Michigan and Other State Schools Look to Privatize

Parents Forum
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The cash-strapped state of Michigan is looking to save money any way it can, and some political leaders have suggested essentially privatizing the state's flagship university. While formally turning the school into a private university would be tricky — requiring legislative approval, a constitutional amendment, and the support of the university's Board of Regents — legislators have proposed eliminating the $327 million in funding that the state provides to the university each year. Making up the state's contribution, however, would require an endowment on the order of $16 billion, a nearly impossible task even in flush times.
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<p>James Duderstadt, UM president from 1988 to 1996, has argued for years that it is a misnomer to call schools like the University of Michigan "state universities." The state's annual contribution to the school's operating budget is now less than 6%, about half the share that California puts into its state schools and roughly the same level as Virginia. "The state is our smallest minority shareholder," says Duderstadt.
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<p>The state's financial role has in fact been shrinking throughout the past decade as its economy foundered. Last year, the university provost's office complained in a report to the Board of Regents that the state's "assumed allocation will put our state appropriation at a level that is almost $34 million lower than the amount that was appropriated for FY2002, in nominal dollars, and nearly $100 million lower in inflation-adjusted dollars." At the same time, the university has helped prop up the struggling local economy by approving more than $500 million in construction and renovation projects.

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Michigan</a> and Other Cash-Strapped State Schools Look to Privatize - TIME</p>

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<p>I live in Michigan and it is sad what our state spends on colleges. I always wonder if people really realize how expensive our “public” universities are here. UMich COA for in-state freshmen and sophomores is about $22k.</p>

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<p>By all means lets put all colleges on a pay as you go basis. Students can borrow money from our excellently managed financial system to attend. Loans would be repaid from salaries and wages our wonderful free market economy is providing.</p>

<p>A society that cannot provide good jobs for its populace is no society at all and must be changed.</p>

<p>Average European college graduate debt = 0</p>

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<p>I also live in Michigan and although tuition is really high compared to other states, I would hate to pay out of state tuition to UMich, or private tuition.</p>

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<p>Penn State is in a similar situation- in-state costs (including tuition, room & board, and books) are approaching 25K. I believe the state funding is around 10%. And aid (need based or merit) is hard to come by.
OTOH, they don’t have any problem filling their seats…demand is high…which I know is also true of Michigan.<br>
It’s amazing to me how different this situation is by state. I’ve often thought about moving to NC. What a deal!</p>

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<p>Source for that figure? What’s the typical rate of participation in attending college in whatever countries you are talking about?</p>

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<p>Toneranger-</p>

<p>We did!!! Left CA for NC and never looked back. Oldest graduated from state uni, tuition was $4000 for the year and no room and board since she lived and worked at one of the animal science research facilities on campus. She had a small scholie and covered the tuition and books. Done!</p>

<p>Love it here, was worth the chore of moving 5 kiddos, 3 dogs and 2 cats 3000 miles across the country in a Uhaul. Would do it again, no regrets. With them all looking at grad school in-state it is an even MORE affordable.</p>

<p>And there is that delectable delight of sweet tea. Cannot live without it!!</p>

<p>Kat</p>

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<p>This is old news. Really old news. The state of Michigan has been cash-strapped for at least 30 years, and out of necessity the University of Michigan is already much farther down the road toward privatization than almost any other state school with the possible exception of UVa. Still, that $327 million the state contributes, while a very small fraction of the University’s overall budget, is extremely valuable as it comes with “no strings attached”—the University can spend it as it sees fit, unlike the endowment (much of which is restricted for specific purposes), external research grants (which obviously need to support research first and foremost, though a fraction can be siphoned off to support general operating overhead through “indirect cost recovery”) or some other sources of revenue. So I don’t think the state can just cut the purse-strings entirely without badly damaging the university. On the other hand, even a 5% or 10% cut in legislative appropriations shouldn’t hurt the University of Michigan nearly as badly as it would a state school getting 20% or 25% of its operating budget from the state, both because Michigan has so many other strong revenue streams from which it can make up some of the difference, and because even a 10% cut in state appropriations would have an extremely small impact, slightly over 1/2 of 1% of the University’s overall operating budget . </p>

<p>This is not widely understood. Public universities are not simply taxpayer-supported state agencies, like the Highway Patrol or the state Department of Agriculture. They have varying degrees of fiscal autonomy, and varying degrees of dependence on legislative appropriations. In the most extreme cases like Michigan and Virginia, state funding is pretty minimal, and may not even cover the discount that in-state students get off the out-of-state tuition rate. Many other schools are far more dependent on legislative appropriations and will be hurt far worse by state budget cuts.</p>

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<p>

I just want to point out that research grants actually provide a large source of income to universities. NSF grants for scientific research include close to 50% in “overhead costs.” This is free money for the university and can be used for support personnel, equipment, etc., and is apart from the funds used for the particular research project. It’s a huge cash cow for research universities. This is one of the reasons that research grants are weighted far more heavily than teaching skills in tenure decisions.</p>

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<p>Re post #8:</p>

<p>You are quite right that it is old news, especially as regards UMich. The issue really is what is the mission of state universities toward in-state students as the universities get less and less funding from the state and look to OOS students to boost their revenues?</p>

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<p>I remember posting here a while back that UM needed the out of state tuition to make the budget work and that idea was poo-pooed by some of the UM folks here. Want to have another take on that one?</p>

