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Higher ed consumers learn tuition set asides adding to college expense

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A recent article discussed how Texas college students’ tuition does not exclusively go toward funding the student’s educational experience, but instead includes a set aside amount “to provide financial assistance for resident undergraduate students enrolled in the institution.”

An undergraduate student’s tuition rate comprises a statutory rate determined by the legislature for both resident and non-resident students as well as an additional designated rate imposed on any graduate or undergraduate, resident or non-resident student, that the institution’s governing board considers necessary for the effective operation of the institution. This second rate varies by institution.

No maximum limit is set on the designated tuition amount a university can charge. Amounts can vary based on program, course level and the academic period. Tuition deregulation became effective Sept. 1, 2003. By spring 2004, universities were increasing designated tuition rates – a trend that continues today.

Texas’ mandated set aside is based on the designated rate and is calculated as “not less than 20 percent of any amount of tuition charged to a resident undergraduate student under Section 54.0513 in excess of $46 per semester credit hour.” An amount of 15 percent is similarly assessed to resident students enrolled in a graduate or professional degree programs.

Per the law, a student must establish financial need in accordance with rules and procedures established by the Texas Higher Education Coordinating Board. Priority shall be given to students who meet the coordinating board definition of financial need and whose cost for tuition and required fees is not met through other non-loan financial assistance programs. The financial assistance provided under this section may include grants, scholarships, work study programs, student loans and student loan repayment assistance.

A Jan. 13, 2014, Wall Street Journal article noted how the practice of “well-off students at private schools” subsidizing poorer classmates is now – as states struggle with rising higher education costs – being extended to “middle-income students at public colleges” as these colleges in a dozen states increasingly structure tuition to “aid those lower on the economic ladder.”

The article further describes the dollars involved and those impacted. Subsidies are distributed based on need and aren’t reflected on most tuition bills.

Subsidies from upper- and middle-class students to their poorer classmates totaled $492,401,435 at a dozen flagship state universities surveyed by The Wall Street Journal in the 2012-13 school year, an increase of 163% over eight years.

The growth of subsidies is directly related to cutbacks in state aid, according to school administrators.

Reductions in public spending for higher education have prompted universities to raise tuition levels, they contend, making it tougher for students from poorer families to cover costs. To offset that burden, wealthy and middle-class students pay more – in other words, the tuition set asides.

While recipients of set asides not surprisingly support the practice, others don’t share the enthusiasm.

“Without it, there is no way I’d be here,” Maria Giannopoulos, a 20-year-old junior at the University of Wisconsin, Madison told The Journal. Giannopoulos receives $5,000 a year through the program.

“It’s this sneaky little thing they’ve put in place because they know we’ll pay it, we’re already taking out loans,” Allie Gardner, a former classmate who graduated in December, said. Gardner’s father works at Costco while her mother is a waitress.

School administrators attribute the subsidy rises to cuts in state aid. The Journal notes that despite subsidies being taken by public schools nationwide, the “lack of transparency inside university balance sheets makes it difficult to calculate how much one student is subsidizing another.”

Joni Finney, a researcher at the Institute for Research on Higher Education at the University of Pennsylvania, found that student subsidies initiated at private colleges in the 1970s spread to public schools in the 1980s.

Schools justify the practice as helping to build a more diverse student both and offering “a path to the middle class for lower-income students.”

Finney further commented:

But opaque college financing generally keeps this accounting hidden from public view, Ms. Finney said, largely to keep a lid on complaints from parents.

“Institutions don’t want people to know how they are financed because you might get upset,” she said. “We barely accept the idea of redistribution of income at the government level and this is basically what we’re doing in higher education.”

Rising tuition costs coupled with ever-growing student debt and questions over the investment return a college education delivers make this issue all the more noteworthy. It’s receiving scrutiny in many states and Texas is no exception.

The Stop Texas Set Asides website accurately calls this practice a hidden tax. While 2009 brought SB 1304 which requires colleges’ disclosure to students of their individual tuition set aside amounts, few people realize the practice occurs.

Per The Journal, James Twedt, a father of three from Urbandale, Iowa, termed the system “nuts” when writing to his state representative.

Mr. Twedt earns about $90,000 as a manager in an insurance office, and his children don’t qualify for federal aid. He estimated the set-aside program would cost his family about $20,000 through four years of college. He expects each of his children will graduate with about $25,000 in student loan debt.

He said he began saving for his children’s college education when they were born: “My father used to say if you want a helping hand look at the end of your arm.”

“I feel like I’m paying not only for mine but for somebody else’s,” Twedt told The Journal. “I give my charity elsewhere. I don’t expect to do it at the state university.”

As more Americans learn of tuition set asides and find themselves in similar positions, Twedt’s sentiment seems destined to grow.

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