The UC-AFT Plan for Enhancing Affordability, Access, and Quality at the University of California

The University of California has been a leader in providing students with a high-quality education that is affordable and accessible, but the funding structure of the university is showing signs of breaking down.  The following plan describes how this great system can be saved by increasing financial aid to many students who are now forced to go into debt in order to afford their education.  We call for a tuition freeze, an additional 6% increase in state funding (2% beyond the governor’s proposed 4% increase), an increase in UC budget transparency, and the use of internal UC funds for financial aid and increased funding for instruction.

Moderate Tuition/High Aid

A central part of this plan is to use the current Moderate Tuition/High Aid model in a more equitable manner.  In 2014-15, the UC will not only receive $2.6 billion in direct funding from the state, but state financial aid will be over $1 billion due to increases in CAL Grants and the new Middle Class Scholarship.[1]  UC students will also receive over $450 million in federal Pell Grants next year, and many families qualify for federal tax breaks related to higher education.  This large amount of aid allows over half of UC students to pay no tuition, and the system enrolls a large number of low-income students: however, many low- and middle-class students still have to pay a large amount to cover the total cost of attendance (rooms, board, books, and living expenses).  While in 2014-15, tuition for undergraduates is just over $12,000, total cost of attendance is over $32,000.[2]  Students then are forced to take out loans and work in order to make up for the growing difference between their grant aid and the total cost of attendance.     

            

Using the campus financial aid calculators, we can see how the parents of UC students are often asked to pay a quarter of their yearly income to support their children’s education.  For example, here are some specific aid scenarios: 1) if a student comes from a family of two parents with a combined annual income of $50,000, the student will be asked to contribute $8,600 through work study, and the family will be asked to take out a loan for $3,912 each year.  If the student does not take a work study position, the gap between the aid and the total cost of attendance equals close to 25% of the annual family income; 2) in the case of a family with total earnings of $79,000, the student and the family are expected to cover $18,301; and 3) in the case of two parents earning $90,000, the annual cost is $23,198.[3]  These situations show that in a state with a very high cost of living, free tuition often means a financial aid gap of close to 25% of parental income.

Increasing Graduation Rates

The UC financial aid is better than most universities, but it still has major problems.  One related issue is that the more students have to rely on loans and work study to support their own education, the longer it takes them to graduate.[4]  The inverse of this situation is that if students did not have to take out loans or work while in school, UC could increase its current four-year graduation rate of 63% and provide more places for new students without spending more funds or building more dorms and classrooms.[5]  It is clear that this desire to move students through the system in a more efficient and cost-effective manner is a major desire of the governor, but the state often thinks this can be accomplished though the use of online classes, streamlined degrees, and a downsizing of the university’s research mission.[6]  However, all of these strategies outlined in the governor’s new initiative will only serve to lower the quality of education in the UC system.

Investments for Aid

To expand financial aid to students, our plan recommends using investment returns from its endowments and working capital funds – the Short Term Investment Pool (STIP) and the Total Return Investment Pool (TRIP) - for educational purposes.  In 2014, the combined UC endowments contained over $13.2 billion and had a 10-year investment rate of return of 7.7%.   If the university used 3% of the endowments each year for financial aid, $300 million of additional funds could be used so that thousands of students would no longer have to take out loans or work while in school to afford the total cost of attendance.[7]  Meanwhile, the university also invests its working capital (unused grant money, state money, tuition, medical center revenue) in two funds called TRIP and STIP, and these funds now hold over $14 billion.[8]  If the UC used 5% of these funds for educational purposes ($700 million), the quality of education could be enhanced as more students from California could gain admissions and students could graduate at a faster rate leaving room for more transfer students from community colleges. [9]

At the September 2014 Regents meeting, the possibility of using these funds to prevent a tuition increase was discussed, but it was quickly rejected because the university did not want the state to think that it had enough funds.[10]  President Napolitano argued that these investment funds cannot be relied upon, and several regents said that if the word got out that the UC was sitting on so much cash, the state would not increase its funding for the university.  Of course, there is a risk that investment returns will decrease; however, what good is it to have an endowment or investment pool if it cannot be used for educational purposes? Although much of the endowment is restricted by the donors of the gifts, the investment returns are not necessarily restricted, and their average returns are well above 7%.  Moreover, UC could develop a policy that all new gifts set aside a certain percentage for the general fund. The idea here is to use the financialization of the university in a progressive way by directing investment profits towards core educational functions.

