Tuition as Engine of Wealth Redistribution

Source: State Council of Higher Education for Virginia (SCHEV)

by James A. Bacon

When Congress adjusts the tax code to promote income redistribution between the rich and poor, a debate plays out in the national media. When universities adjust their tuition to promote income distribution, by contrast, the process is so shrouded in secrecy that the public has no idea it’s occurring.

That process is less invisible in Virginia than it once was, thanks to a Youngkin administration initiative to post the most comprehensive higher-ed data analysis ever compiled on the State Council for Higher Education in Virginia (SCHEV) website. But the data will sit there — as good as invisible — until someone looks at it. And even publicizing the data is next to worthless if key decision makers — university administrations, activist groups, Boards of Visitors — don’t use it to inform their discussions.

The report, compiled over a six-month process with guidance from the Boston Consulting Group, explores three broad themes: enrollment trends, labor market trends, and financial effectiveness & sustainability. SCHEV looks at industry-wide trends for Virginia’s system of public education as well as detailed breakdowns by institution.

There is an immense amount of data to explore, some of which that will prove familiar to readers of Bacon’s Rebellion and some of it not. For this post I am focusing on tuition as a tool for wealth redistribution because that is data we have never seen before.

Elite private universities employ what’s called a high tuition/high discount model. They charge an extremely high sticker price but discount heavily depending upon income and other factors. The idea, simply put, is to “soak the rich.” By paying the full tab, affluent families generate revenue that institutions can use either to discount tuition or boost financial aid, which are two sides of the same coin. Non-elite public institutions engage in this practice far less. They lack the market power to lure students from wealthy households and they don’t have big endowments that support generous scholarships. To keep up enrollment numbers, they cannot afford to discriminate by income. As a general rule (there are exceptions), they strive to keep tuition as low as possible for everyone.

The SCHEV data shows a remarkably wide range of wealth redistribution among Virginia’s public higher-ed institutions. SCHEV classifies a remarkable 30.4% of Mary Washington University tuition as financial aid as a percentage of paid/collected tuition. The data show an astonishing upward trend which can admit of no other explanation than deliberate policy. In 2013-14 the redistribution rate at UMW was 1%. The percentage has risen steadily ever since — thirty-fold.

The University of Virginia and the College of William & Mary are close behind with percentages in the high 20s.

Low man on the totem pole is the University of Virginia-Wise campus, located in the impoverished mountains of Appalachia, which redistributes less than one percentage point of tuition revenue.

UVa tuition redistribution trends

As executive director of the Jefferson Council, I’ve been paying especially close attention to University of Virginia tuition policy. The redistribution rate at the state’s flagship university has been creeping steadily higher, though nowhere at the rate of Mary Washington. In 2013-14 the percentage stood at 18.6%. In 2021-22 it had risen to 28.8%.

Needless to say, there has been zero discussion of this ratio during UVa Finance Committee’s meetings organized to discuss the upcoming tuition increase for the next two years. Here’s a logical question to ask: How much lower would UVa tuition be if it weren’t allocating nearly 29% to financial aid?

The administration has indicated it is aiming for a range of 3.0% to 4.4% increases. How much of that will go to financial aid?

The two finance committee meetings that have occurred so far this fall, one of which included a public hearing that received input from a single student, have consisted entirely of self-serving presentations by the administration with but a few questions, mostly for purposes of clarification, from board members. It’s a safe bet that UVa board members are totally unacquainted with the tuition-redistribution numbers. But even if they were, the meetings and hearings are structured in such a way board members have no opportunity to ask about them.

It’s also a safe bet that the same holds for the boards of every other public university in Virginia.

The Youngkin administration deserves kudos for compiling and publishing the SCHEV data. It represents a potential big step forward for transparency and accountability — emphasis on the word “potential.” Until alumni groups and Boards of Visitors act upon the information, that potential will likely go unrealized.

James A. Bacon is executive director of The Jefferson Council.

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Wahoo 76
Wahoo 76
3 months ago

Good info, Jim! As to the structure of BOV meetings not allowing such relevant questions from BOV members, why cannot the BOV set the structure as they see fit? I know Jim Ryan basically sets the agenda and report format, but the BOV is in ultimate control. Can’t they demand that this topic be placed on the agenda or, at the very least, discuss it in Q&A? I don’t understand what is preventing this discussion. Thanks.

Hal Juren
Hal Juren
3 months ago

I can’t tell you how much I admire the work you and the Jefferson Council are doing. It’s the one ray of hope in an otherwise extremely depressing outlook.

Geoffrey Close
3 months ago

I guess this is the definition of Jim Ryan’s motto for UVa to be “Great and Good” , depending on your interpretation of being “good “.

James S Gilmore III
James S Gilmore III
3 months ago

I wonder whether the “affluent” students are taking student loans to pay the full tuition rate. If so, they are having to take on debt in order to subsidize other students. If the student loans are below market rate, the taxpayer is subsidizing the “affluent” students, and thus transferring tax money through one step to the “less affluent” students. Are two parents working middle-class jobs to put their children through college qualifying as “affluent”? My administration reduced tuition to make college more accessible to all students.

walter smith
walter smith
3 months ago

Welcome former Governor!
I hope you can convince politicians from your time, of both parties, to get involved in reforming all of the higher ed public schools.
The BOVs should not be political hacks and should actually be concerned about the educational institution as an educational institution. IN UVA’s case, there is also a very important historical and cultural component, and it is currently being destroyed, while the educational quality is being lowered. That is a disservice to all of the Commonwealth.
The admissions process is sneakily illegal, and dishonest. The tuition is way too high with many projects not dealing with education. The course catalog is full of ridiculous studies. The free speech climate is abysmal. The Honor Code is effectively dead because the people up top are without honor.

john moffet
john moffet
3 months ago

Appreciate the numbers, Jim. Could you check my math?

At approx. 24,000 students, the operating costs are about $24,000 per student? With out-of-state tuition at around $54,000, am I contributing approx. $30,000 to the wealth distribution effort, or a 55%+ redistribution ratio?

To whom do I speak to get a charitable deduction on my form 1040?

Boston Reader
Boston Reader
3 months ago
Reply to  john moffet

Interesting data. Thanks. I remember looking at this when the former dean of admissions at Amherst was quoted in the New York Times in an article dealing with how elite universities and colleges should attract lower income and less traditional students. He had some ideas then mentioned “it’s expensive.” Meaning, of course, someone has to subsidize lower income students because by definition they and their parents can’t pay full freight at an Amherst. I looked up the data available for Amherst in its annual Common Data Set (UVA has one as well). With a minimal amount of analysis I figured out that 40% or 45% of the parents were paying full freight and the other 55% or 60% were paying on average about half of the stated cost. No doubt there was a wide distribution among those who receive financial aid. Some received loans, others grants, but at the end of the day the average cost to provide the education was probably 25% or more less than the rack rate. Given UVA charges different prices based on whether you are in-state or out-of-state, it was kind of hard to figure what it does. But I had no doubt the out-of-state parents who pay full freight were subsidizing everyone else. Same at Michigan and every other state school. The colleges will tell you they utilize money provided by alumni specifically for financial aid to reduce the cost for those who need financial aid and everyone else is paying the actual cost of instruction. That doesn’t actually seem to be the case but it really is an important data point. I don’t have any magic answers how those who can’t afford college should be subsidized (and they should be somehow, IMHO). But it always did stick a little in my craw that UVA would continue to ask me for contributions when I already have paid probably $250,000 more than the average cost of the education for the 3 children I have educated at UVA and Michigan.