Tuition Shock Hits Business Majors

(Corrects the spelling of Dean Carl Zeithaml.)

Dean Jan Williams watched with concern as enrollment at the University of Tennessee at Knoxville's College of Business Administration more than doubled in the past seven years, growing from 2,500 undergraduate business majors in 2004 to a bulging 5,300 students in 2011.

With state budget cuts for next year looming and federal educational stimulus funds due to run out soon, Williams knew he had to look for alternative sources of revenue or start turning students away. Knoxville's business college, (Tennessee-Knoxville Undergraduate Business Profile), has 120 professors, the same number it had in 2004, and classes have become larger and more crowded in recent years. "We are just absolutely bursting at the seams. We needed a significant infusion of resources," Williams says.

This fall, the business college started charging students an extra $50 for each credit hour, a move that will add approximately $3,200 to the cost of their tuition over four years. The fee will raise about $4 million in additional operating funds for the business school, enabling the school to hire a dozen new professors, add new sections, and reduce class sizes. Says Williams: "I've been working on this plan for seven or eight years, but it took things getting as severe as they are with budget cuts to get the attention and support for it from the university."

Some Majors Are More Expensive

Differential tuition, where schools charge different prices to individual students based on their major or field of study, is becoming an increasingly popular funding mechanism at resource-stretched public research universities in the U.S. Students at schools across the country, especially those in business and engineering programs, are increasingly being asked, along with their families, to shoulder a larger tuition burden as schools grapple with dwindling state financial support, surging enrollment, and higher operating costs, studies show. The trend has accelerated in the past decade. Of the 162 public research universities in the U.S., 92 now have at least one undergraduate program with differential tuition, with 18 having introduced the practice in the past three years, according to a study on differential tuition done by Glen Nelson, chief financial officer for the Arizona Board of Regents and a staff affiliate at the Wisconsin Center for the Advancement of Postsecondary Education. In the past school year, schools in states from South Carolina to Tennessee have introduced differential tuition, and on Feb. 28 the University of Virginia's McIntire School of Commerce (McIntire Undergraduate Business Profile), the second highest-ranked undergraduate business program in Bloomberg Businessweek's 2011 ranking, announced a plan to implement differential tuition for business majors this fall.

Even two MBA programs—at the University of Nevada campuses in Reno and Las Vegas—are considering differential tuition schemes. At Reno, the move comes after state budget cuts forced the school to eliminate its supply-chain management program. At both schools, the proposal would increase MBA tuition 40 percent, or $100 per credit hour. The Nevada Board of Regents is expected to vote on the proposals later this month.

"The trend is continuing, and I think with fiscal pressures for the various legislative bodies, there will be continued pressure on boards and administrators to consider differential tuition as an alternative source of revenue," says Nelson.

Trying to Cover State Budget Cuts

This past fall the University of South Carolina's Moore School of Business (Moore Undergraduate Business Profile) introduced a new "program enhancement" fee for undergraduate business students with more than 30 credit hours, requiring them to pay an additional $450 a semester. The fee will raise about $2 million a year for the business school, which faced a 20 percent state budget cut going into the 2011 fiscal year, says Carolyn Jones, assistant dean of the undergraduate division at the Moore School. The money will go toward hiring new faculty, adding courses, and strengthening career advising services.

"I think it is clear to anyone in higher education that these are resources we have to generate. We cannot rely on increasingly stressed [state] budgets," Jones says.

Severe state budget crunches mean deeper cuts are likely for state universities in fiscal year 2012, on top of the higher education cuts made in at least 43 states since the recession began, according to a Feb. 25 report from the Center on Budget and Policy Priorities, a nonpartisan think tank in Washington, D.C. Until now, emergency federal aid in the form of federal stimulus funding has helped many universities cover their budget shortfalls. But most of that aid has already been used, and as a result, state universities are likely to feel the effects of budget cuts more acutely next year, the Center says.

Gaining Some Breathing Room

Already, at least 15 states have proposed major cuts in higher education for fiscal year 2012, the report says. In the cash-strapped state of Michigan, the governor's budget would slash state support for public universities by 15 percent next year. The impact of recent budget cuts has been felt at such schools as Western Michigan University's Haworth College of Business, where the school has not been able to hire new professors and has used part-time instructors and adjuncts to teach classes, says Kay Palan, dean of the business school. To offset further cuts anticipated next year, the school will be introducing a differential tuition rate for junior and senior business majors next fall, adding about $600 to the cost of a semester for full-time students.

"It won't mitigate all the effects of a decreased state budget, but it will certainly give us a little bit of breathing room," Palan says.

Dean Carl Zeithaml at the McIntire School finds himself in a similar position. Over the past three years, the state has cut funding for the university by about 15 percent, and the institution is bracing for further cuts this coming year. The school has been able to absorb the budget cuts through "extremely creative and effective cost management," and the support of alumni and corporate donors, he says.

Sharing the Cost

To remain competitive, the school needs to expand its international program offerings, upgrade technology, enhance career services, and give top faculty raises, which is why it has turned to the differential tuition model, Zeithaml explains. The school will raise the tuition of juniors entering the McIntire School next fall by $3,000, becoming the first undergraduate program at the University of Virginia to introduce differential tuition. The move will generate approximately $975,000, or about 4 percent of the business school's annual revenue, according to the McIntire website.

"If the state is moving away from the support [it] once provided, yet in-state tuition is an incredible bargain, there has to be a realistic sharing of the cost, and some of that is going to be directed toward students and families," Zeithaml says.

Among the undergraduate student population, business majors are the ones most likely to feel the impact of differential tuition policies. Of the 74 public universities that implemented differential tuition programs through 2008, 52 introduced them for undergraduate business programs, followed by engineering and nursing, according to Nelson's study. Business programs are targeted because the programs are in high demand, graduates have a high earning potential, and recruiting top faculty is often expensive, says Nelson.

Problem for Low-Income Students

As the practice of differential tuition becomes more widespread, concerns linger about the impact differential tuition will have on students' career choices. In his unpublished research, Nelson found that within three years of implementing differential tuition in two undergraduate programs, the percentage of a large Midwestern university's students eligible for federal Pell Grants—typically given to students from low-income families—decreased at twice the rate of other programs on campus.

"It becomes a particularly vexing issue, particularly for lower-income students, because it may affect the decisions of what they decide to major in," says Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars & Admissions Officers.

It can also be a financial strain for many undergraduates, especially out-of-state students, who already pay higher tuition and fees than in-state students at public universities. Nicole Fitzmaurice, 21, a senior accounting major from New Jersey at South Carolina's Moore School, says she received a $500 scholarship last year, but most of that money has now gone to cover the $450 differential fee charged this semester.

"The scholarship may not seem like a lot, but every little bit helps when you're paying outof-state tuition," says Fitzmaurice. "The differential tuition fee pretty much negates my scholarship, so that is a little bit disappointing, but I understand that times are tough for the university."

A number of universities that implement differential tuition have set aside a portion of funds they raise for financial aid. For example, the business school at Tennessee-Knoxville puts away 10 percent of its differential tuition revenue for financial aid, and Michigan's Haworth College has earmarked 25 percent for this purpose. The McIntire School expects to put aside 10 percent to 15 percent of differential tuition earnings toward the university's financial aid program.

But whether financial aid can offset the sticker-price shock of differential tuition remains an open question.

"As a higher education administrator, that is something that concerns me," Nelson says. "We truly do not know the impact that differential tuition has on low socioeconomic status students and families."

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