Fixing the Campus Funding Problem

The UC-AFT plan also confronts a growing problem in the UC system, which is the inequitable distribution of funds among the campuses.[11]  As a state audit showed, the university has been for decades secretly redistributing state funds and tuition dollars from the smaller campuses with a high number of under-represented students to the larger, wealthier campuses.[12]  Although the UC has recently stopped this system of redistribution, the problem has been made worse by the fact that the wealthier campuses are bringing in a higher percentage of high paying non-resident students.  Our plan calls for 50% of all nonresident tuition to go into a pool to be redistributed to help rebalance the funding among the campuses.  We also believe that UC should cap the total number of nonresident students at 15%, and proceed with its plan to increase state enrollments by at least 1,000 each year.  Furthermore, the UC should rethink its admissions referral system.  Last year 11,200 qualified Calfornian students who did not apply to UC Merced were admitted only to Merced, but only 2% of these students decided to enroll at the campus.[13] The UC is clearly using the Merced referral system to comply with its obligation to accept all qualified California students, but since UC knows most students will reject the referral, this practice has to be modified. 

The university has claimed that the historical underfunding of particular campuses will be corrected by the new rebenching model, but this model is highly flawed and only redistributes $37 million a year of $2.6 billion state general funds.[14] Moreover, the rebenching model relies on augmenting the funding to campuses that increase their doctoral students, but according to its own logic, these students cost at least three and a half times more than undergraduates to educate.   Of course, the reality of the situation is that UC does not know how much it costs to educate different types of students because it has thus far resisted making this calculation even though AB 94 now requires the system to report on the different costs of educating undergraduate, graduate, and professional students.

Transparency for the Core Mission

The UC-AFT plan calls for the university to comply with the state’s reporting requirements, and this new transparency will be used to make sure that state funds and tuition dollars find their way into the core education mission.  In order to help this process, our plan pushes the university to increase the number of small undergraduate courses and decrease the use of ineffective large lecture classes.  This transformation can be a key to increasing graduation rates and educational quality.  Following UC’s own long-term budget plan, the university should document how it is using $60 million of new funding next year toward “improving the student-faculty ratio; funding for startup packages for new faculty (a major obstacle for many campuses seeking to hire new faculty); augmenting graduate student support to ensure that the level of support offered by UC is sufficient to attract the best graduate students; enhancing undergraduate instructional support (including instructional technology, libraries, instructional equipment replacement, and building maintenance); and reducing faculty and staff salary gaps.”[15]Instead of the state, students, and concerned citizens being told what the UC would like to do with new funds, the UC should prove that it is actually using this money to improve the quality of education.   

The UC budget has also asked for $32 million to continue the academic merit program and $55 million of permanent deferred maintenance funding.  The state should include these costs in its general fund appropriations with the provision that UC documents how these funds will be used to improve the performance of the core mission.  UC would like to see its total funding increase next year by $459 million.  Besides the above mentioned support for the academic merit program, deferred maintenance, and educational enhancements, the UC argues it needs $50 million to fund the state part of the pension plan,  $125 million for additional compensation costs, $22 million for resident enrollment growth, $28 million for non-salary price increase, and $73 million for financial aid.  The UC desires these additional costs to be funded through a combination of a 5% tuition increase ($137 million), a state funding increase of 4% ($120 million), tuition and fees for financial aid ($73 million), non-resident tuition ($50 million), and other alternative revenue ($80 million).[16] Since we believe that tuition should be frozen, we ask for the state to increase its support for UC by 6% (the planned 4% plus an additional 2%). The 6% increase would bring the state increase to $180 million and would buy down close to 40% of the 5% tuition increase. The other $279 million would come from the investment profits from STIP and TRIP, nonresident tuition, and alternative revenue sources.     

Why Not Eliminate Tuition?

