Tuesday, April 11, 2017

When "Free Tuition" Really Means 15% off for 15%

The New York State legislatures agreed on the final 2018 state budget over the weekend, which includes a new "free tuition" program dubbed the "Excelsior Scholarship" for New York State students attending public colleges and universities in-state.

Reactions have poured in from all over the state and country, but most are based on a lack of understanding of what the bill actually entails. No, the bill does not mean all students are going to get free or even debt-free college next year. By my calculations, what it actually means is that roughly 15% of students will have their costs reduced by roughly 15% of the actual annual price of college.

While the "free tuition" headline flashing in bright lights is incredibly misleading, the official slogan on the state information page is actually quite accurate: "making college tuition-free for middle class New Yorkers".

The Basics
In case you're unaware, here are the basics of what the program entails:
-New York resident students from families making under $100,000 (2017), $110K (2018), and eventually $125K (starting in 2019) will not have to pay tuition at in-state public colleges and universities.
-These students are required to earn 30 credits per year and maintain eligibility to graduate (e.g., meet program minimum GPA's).
-In exchange for tuition assistance, students will be required to remain in NYS for as many years as they received that assistance (typically two or four years). If they move out-of-state, the scholarship assistance they received converts into a loan.

The program is novel in that it covers both community colleges and four-year schools, taking a step beyond what programs in Tennessee and Oregon have done (both cover only community colleges). But it does not go nearly as far as most people reading the headlines assume. Why? Three main reasons:

1.) It doesn't do much to help students from low-income families. Most students from families earning under $80K/year already pay no tuition and most students from families earning under $50K pay no tuition or fees because of TAP and Pell grants and other financial assistance.

2.) It doesn't do anything to help students from upper-income families. There's no plan to help students from families that earn over $125K, which the state indicates constitute the top 24% of earners with college-age students. With most of the bottom half (see footnote 1) and top quarter of families (by income) excluded, that leaves mostly the third quartile eligible for the scholarship.

3.) While some students will indeed pay zero for tuition next year instead of up to $6,770, the total cost of attendance at state university centers is around four times that figure. At the University at Buffalo (aka SUNY-Buffalo for out-of-staters or just "UB" for locals) where I work, for example, the total cost of attendance is pegged at $26,230 for students not living at home -- meaning that tuition comprises 25.8% of the total cost of attendance.

Why is it really "15 for 15"?
There are lot of assumptions to be made here and I don't have enough information to do all of the math precisely, but "15 for 15" is both catchy and seems like a reasonable estimate. Here's how I arrived at this:

1.) Nancy Zimpher, the SUNY Chancellor, has testified that SUNY expects about 80,000 students to enroll in the program plus 3-5K CUNY students, bringing the total to maybe 85K students. There appear to be about 500,000 potentially eligible students (see footnote 2), meaning roughly 17% would participate. (corrected, 4/13/17)

2.) Expenditures for the program have been estimated at $163 million per year. Divided by ~85K students, that means the average award would be around $2,000.

3.) $2,000 is only ~7% of the total cost of attendance at the university centers, but very few students actually pay the full cost of attendance. At UB, for example, the average annual cost for in-state students is $16,293. An award of $2,000 would reduce this cost by ~13%. This would vary widely by campus, of course (see footnote 3).

I rounded both numbers to 15% both because I like round numbers and because there's a high degree of uncertainty in each. Both could easily be 10% or 20%.

Effects on Student Debt
Here's the good news, though. While 15% of students receiving a 15% discount off the price they pay doesn't sound like a whole heck of a lot, it could actually put a much larger dent in student debt in three different ways:

1.) The average student who takes out loans and graduates from UB, for example, graduates with $19,900 in debt in federal loans. If a student receives $8,000 in additional aid over four years, that total could be reduced by about 40% to ~12K (see footnote 4).

2.) The requirement that students take 30 credits per year and graduate in four years could also mean that more students will finish faster and take out less debt than they would in five or six years (though it could also backfire and result in more students dropping out in frustration when they fail to accrue 30 credits . . . this is TBD).

3.) For students with lower loan amounts, the award could nudge them toward taking out zero loans. Imagine, for example, that you're taking out $3,000 each year in loans and planning to graduate with $12K in debt, but now receive an additional $2,000 discount. Maybe the student will now be so close to debt-free graduation that (s)he will look a little harder for ways to chip in that last $1,000 (maybe their family passes on a vacation or the student spends some summer earnings on their college bill instead of a larger apartment or eats in the dining hall more often and take-out less often). (Of course, there's also the possibility that the student would think $4K was such a small amount that they'd feel comfortable taking out more loans to cover living expenses . . . this is also TBD).

Looking Forward
We'll know more in the coming years about program enrollment, costs, reduction in costs of college, and potential reduction in student debt.

