Iowa regents find risks to locking in freshman tuition rates

IOWA CITY — Guaranteeing four years of flat tuition for incoming freshmen across Iowa’s public universities might offer more financial predictability and stability for students and families, but it could do the opposite for the institutions, according to a “tuition guarantee impact study” the Iowa Legislature mandated last session.

“Without the ability to adjust tuition rates, institutions may struggle to keep pace with rising expenses, leading to budget shortfalls,” according to the study conducted by two members of Iowa’s Board of Regents following passage of House File 440, which mandated research on the merits of a tuition-guarantee program.

In studying the pros and cons of allowing freshmen to pay the same tuition rate for four straight years, regent Christine Hensley and former regent David Barker pitched a model that would be optional for incoming freshmen and require those who opt in to pay a one-time non-refundable up-front premium established by the Board of Regents.

Offering a “revenue-neutral” example, the study proposed beginning the tuition-freeze program in fiscal 2028 — when the University of Iowa’s base rate for in-state students is expected to be $10,148. For the university to break even, freshmen wanting to participate would have to pay a $1,863 premium in the first year — bringing the tuition total in year one to $12,011 — before dropping it back down to the base rate of $10,148 for the subsequent three years, according to the proposal.

Participating students would pay a total of $42,455 over their four years — the exact same as students who don’t participate and pay the base rate in year one but then 3 percent more in each of the three subsequent years.

The non-refundable premium, which anticipates those 3-percent annual tuition hikes, would increase annually with every new freshman class to prevent the universities from losing money, according to the report.

“Given that Iowa Board of Regents policy currently limits tuition increases to an inflation factor, the level of participation in an optional tuition guarantee program as described above is uncertain and may reduce the perceived need for a tuition guarantee,” according to the report, which looked not just at the board’s existing policies but its funding history, projected implementation costs, and how attempts have panned out for other universities across the country.

“These programs have been implemented in various states with mixed results,” according to the study. “On the positive side, these programs may alleviate financial stress, making college more accessible and allowing students to plan their finances more effectively.”

They also might encourage timely graduation — as students would be motivated to finish their degrees on time.

“However, there are drawbacks to consider.”

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Higher ed history

Underpinning those drawbacks are decades of waning state funding for Iowa’s public universities — which accounted for 77 percent of the regent universities’ general education funding in 1981, when tuition made up just 21 percent of the pot.

Today, those percentages have flipped — with tuition making up 67 percent of the public universities’ funding while legislative support accounts for 28 percent.

“Tuition revenues have become the primary funding source for the regent universities,” according to the study — blaming three periods of instability for the appropriations erosion.

First, a recession in the early 2000s compelled lawmakers to cut university support nearly $78 million over four years through 2005, driving up tuition 19 percent in 2003 and 18 percent in 2004. Again, in the wake of the 2008 recession, lawmakers cut higher ed appropriations $125 million from 2009 to 2010 — upping tuition rates 4 percent, 6 percent, and 5 percent in 2010, 2011 and 2012, respectively, according to the report.

Even before COVID upended higher education in 2020, a third period of instability slashed tens of millions in state support from the University of Iowa and Iowa State University — driving up tuition again by 5 percent in both 2017 and 2018 and another 4 percent in 2019.

Today, the state’s total general university appropriation for Iowa’s public universities is $503.8 million — about 8 percent below the $549 million appropriated 25 years ago. Conversely, average instate undergraduate tuition today is $9,296, more than three times the $2,906 rate in 2001.

National headwinds

Compounding ebbs in state support are recent policy changes and proposals at the federal level threatening the campuses’ research missions — including efforts to curb research funding from federal agencies like the National Institutes of Health, the National Science Foundation and the Department of Defense.

Federal budget proposals similarly have suggested reducing Pell Grant awards, which would impact low-income students — like the 11,500 undergraduates currently getting Pell funding at Iowa’s regent campuses.

The elimination of Grad PLUS loans and new borrowing caps could keep graduate and professional students from enrolling — especially in higher-cost programs like medicine or dentistry, according to the report.

