regents for their review and an extensive discussion of the proposals at a special meeting of the board in December.

Students who served on the consultation committees were strong supporters of the proposals. Opposition to the proposals was generally muted. One student organization at UT Austin was on record as opposing the increases.

Students across the System have made it clear that they understand the direct relationship between increases in tuition and enhancement of the quality of their educational services and the value of their degrees. Over and over during the fall discussions, students elected to support better education rather than simply less expensive education. I would never pretend that all of the 178,000 students in the UT System are in unanimous agreement - in their opinion on tuition or any other subject. But the message that we have received from student leaders and the majority of students participating in the process is that they understand the reality of the budget crisis and the need for careful increases in tuition.

Among the indications of student support, I note that the editors of both The Shorthorn at UT Arlington and The Daily Texan at UT Austin endorsed tuition increases that will strengthen academic services. I quote an editorial from The Shorthorn: "Universities throughout the United States have financial difficulties, and tuition increases are inevitable, but UT System schools remain among the most affordable. We encourage students to support the president's recommendation and hope the regents will give final approval without additional increases." The Daily Texan stated in an editorial that it supported even higher tuition increases than were being recommended -- in order to pay for infrastructure needs, competitive faculty salaries, and increases in academic program support.

We believe that this has been the most inclusive and extensive consultation process ever developed for consideration of tuition rates in Texas, if not, in fact, the nation. Our process stands as a national model for how to proceed on this issue in an open and fair manner.

DEMOGRAPHIC CONSIDERATIONS

The Board of Regents was mindful that its decisions on tuition would affect every one of our 178,000 students, as well as their parents and other family members, and, of course, our almost 88,000 employees.

About half of our enrollment is composed of members of U.S. ethnic minority groups, and more than half are women - so we have important issues of diversity and opportunity to keep in mind. These issues are reinforced by the pressing need for Texas not merely to maintain current levels of diversity but to significantly expand educational opportunity, as articulated by the State's "Closing the Gaps" initiative.

We also have substantial numbers of students with financial need - some 60% of our students receive some type of financial aid, totaling about $629 million last year just at the academic institutions - so we must ensure that all of our policies and decisions keep higher education affordable.

In this regard, the policy of the University of Texas System is that no student will be denied educational opportunity because of financial need. I will discuss financial aid in more detail below.

THE BUDGET CONTEXT

Tuition deregulation was passed in light of the State's severe budget crisis. Tuition increases are a partial solution to the need to make universities whole again. This context must not be forgotten; nor can we forget the fiduciary duty of the Board of Regents, which has considered tuition increases for the spring and fall of 2004 in light of the overall budget context.

• From FY 2003 to FY 2004 at the System's nine general academic universities, general revenue appropriations were cut an average of 6.2% (from $644.9 million to 604.7 million, a cut of 40.2 million) [See Slide 3]
• In comparison with this decrease of $40.2 million in general revenue, the nine universities will generate new tuition revenue totaling $32.5 million for the spring of 2004. [See Slide 4]
• We have also experience significant enrollment growth, and therefore an increase in demand for services. There has been a 14% increase in fulltime equivalent enrollment from 2002-2003 to 2004-2005. This is an increase from 114,657 to 130,550 FTSE's. [See Slide 5]
• Because of the increase in students over the base period, general revenue appropriations are down 17.6% per FTSE. [See Slide 6]

Across the UT System, general revenue appropriations account for only 20.4% of total System revenue, based on original operating budgets for FY 2004. That percentage will decline further when tuition increases for spring 2004 are taken into account.

Even before the legislative cuts in appropriations for FY 2004, our institutions reduced their budgets early last year as part of the statewide effort to cope with the revenue shortfall for FY 2003. To review just a few of the cuts made last year: UT Arlington cut its physical plant budget by $1.4 million; cut summer school budgets by 10%; and froze hiring and promotion decisions. At UT Austin 700 staff positions were eliminated through retirement incentives, layoffs, and other means; the budget for repairs and renovations was cut $10 million; deans cut their budgets $25 million; and $8 million in new costs were incurred because of legislative changes to health insurance. UT El Paso instituted retirement incentives; eliminated 82 non-instructional positions; and cut travel and equipment purchases.

Within this budget context, deregulation of tuition makes sense not only because it lets the Board of Regents make more timely and responsive decisions than were possible every two years in the Legislature, but also because it introduces the concepts of flexibility and strategic planning into the consideration of tuition rates. We have left behind the old "one size fits all" approach to statewide, uniform rates. Yes, we need to raise revenues, but we also can use tuition flexibility to make smarter decisions about operating our institutions and to help parents and students make more economical decisions.

