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The Dreaded Out-of-State Fee

April 29th, 2013 by dfarish

I read an off-hand reference to a fact that all but knocked me out of my seat: tuition and fees at UCLA for out-of-state students total $35,570 for the current academic year. (Room and board is extra: another $14,232.)

I wondered how many students were paying such a huge sum. In addition to the 7 percent who are international students, only 5 percent of UCLA’s undergraduates are from out-of-state. Still, that’s more than 1,300 students – not an insignificant number. Moreover, at UC Berkeley, with a comparable out-of-state fee, 10 percent of students (about 2,500) are from out-of-state, in addition to the 9 percent who are international students.

I then began to wonder about public universities who have historically had large numbers of out-of-state students, such as the universities of Colorado, Delaware and Vermont. At those three institutions, the percentages of out-of-staters are 35, 59 and 67 percent, respectively – and the out-of-state tuition and fees are $31,378, $27,462 and $35,582, respectively.

What’s going on?

Let’s step back a few decades. As states created public colleges and universities, they established various ways of subsidizing educational cost. Some states give block grants to each college, the size of which is negotiated individually with the legislature on an annual basis. Other states assembled the colleges into higher education systems, and the state funds go to the system office, where it is divided up among the campuses in the system. In still others, funding is based on actual enrollment.

But as students started showing interest in attending college outside their own state, legislators began to question why State A should be providing subsidies to educate students from State B – especially since State B students so often eventually return to State B.

It wasn’t long before the states developed tariffs (labeled “out-of-state fees”) that were charged to students who came from another state. The size of the fee was often pegged at the actual amount of the state subsidy provided to in-state students. In that way, State A did not subsidize students from State B. Instead, the students from State B paid the entire cost of the education they were receiving.

So far, so good.

But then, as is so often the case, things changed. States found themselves no longer able to support public higher education at the level the colleges once enjoyed, and the size of the per-student subsidy began to fall – even as educational costs continued to rise. Moreover, many state governments did not permit the colleges to recover their missing revenue by increasing the tuition of in-state students – but they had no such compunctions about tuition being raised for out-of-state students.

So now began a race, wherein popular state universities (generally, the flagships – that is, the big research universities) tried to lure out-of-state students in far larger numbers than previously, even as they dramatically increased the tuition for these students. “Balancing the budget on the backs of out-of-state students” became the norm.

But of course this won’t work forever. Out-of-state students will eventually realize that they are being asked to pay private school prices for a seat at a state university. They will then balk at paying not just the equivalent of the per-student state subsidy, but a figure several times larger. They will soon realize that they are paying far more than what the colleges are spending to provide their education, and they will stay away in droves.

Did I mention that 67 percent of the 10,258 undergraduates at the University of Vermont are paying $35,582 in tuition and fees this year, whereas the 33 percent who are in-state students are paying just $15,254? Does anyone really think that the state of Vermont is allocating more than $20,000 per student in subsidies? (That figure is the approximate difference between in-state and out-of-state tuition and fees.) $20,000 is roughly the premium at the universities of Colorado and Delaware as well.

This is not a universal phenomenon. Some of the campuses of the State System of Higher Education in Pennsylvania, faced with enrollment shortfalls in a state where the number of high school graduates is declining, have sought to lure more out-of-state students by reducing the out-of-state fee. (At Slippery Rock University, for example, the difference in cost between in-state and out-of-state is just over $3,000. The figure for Edinboro University is similar. The tuition and fees paid by out-of-state students at these Pennsylvania universities is actually less than what in-state students pay at New Jersey state colleges. Pretty smart.)

So what’s the problem? If public flagship universities raise their out-of-state fees too high, the out-of-state students will simply stop coming. As long as these students are willing to pay a very significant premium in order to attend a public university in another state, why should anyone (other than their parents) care a whit?

The answer is that this “solution” – higher fees imposed on out-of-state students, and more recruitment of these students, as ways of offsetting reductions in the state subsidies of public institutions – drives up the cost of higher education for the students and their families (even as it lets state legislatures off the hook for finding more state dollars for subsidizing educational costs), and it creates winners and losers among the public universities. Flagship publics may do relatively well with this strategy, but the less well known state colleges, few of which attract many out-of-state students, don’t have the option of balancing their budgets with breathtakingly large fees for out-of-state students. They will decline, in numbers and/or in quality, and our nation will be the poorer for it.

In this scenario, the private colleges will benefit. The large flagship publics will become even larger (and, consequently, less attractive for many students), and the state colleges will decline. There will be fewer small to medium-sized public institutions, and even fewer of high quality. And since (for out-of-state students) the price of the large flagships will equal or exceed the price of private institutions, the private colleges, with their focus on smaller classes and personalized education, will see an increase in demand.

That’s good for RWU and many other private universities, but bad for the country. Fewer choices and higher costs do not represent a sound strategy for educating more Americans.