“Regent universities currently enroll 6,380 graduate and professional students that receive loans from federal sources to finance their education,” regents reported.

Inflation — generally speaking — has a “profound and multifaceted impact on colleges and universities,” affecting everything from operational budgets to student affordability.

“Colleges and universities face inflationary increases for food, utilities, labor and materials,” according to the report. “Inflation also erodes investment in facilities and infrastructure.”

Construction costs per square foot, for example, are 40 percent higher today than before the pandemic, regents reported, making it harder for the universities to keep up with their buildings’ deferred maintenance needs.

And recent income tax reduction and exemption acts passed by the Iowa Legislature have begun dropping Iowans’ income tax rates and the number of tax brackets — while also exempting retirement income — decreasing state general fund receipts.

“While these changes are designed to simplify the tax code and reduce the tax burden, the reduction in revenue may strain funding for public services, including public higher education,” according to the report, which boasted the already-low tuition rates for in-state students across the regent universities.

The University of Iowa’s instate undergraduate total for tuition and fees is third-lowest among its 10 peers; Iowa State University is fourth from the bottom of its peer group; and the University of Northern Iowa is fifth-lowest — with all well below the average.

Among the reasons Iowa tuition has stayed lower than other public universities nationally are the policies regents have employed to keep rates from spiking — including a change approved earlier this year limiting annual increases in base undergraduate resident tuition to no more than the average of the three most recently-published Higher Education Price Index inflation rates — which amounted to 3.6 percent this year.

And — even without the headwinds and tuition-policy restrictions — an enrollment cliff in the coming years is expected to deprive Iowa colleges and universities not only of in-state high school graduates but out-of-state students, like the tens of thousands who migrate annually from Illinois.

“This national decline in available students is expected to increase competition among colleges and universities for students,” according to the report.

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The competition

Although freezing tuition for four years could offer the universities a competitive edge, the regent research found mixed results from other campuses that have tried it.

Those that struggled include the University System of Georgia, which more than 15 years ago in 2009 ended its tuition-guarantee for incoming freshmen, citing “a substantial reduction in state funding — which rendered the fixed tuition rates financially untenable.”

The University of Arizona terminated its guaranteed-tuition program this fall due to a “significant budget shortfall” forcing the campus to implement hiring freezes, curtail financial aid for out-of-state students and pause major construction.

And the University of Kansas phased out its four-year tuition compact allowing freshmen to lock in a rate for the duration of their undergraduate studies “due to budget constraints.”

But the University of Illinois System for decades has offered a well-established “undergraduate guaranteed tuition program” that promises every starting cohort a guaranteed-unchanged tuition schedule for four years.

Likewise, Drake University in fall 2017 began offering a tuition guarantee for full-time undergraduates that locks in rates for four years “in response to rising tuition costs at private universities, which had been increasing by an average of 4.4 percent annually.”

And Purdue University has frozen its base tuition since fiscal 2014 at $9,992 for undergraduate resident students at the West Lafayette Campus. Although it isn’t technically a “guarantee,” the freeze has given students a high degree of predictability and helped to increase enrollment from 28,000 in FY14 to 40,000 today.

‘Undermine institutional quality’

Should Iowa’s Board of Regents implement a tuition-guarantee program, the report suggests it not apply to out-of-state students, graduate or professional students, and those in higher cost programs that charge a differential tuition rate.

The report also suggests imposing the same mandatory fees and room, board and book rates regardless of whether a person is a tuition-guarantee student or not.

“Implementing a tuition-rate guarantee can offer benefits for students and families by providing financial predictability and potentially boosting enrollment,” according to the report, which flagged “erosion of revenue over time” as a chief counterpoint.

“Additionally, tuition freezes may disproportionately benefit students who can already afford college, while limiting the institution’s ability to expand financial aid or support services for those in greater need,” according to the report. “Over time, these constraints can undermine institutional quality, competitiveness, and long-term sustainability.”

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com