Proposed Guarantee Tuition Model Drawing Mixed Reactions

By
Anne Li

Dateline
Updated Fri, Jun 28, 2013 11:37 am

Experts say a new proposed Ohio University tuition model could be fair for both the university and students, but may not make college costs more affordable.

The OU Board of Trustees is considering switching undergraduate students on its Athens campus to a “guaranteed tuition” system, in which the tuition rate would be fixed for an incoming freshman cohort’s four years of education.

According to a presentation by Provost Pam Benoit during the June trustees meeting, guaranteed tuition would give both students’ families and the university the ability to predict future tuition costs and revenue, respectively. It may even be able to reduce student debt.

OU economics professor Bolong Cao has spoken about guaranteed tuition in his classes. He said that the university is offering what is called a “swap” in the economic world – an exchange of one security for another. In this case, students would be, in essence, be paying more money their first two years and saving money during their third and fourth years.

This is possible because Cao says the cost of higher education is trending upwards. So, for example, if the university continued using floating rates, and we set the cost for each year of education at $80 for the first year, $90 for the second, $100 for the third and $110 for a student’s senior year; the student would be paying a four-year total of $380. Under the guaranteed tuition model, the university might charge $95 for each year to maintain a four-year total of $380.

Under this scenario, there is an “embedded loan” in the swap because students would be paying $15 more for their first year under the guaranteed model compared to the non-guaranteed model and $5 the second year. In the third and fourth years, however, students would be saving $5 the third year and $15 the fourth year under the guaranteed model compared with the existing one.

“In that sense, the university takes on some risk if the rate they initially set can’t cover expenses,” Cao said.

If the risk is realized, it would be a serious problem according to Cao’s colleague, economics professor Richard Vedder.

“We are a moderately high tuition-dependent school, unlike [private schools],” he said.

Cao and Vedder say that under the guaranteed tuition model the cost of the first year of tuition may appear to be a significant increase compared to what it would be under the existing model.

“Students may just protest against the rate hike from $80 to $95. However, assuming the tuition projection is correct and [there’s a] zero interest rate, the translation from the floating rate to the fixed rate is actually a fair deal,” he said in an email.

Cao noted, however, that he has no information on the “fairness” of the guaranteed model.

He says the plan would also reduce uncertainty for both the university and students in their respective budgeting processes.

This is especially true for students taking out loans, Vedder pointed out.

“With students who have student loans, this’ll give them some sense of [how much debt] they’ll have,” he said.

Vedder added that the university, and in the long run, students, will also have to be weary of inflation. A sudden jump in interest rates will increase the university’s costs for its debt-owned property, such as academic buildings.

As for making college education more affordable, Cao and Vedder said that addressing that issue does not seem to be guaranteed tuition’s top priority.

“It’s up in the air,” Vedder said.

Student Reaction

The student body’s opinion on guaranteed tuition is mixed. Jacob Chaffin, a senior education major and spokesman for OU Student Union, called the plan “deceptive.” OU Student Union is an advocacy group “fighting for affordable, democratic education” according to its Twitter page.

“The university needs to be focusing on models that make higher education more affordable,” he said, “and not on models that, at best, allow students to know the entire debt that they will be taking on after graduating.”

Matt Farmer, a senior political science major who is also affiliated with OU Student Union, expressed concern that guaranteed tuition would discourage students from voicing their opinions on future tuition matters.

“There will be fewer students on campus that would have any self-interest to fight exorbitant tuition increases and the Board of Trustees would feel more comfortable raising tuition every year without the fear of significant student backlash,” he wrote in an email.

But for some students, having the ability to predict their college costs is enough to win their support for guaranteed tuition.

Student Trustee Keith Wilbur, a junior political science and economics major, said the Board of Trustees is not out to “maliciously attack students,” adding that he wants everyone to come to OU, and that “the idea [of guaranteed model] is not to hide the tuition increase.”

“If I’m able to come in and predict for four years and know what my tuition will be I can plan better from the get-go. My parents can plan better,” he said. “At the end of the day, predictability is affordability.”

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