In response to our plan, some might ask why don’t we propose simply eliminating tuition and make the UC free again.  The problem with this solution is that tuition is only a part of the reason for a student’s financial burden.  Moreover, if the UC eliminates tuition, it cannot utilize Cal Grants, Pell Grants, and federal higher ed tax breaks.  Furthermore, if done correctly, the Moderate Tuition, High Aid model serves as a progressive tax since wealthier parents pay more to support the education for non-wealthy students.  Unless UC wants to get behind a new tax that would dedicate funding for the UC system, it is unclear how the system can force the government to increase funding for the university.  However, central to this plan is that the state increases its support by 6% each year in return for a tuition freeze. We are also asking that the state agrees that it is responsible for its share of the employer contributions to the pension, once the UC clarifies which employees are supported by state funds.[17]

For far too long, the UC has increased it core mission budget without spending more funds on its core mission. According to the UC 2014-15 budget report, a lack of support for the core mission in recent years has had the following effects: “Another aspect of the fiscal uncertainty is how students and their families in recent years have been hit with large, frequent, and unpredictable tuition and fee increases, while also feeling the effects of budget cuts on the instructional program through reduced course offerings, increased class sizes, and curtailed student services. Instability of the University’s budget promotes uneasiness among students and their families about whether the high-quality education to which students work hard to gain access will be available in future years.”[18] From the university’s perspective, the reduction in funding from the state has resulted in a decrease in the quality of undergraduate education. Our plan will reverse this situation and return the university back to its core mission.

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[1] For the increase in Cal Grants and the middle-class scholarship, see:

http://www.lao.ca.gov/handouts/education/2014/Financial-Aid-Overview-031314.pdf (pp. 8-11).

[2] For the total cost of attendance, see: http://admission.universityofcalifornia.edu/paying-for-uc/tuition-and-cost/

[3] The cost calculator can be found at: https://students.ucsd.edu/finances/financial-aid/forms/calculator.html

[4] The UC four-year graduation rate goes down 10% if a student works more than 20 hours a week, see http://accountability.universityofcalifornia.edu/index.php?in=3.4.2&source=uw.

[5] UC four-year graduation rates: http://accountability.universityofcalifornia.edu/index.php?in=4.1.1&source=uw.

[6] The governor’s plan can be found at: http://gov.ca.gov/docs/Regents_Select_Committee_Agenda_Request.pdf

[7] Information on UC endowments and working capital funds can be found at http://regents.universityofcalifornia.edu/regmeet/sept14/i2attach2.pdf.  The ten-year average return rate for the $8.2 billion shared endowment (GEP) is 7.7% (p. 16).  The shared endowment does not include $4 billion in campus endowments.  For the campus endowments, see http://regents.universityofcalifornia.edu/regmeet/sept14/i3attach.pdf.

[8] The STIP account held $8.3 billion in June 2014 http://regents.universityofcalifornia.edu/regmeet/sept14/i2attach2.pdf (p. 20) and the TRIP account held $7.5 billion (p. 21).  During the last five year period when STIP was returning 2.2% and TRIP was returning 11%, over $2 billion was transferred from these accounts into the pension, which earned 12.7%.  It therefore would be possible to spend 5% each year of these combined funds to pay for increased financial aid without decreasing the principle in these accounts.  Meanwhile, the pension is now funded at 86%, and if it continues to increase its funding ratio, the state and the system might be tempted to call for another contribution holiday. 

[9] Currently, the UC graduates 63% of students in four years (http://accountability.universityofcalifornia.edu/index/4.1.1).  If the UC could increase this rate to 80%, the system could educate 5,000 students with no additional cost and the cost for each student would go down significantly since students would be paying for four years instead of five or six.

[10] The discussion of the UC investments can be found at minutes 34-37,  42-47 of: http://lecture.ucsf.edu/ets/Play/d02bc147971844f7b5514225b33842291d?catalog=333992fe-1405-4d6b-ae39-512a30188f34

[11] For a discussion of the funding imbalances, see http://changinguniversities.blogspot.com/2014/09/the-uc-campus-funding-imbalance.html

[12] The state audit is at: https://www.bsa.ca.gov/pdfs/reports/2010-105.pdf

[13] http://touch.latimes.com/#section/-1/article/p2p-82390956/

[14] The rebenching model can be found at: http://senate.universityofcalifornia.edu/Rebenchingreviewpacket.pdf

[15] http://regents.universityofcalifornia.edu/regmeet/nov14/l2.pdf (p. 6).

[16] http://regents.universityofcalifornia.edu/regmeet/nov14/l5attach.pdf (p. 6).

[17] If the state supports 50% of the core budget, and UC spends $400 million on pension contributions each year for core mission employees, then the state should commit to dedicating $200 million next year as part of the total general fund appropriation.

[18] http://regents.universityofcalifornia.edu/regmeet/nov13/f6attach.pdf (S-6).