To:  Board of Regents

From:  Richard A. Crofts, Commissioner

Date:   April 17, 2002

Subject:  Tuition Policy

Over the last several months I have discussed with senior managers several possible changes in our tuition policy.  The purpose of this memo is to offer some recommendations for consideration by the Board of Regents and to solicit decisions or direction from the Regents on whether these recommendations should be developed into final proposals either for next year or the next biennium.

In 1999 based upon our study of our Colleges of Technology compared to two-year institutions in other states, we discovered that our tuition was extremely high for the COTs when compared to the region and even nationally.  The Regents approved my recommendation for a tuition freeze at the Colleges of Technology.  We expressed as a general goal that students at the COTs should pay 15-20% of the cost of their education to make their tuition reasonably comparable to other states.  Tuition was frozen for FY 2000 and 2001 and the COTs received general fund backfill to replace the foregone increase in tuition revenue.  We thus held the campuses harmless, but provided a small financial incentive for students to begin their college careers at a two-year institution.

Due to rapidly rising expenditures and fiscal difficulties, I concluded that we could not freeze tuition again at the COTs.  However, I recommended and the Regents approved a 5% tuition increase for the COTs instead of the 13% tuition increase approved for the four-year campuses.  Again, the COTs received general fund backfill.

Senior leadership in the university system has agreed that we should expand the concept of tuition differential from two tiers to three.  Students at the COTs would pay the lowest percentage of the actual cost of education, students at our comprehensive university campuses (the four smaller four-year units) would pay a somewhat higher percentage of the cost of education, and students at Missoula and Bozeman would pay the highest percentage of the cost of education.  Such a pattern is quite consistent with what occurs in other states where students at so-called "flagship campuses" pay a tuition premium for attending those campuses.  We believe that equity considerations should drive us to this approach, but the approach when fully implemented will also contribute to goal of increasing enrollment at our smaller institutions.

I am recommending that you endorse this approach and direct us to begin developing a specific methodology that we would use in setting tuition beginning in FY 2004.  We would have to run a variety of models, but one we have already looked at would have students at COTs paying about 18% of the cost of education, students at the comprehensives paying about 25%, and students at the research campuses paying about 38%.  General fund allocations would have to be adjusted to account for lost tuition revenue.  It may be necessary to implement this recommendation over the course of several years to mitigate against too rapid tuition increases at Bozeman and Missoula.

We also anticipate that tuition increases at institutions with higher cost programs will have to increase faster than at other institutions.  This mainly effects Montana Tech of The University of Montana.  Part of the fiscal difficulties that campus has faced is that we adjusted general fund revenue to account for their high cost programs but we did not adjust tuition revenue for the same reason.

Offer students from Alberta the WICHE Western Undergraduate Exchange tuition rate. 

For some time I have been involved in discussions with provincial managers of higher education in the Province of Alberta.  I have repeatedly proposed to them that we enter into an agreement to offer the WICHE undergraduate exchange tuition rate across the border between Montana and Alberta.  Albertans coming to units of the Montana University System would pay 150% of our resident tuition.  Montanans attending Alberta universities would pay 150% of the resident tuition paid by Albertans.

A few weeks ago I was told that the provincial government had no authority to make this decision and that it would be up to the universities.  I have now been informed that the universities in Alberta do not want to participate in such a reciprocal program.  They do not believe that it would be in their economic interests to do so.  I find this to be an unfortunate response because I believe the proposal could have benefited citizens in both Montana and Alberta and should have been considered from that perspective - - not from the perspective of whether institutions would gain or lose money from the arrangement.

Despite this reaction from Alberta, it is my recommendation that the Board of Regents authorize any of our campuses to offer tuition to residents from Alberta at 150% of existing resident tuition as a way to provide higher education opportunities to our neighbors to the North.  I believe that Montana State University - Northern would be quite likely to move in this direction.

If approved immediately, this recommendation could be implemented effective in the Fall of 2002.

Marginal cost for non-residents in programs with excess capacity

We now charge all non-residents at least 100% of the full cost of education.  In some selected situations in programs where there is excess capacity, non-resident students could be added at a cost to the institution of less than the current non-resident tuition.  If adopted, this recommendation would permit campuses to request approval to offer access to non-residents to programs with excess capacity at a somewhat reduced tuition rate.  The campus would have to document to OCHE the tuition rate that would be required to cover all of the additional expenses added to the institution both within the selected program area and costs outside of that program area.  The success of the program and the cost/benefit analysis would have to be reviewed at least every other year.