Private colleges are very worried that the program will drive students away from private schools and toward public schools. The state threw in additional scholarship funding for private colleges (also with many stipulations) in last-minute negotiations, so we'll see if this actually comes to pass or not.

By my calculation, most students won't benefit at all from the program and the few who do mostly won't benefit all that much. For those reasons, we might not expect massive enrollment shifts. But decisions often aren't made in a calculated fashion. There's widespread misunderstanding of student debt already out there, for example (which hasn't increased as much and doesn't affect as many students as most seem to think), so "free tuition" might sound very enticing to those panicking about potential debt issues even (and maybe especially) if they're overestimating their future debt burden.

If we've learned anything from current events the past year, it's that people often don't make decisions for the reasons they say (or think) they do. Even though the program shouldn't save very many families very much money, it's not entirely unlikely that it nonetheless drives a disproportionate increase in applications and enrollment to NYS public colleges and universities.

I also wonder to what extent schools and private funders will react in order to game the system. Since the program is "last dollar" and pays for only tuition that's not covered by other sources, I wonder whether schools and scholarship programs will try to provide grants designated for fees, room, board, books, etc. instead of tuition. If institutions and foundations successfully did this, they could potentially raise the average award significantly (though funding rules would also likely be changed if the scholarship budget was shot).

Lastly, I wonder whether the residency requirement will stick around. I see why it was politically attractive to wary legislators (if the state is going to spend money on students, we might as well make sure they benefit the state), but it could be administratively onerous to track and monitor all these students and convert benefits to loans when necessary and could significantly dampen the program's impact if students shy away from signing up in order to avoid committing to remaining in-state after graduation.

All in all, I don't expect the program to make the type of impact many believe it will. But it should be an interesting experiment. And a small step toward debt-free college.

Footnote 1: At SUNY schools, 58% of resident students receive a TAP award, and 39% receive the maximum amount ($5,165). I'd be willing to bet that virtually all of those 39% are paying zero tuition after we include other sources of financial aid. I'll guess that's true for about half of the other students receiving partial TAP funding, meaning that around 50% of students aren't paying any tuition currently. This may be a conservative estimate.

Footnote 2: I'm unsure exactly who will be eligible for the scholarship, but here's how I arrived at a ballpark of 500K.
-SUNY reports enrollment of ~400K undergraduate students in their most recent report, which isn't broken down by full-time vs. part-time, age, year in school, etc.
-CUNY reports enrollment of ~245K undergraduate students on their website, which is broken down into ~161K full-time and ~84K part-time.
-Slightly under 2/3 of CUNY students are full-time, and I'm guessing that number is a bit higher for SUNY. If we assume it's about 75%, that gives ~300K full-time SUNY students + ~161K full-time CUNY students, that gives us ~461K total full-time students. I'm guessing the vast majority of these students will be eligible but a much smaller portion of part-time students will be, so I'm rounding up to 500K. This could be a bit high if fewer students are eligible than I think, but could be conservative if more than 80% of undergraduate students are eligible or if enrollment patterns change in response to the incentive. For example, more students might enroll in public schools or enroll full-time. In which case, the actual number could be closer to 600K or even 700K.

Footnote 3: One glaring exception here is that the average annual cost of attendance is much lower at community colleges (Niagara County Community College is $6,154, for example). A $2,000 award here would pay for roughly one-third the costs of attendance. I'm assuming awards will be smaller at community colleges, though, both because tuition is less ($4,370 instead of $6,470 in 2016-17) and because student bodies at community colleges come from lower-income families and more will already eligible for Pell and TAP grants. Students living at home would also have a higher portion of their costs covered (at UB, total costs for commuter students are pegged at $15,322 next year, which means that tuition ($6,770) comprises 44.2% of their costs). Even as community college and commuter students stand to cover more than 15% of net costs, though, resident students may often cover much less. Most of the scholarship recipients will hail from families earning between $75K and $110K, and students from that bracket paid an average of $20,278 at UB according to the College Scorecard -- meaning a $2,000 scholarship would cover less than 10% of costs for these students.

Footnote 4: I don't know what the average loan level of scholarship recipient students will be, but I'm guessing it should be near the average for the school since the lowest- and highest-income students won't receive the scholarship. For UB, 47% of graduates have federal loans but I'm guessing a somewhat higher percentage have any type of loans (possibly not much higher, since College Navigator reports only 7% receive other loans). Of course, this also means that when we include all loans that the average will be higher than the ~$20K reported and an $8K reduction would make less than a 40% dent in loans owed.

4/11/17: Corrected to use 2017-18 figures for both tuition and cost of attendance for calculations rather than 2016-17.

4/13/17: Corrected to amend the original estimate of 80K students to include an additional 3-5K CUNY students who weren't included in the SUNY estimate. This raises my estimate of potentially eligible students who will actually receive monies from 16% to 17%.