TUITION INCREASES

The percentage increases in tuition, as well as uses of the new revenues and plans for meeting financial aid needs, have been tailored by each campus to local conditions. Increases for the spring of 2004 range from 9.7% to 22.0%. [See Slide 7]

Each institution has determined the needs to which the new tuition revenue will be put. Across the nine general academic universities, the new revenue will be used for the following purposes [See Slide 8]:

• Operations and maintenance of physical plant - 40.3%. (Most of this is at UT Austin.)
• Instruction - 31.1%.
• Scholarships and fellowships - 22.8%.
• New faculty equipment - 3.4%.
• Support services (academic support, institutional support, and student services) - 2.4%.

Institutions will use the revenue to maintain or improve academic quality by hiring more faculty to help meet the needs of the additional students, cutting the student-faculty ratio, increasing class offerings, increasing the number of academic and financial aid advisers, renovating classrooms, and making other capital improvements.

These measures will help institutions meet strategic goals, such as higher graduation rates and more efficient use of facilities.

FINANCIAL AID

Expanded financial aid will keep a UT higher education affordable despite increases in education. Current financial aid awarded to students in the UT System is substantial, and it will be increased in a major way under the new tuition plans.

Currently, 60% of UT System students receive financial aid of all types, and 30% receive grants and scholarships (not loans) covering the full cost of tuition and fees.

Of the total of $629 million in financial aid for students at the nine general academic universities in 2003, $285 million (45%) was in the form of scholarships and grants (from federal, state, and institutional). The total financial aid of $629 million exceeded tuition and fee income by $83 million. [See Slide 9]

In FY 2004, we estimate that scholarships and grants will increase at least $7.4 million. [See Slide 10]

The deregulation law requires that 20% of new tuition revenues over the previous cap be set aside for financial aid. UT System institutions will do more than that - to make sure that a UT education remains affordable.

UT Austin will set aside a full 28% of its new revenues for scholarships and will offer significant discounts for students from families earning up to $80,000 a year. UT Austin students who meet federal qualifications for financial aid will receive one of three discounts, based on family income:

• Less than $40,000 - full cost of the tuition increase is covered.
• $40,000 - $60,000 - three-fourths of the tuition increase is covered.
• $60,000 - $80,000 - one-half of the tuition increase is covered.

Other campuses are implementing new scholarships, new work-study programs, and other expanded financial aid programs.

Last year at the nine general academic universities in the UT System, the average "sticker price" for tuition and fees was $132 per semester credit hour, but this came down to an average actual price of $91 per hour after grants and scholarships were taken into account. The average discount at the nine campuses was 31%, with the highest average discount, 49%, at UT Pan American. [See Slide 11]

Our policy is clear: No student will be denied educational opportunity because of financial need. Our selling point is captured in the slogan We've Got You Covered, which we are using across the state to communicate with high school students that higher education is affordable.

As one example of this effort, we are mailing informational posters about the cost of higher education and available financial aid (in English and Spanish) to almost 2,000 high schools in Texas.

In addition, we are offering a comprehensive site on the World Wide Web to assist current students and to provide students and parents with a wealth of information to help plan for higher education. (www.utsystem.edu/urcovered/)

INNOVATIONS

The flexible tuition plans developed at the campuses and approved by the Board of Regents offer students numerous innovative incentives for saving money, while at the same time helping institutions achieve their strategic goals.

Among the incentives are the following innovations designed to increase preserve and increase access [See Slide 12]:

• Tuition and fee increase hold-harmless for financially needy students (All institutions).
• Grants for part-time and community college transfer students (UTA, UTD).
• Campus jobs for financially needy students with unmet need (UTD, UTT), as well as campus jobs for middle-income students (UTT, UTEP).
• Financial assistance for middle-income students who do not qualify for other aid (UTSA, UTPB, UTT, UTEP).
• No-interest loans to buy books at the beginning of a semester (UTEP).

Other innovations help the institutions achieve strategic goals. These include [See Slide 13]:

• Earned tuition credit for senior year (UTPB, UTT).
• Discount for early or timely tuition payment (UTA).
• Discount for courses at off-peak hours UTT).
• No tuition increase in summer school (UT Austin).
• Tuition and fees free above 14 hours (UTPA).
• Tuition rebates for students who return to finish last 15 hours and graduate (UTSA).