If approved quickly, this recommendation could be implemented in some cases by the Fall of 2002.

Marginal cost for non-residents in summer programs with excess capacity

The same line of argument can be taken from the previous point and applied to certain summer school programs.  Summer School programs are separately budgeted from the regular academic year instructional programs and must generate sufficient revenue to cover expenses, lest dollars have to be moved from the academic year budget to cover losses.  Some institutions may see their summer offerings for Montana residents become more extensive and more financially stable if they could offer non-resident students a somewhat lower tuition rate during the summer.  Campuses would have to document to OCHE that they have excess capacity during the summer and that a lower non-resident tuition would actually benefit Montanans.  If approved, this recommendation could be implemented for the Summer of 2003.

Addition flexibility on non-resident tuition

Current policy is to charge non-resident students the full cost of their education.  In fact, this year non-resident students are paying between 105-109% of the total cost of their education.

The campuses have requested additional flexibility in establishing non-resident tuition.  This is especially important for our smaller campuses that have a difficult time in competing for non-resident students with Montana State University - Bozeman and The University of Montana - Missoula.  Analysis of total expenditures on a campus by campus basis suggests that the ability to recruit non-resident students has been a significant factor in the relative fiscal health of those two campuses compared to the smaller units.

I am asking the Regents to confirm or reconfirm that campuses have the flexibility to charge no more than the full cost - - i.e., there is no requirement, at least for the smaller campuses to charge more than the full cost (see below for next recommendation).

Second, I am recommending a broadening of the approach suggested above for non-resident students enrolling in programs with excess capacity.  Under this broadened approach, campuses would be able to submit business plans that would document their ability to receive non-resident students at a lower tuition rate and still provide benefit to the university system as a whole and to the State of Montana.  These business plans might be based upon cohort groups, excess capacity that goes beyond single programs, and improvements in all funds budgets.  Guidelines and criteria for the approval of these business plans would be developed by Associate Commissioner Sundsted.  Upon the approval of the Commissioner, the lower tuition rates would be submitted to the Regents for approval in the regular process of establishing tuition rates.

This recommendation could be implemented effective with the 2003-2004 academic year.

Thirdly, I am asking the Regents to approve a recommendation that Montana State University - Bozeman and The University of Montana - Missoula will charge non-residents at least 105% of the full cost of education.  The smaller campuses could recommend non-resident tuition rates less than the full cost of education.  OCHE would ensure that system wide non-resident students in total are paying the full cost of their collective education.  This recommendation could be implemented by the Fall semester of 2002.

Internet education

One additional area of tuition policy remains under consideration and we are not yet ready to make a recommendation.  The question has to do with what tuition rate should be charged non-residents who take courses over the Internet and do not come to one of our campuses.  We are caught in a dilemma:  (1) we have said that we will charge non-residents the full cost of their education; and (2) evidence that we have seen suggests that our non-resident tuition level may not be competitive when compared to what other institutions are charging for Internet courses.   In some of these cases, there may not be sufficient resident student enrollment to make these courses economically feasible.  Hence, using the "business plan" argument referenced above it may be possible to argue that offering these courses to non-residents at a tuition rate below normal may provide the number of enrollments necessary to keep the Internet course/program economically viable and thus available to Montana residents.

Montana State University - Bozeman had submitted a "white paper" on this issue some months ago.  We met with them and raised some questions about their approach and requested additional data.  We now have a revised version of that paper and will be reviewing it over the next several days.  We hope to have definitive information about competitive tuition levels for Internet-delivered courses.  We also hope to have a clear and specific process as to how we would determine the full cost of an Internet course that should be charged to a non-resident.  We are also exploring whether there is some rationale for excluding consideration of residency from the assessment of tuition for all students who take courses over the Internet.  There is also the complicated issue of how should tuition be assessed for non-residents who are taking only Internet courses and for non-residents who are taking an Internet course, but also registered for on campus courses.  Lurking behind all of these considerations is the concern about the raising of "equal protection" legal challenges to a different tuition policy for Internet courses while our residency policy is again being challenged in the courts.

I look forward to our discussion of these important issues and hope that the Regents will be able to approve some or all of these recommendations at their meetings in April or May.