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<p>^ barrons,</p>

<p>I totally agree with you and have so argued on these pages. If the 9,000+ undergrads at Michigan who currently pay OOS tuition were replaced tomorrow with 9,000 more in-state kids, the University would have roughly $200 million less in annual tuition revenue. That would put the same kind of hole in Michigan’s budget as a 60+% cut in legislative appropriations. The actual numbers might not be quite that stark because there’s a certain amount of tuition discounting (“financial aid”) that needs to go on to attract all those OOS students, but it’s not as if the in-state kids would be free of financial need, either. The 35% of the student body that is OOS is a huge boon to Michigan’s budget, and also helps pull up the school’s selectivity. I think it’s only a matter of time before other top publics catch on to this, and begin to follow Michigan’s and Virginia’s lead in gradually increasing the OOS portion of their student bodies. In the meantime, though, Michigan and Virginia have a huge first-mover advantage as they’ve developed national reputations for providing a quality education to OOS kids at a rate slightly under the comparable private school rate (before factoring in FA, of course). Wisconsin also has abotu 35% OOS, but more than half of Wisconsin’s OOS are Minnesotan who pay in-state tuition rates, so no big financial advantage to the University there.</p>

<p>Another way to look at it: suppose the Michigan legislature were to tell the University tomorrow, “OK, we can no longer afford you; you’re on your own.” The University then would be entirely justified in charging all students the same tuition rate. For Michigan residents, that would raise undergrad tuition costs by $22,000/year. Multiply that by the 17,000 or so in-state students, and you’re talking about $374 million in additional tuition revenue to the University. Balance that against the $327 million or so the legislature currently gives the University, and it looks like full privatization is a net gain for the University of nearly $50 million. It’s not that simple, of course; it couldn’t be done overnight, and with tuition discounting it might end up being a wash, or even a small net revenue loss for the University. But it’s pretty clear the legislature isn’t carrying its share of the burden, and hasn’t been for a lnog time now. Not only are Michigan taxpayers NOT subsidizing OOS students, it’s really effectively the reverse: OOS students are cross-subsiding in-state students, insofar as the legislature doesn’t provide the University enough money to make up for the hefty $22,000 tuition discount that in-state kids get off the OOS rate.</p>

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<p>If you suddenly started charging in state students the out of state rate, the enrollment would drop. Many, many top Michigan students choose UMich instead of out of state schools or privates because of the low tuition for the quality. I personally know at least 20 - 30 kids who chose Michigan who would not have if the price had been comparable to the top schools.</p>

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<p>^ Right. That’s why I say it couldn’t happen overnight. Indeed, I think it would be a bad bargain for the people of the State of Michigan if it were to happen at all, because they’re getting a grand deal right now, cut-rate tuition at a world-class university and not even coming close to paying for that benefit through their tax dollars. Bottom line, the University’s subsidizing the state, not vice-versa. The legislature would be foolish to end that arrangement. (But then, being a state legislature . . . )</p>

<p>My point was a rhetorical one: the legislature is already starving the University by not even contributing as much as the difference between in-state and OOS tuition, and if it continues to shrink appropriations the University will probably have no choice but to expand the OOS percentage of the student body even further (i.e., offer fewer steeply-discounted spots to Michigan residents) or raise in-state tuition to reduce the funding gap. But when you hear taxpayers whining about the unfairness of OOS students attending a public university, take a close look at the numbers. In some cases, e.g., at Michigan, that OOS student is actually subsidizing your in-state kid’s education, not the other way around.</p>

<p>On the other hand, if it comes to that, the University could probably manage a phased transition. Look at it this way. Some 16,000 in-state undergrads pay a little over $11,000/year in-state tuition, producing about $176 million in tuition revenue. Some 9,000 OOS undergrads pay a little over $33,000/year in tuition, producing about $297 million in tuition revenue. (Extraordinary: I just punched this in on my calculator three times because I could hardly believe my eyes, but it’s right; the University gets about $120 million more in tuition revenue from 9,000 OOS students than it gets from 16,000 in-state students). Or to put it another way, each OOS student is paying roughly 3 times as much in tuition as each in-state student. If you gradually replaced those 16,000 in-state undergrads with just 6,000 OOS students (or in-state students paying full OOS tuition, since the in-state/OOS distinction wouldn’t matter anymore), you’d net about $22 million more in tuition revenue and have an undergrad student body shrunk to about 16,000—roughly the size of some the leading privates like Northwestern or Cornell. Which, of course, would allow you to be much more selective as you’d need to fill only 4,000 seats in the freshman class instead of 6,500. And you’d have smaller class sizes, a better s/f ratio, more expenditures per student, all those other measures that allow the top privates to rise to the top of the US News rankings and thereby make themselves even more selective. It should reduce a lot of expenditures as well. So financially, and possibly academically, the University could actually be better off by going fully private. </p>

<p>Of course, FA tuition discounting could throw all these numbers off. But bottom line, I think full privatization would be a much better deal for the University than for the state of Michigan.</p>

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<p>bc–UW undergad OOS is about just over 24% plus another 11% from Minn for about 25% overall. So Minn OOS is about 31% of the total OOS undergrad. UW is capped at 25% OOS NOT counting Minn which are not limited. One nice thing is UW gest the higher UMinn tuition rate from Minn students. But that’s nowhere near the OOS rate. Also UW does no real discounting of OOS tuition. No tuition money is tapped for financial aid and all aid for OOS kids is limited to loans and some scholarships paid out of endowment funds that were for that purpose. It is illegal for UW to take tuition and use it for aid. They are trying to amend that right now.</p>

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<p>^^ OK, I just saw the error in my math. You can’t just replace tuition for tuition, because there’s that business of the $327 million (and shrinking) state appropriation that needs to be made up. nonetheless, if state appropriations continue to shrink, the University is going to have to move in this direction anyway, either reducing the price differential between in-state and OOS, or increasing the percentage of OOS, or both. It’s got other resources, but not enough to continue to provide a massive subsidy to Michigan residents that the state can’t or won’t pay for.</p>

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<p>Typo too-35% overall OOS.</p>