Parents will readily understand the economic advantages of these new approaches, which give students incentives to increase their course loads per semester and complete their degrees in a shorter time. The greatest costs of going to a university are the yearly living expenses, as well as the opportunity costs of not being in the work force. Our tuition policies are designed to encourage students to graduate within four years, if at all possible, instead of five, six, or even more.

We also know that students tend to borrow more money for attending a university in the years beyond the fourth, so more timely graduation can reduce the post-graduation loan burden that many students face.

The incentives align tuition policies with the strategic goals of the institutions, which include increasing capacity simply by getting students to earn their degrees in a more timely manner. We are confident that our tuition policies can result in more efficient use of facilities, higher enrollment and graduation rates, and a significant contribution toward helping the state meet its "Closing the Gaps" goals.

The flat-rate plan offered in two colleges at UT Austin in recent years provides a good example of how innovative pricing can save students money. Reduced costs per semester credit hour for students in the colleges of liberal arts and natural sciences (a majority of UT Austin students) are illustrated in Slide 14.

Tuition and fees in the UT System remain quite competitive in comparison with other state universities. Slide 15 provides comparisons based on data from the Texas Higher Education Coordinating Board.

WHY ACT NOW?

The Board of Regents' decision to act in December on tuition rates for this spring and next fall was necessary because, first, institutions are in critical need of additional resources to serve students this spring, and, second, institutions need to be able to plan for the new academic year. They need to make plans for the number of classes they can offer, the number of faculty they can hire, the compensation levels they can provide, and other management issues. Many such decisions even for this spring could not be made rationally without a better understanding of future resources, since decisions such as hiring of faculty have continuing budget implications.

Starting this month, institutions also need to make financial aid awards to students entering next fall, so students, too, can make their plans.

Nine months of lead time is not unreasonable in order to operate large and complex institutions such as ours.

The UT System and its component institutions implemented a comprehensive and inclusive process to review tuition increases which we have described to this committee. Four specific objectives emerged from the deliberations:

• Parents and students told us that they wanted to be able to plan for the future obligations of an education and, as much as possible, to be advised about future tuition changes.
• Administrators told us that financial packages had to be structured consistent with expected set-asides arising out of the new H.B. 3015 directives.
• Faculty and administrators told us that recruiting was underway and that being a serious contender in attracting qualified candidates often required demonstrating up to a year ahead of employment that funds are available.
• While the critical participants in the process were gathered, obligations that affected the participants for the foreseeable future were considered in lieu of immediately reassembling the group this month or next.

Other institutions may not have announced tuition increases for fall '04, but every institution is faced with the issues described above.

The UT System placed importance on the predictability and reliability of mapping its course of action while the interested participants were assembled and could participate in a significant and meaningful way in the Universities' and their own respective budget management.

SUMMARY

Throughout the process of implementing HB 3015, the UT System has upheld these fundamental principles:

• Quality. Maintaining and expanding high-quality educational opportunities is the rationale for any tuition increase.
• Accessibility and Affordability. No student should be denied educational opportunity because of financial hardship, so special efforts will be undertaken to provide scholarships, grants, and other aid to help students in need. We have a very strong record of making higher education affordable. We will not move backward.
• Innovations. Campuses have been encouraged to be creative in making sure that we keep a UT education a bargain and that we use tuition policy to help fulfill strategic goals.
• Incentives. We have created incentives to align tuition policies with the strategic goals of students and parents, including the goals of keeping the cost of education as low as possible and graduating in a timely manner.
• Meeting diverse needs. At the same time, we know that many students, particularly from lower-income families, take longer to graduate because they are already in the work force - many of them fulltime. We must be flexible enough to meet the needs of those students also.
• Meeting state goals. Tuition policies must be set in the wider context of the state's need to "Close the Gaps" in higher education enrollment and graduation rates. We have remained mindful of these statewide goals throughout the process.
• Accountability. Our transparent approach, our collaborative and consultative process, our wide distribution of information, and our commitment to continuously improve both the process and the substantive results - all these are indicative of the fact that the UT System accepts the obligation to implement tuition deregulation in a fully accountable manner.

In addition, the UT System has developed a new comprehensive accountability system that will be presented to the Board of Regents at a special meeting on March 11. This initiative, which will include efficiency and productivity task forces, will significantly expand the ability of the UT System and its component institutions to track change, measure improvement, and design programs for even more effective use of our resources.

We trust that state officials and the people of Texas at large will conclude that we have implemented the new law responsibly, and that we are ensuring that an education from a UT System institution remains one of the wisest and most productive investments in society today.