By: Jacob Carrasco
Free tuition is a hot topic right now, and some colleges already offer it for their deserving students. Just how are they able to do this?
At the ramp up of this year’s presidential election, a hot topic of discussion is the cost of higher education, and the possible elimination of tuition and fees at many universities. It is true that many universities in Europe and other places are free, or near free. For example, the fees at Oxford and Cambridge in the UK are capped at 9,000￡, roughly equivalent to standard in-state tuition of ~$10,000 at many lower quality schools in the United States. At the top universities of America such as Harvard or Princeton tuition fees reach as high as $50,000, and the cost to students is even higher when you include housing and living expenses. This begs the question, could America have free higher education?
Yes, and some American universities do. Stanford University, for example, is a private university that offers free tuition for its students whose families earn less than $120,000 a year. Similarly, the University of Texas at Austin announced this past year that it will be funding a similar program, giving full tuition scholarships to those whose families make less than $65,000 a year and partial aid to those whose families make up to $125,000.
One who compares the two astutely will notice that Stanford is a private university with a huge endowment and 7,000 undergraduates, whereas UT Austin is a large, state-funded public school with 40,000 undergraduates. One might be surprised to learn that the endowment of the University of Texas system is actually larger than that of Stanford University. How then is it that UT Austin managed to scrounge up the money to be so generous with a larger student body?
The money was allocated by the University of Texas System Board of Regents, who voted unanimously to earmark $160 million dollars from the ‘permanent fund’ for the project. From these funds they expect 8,600 students to receive free tuition, with even more receiving partial aid. But throwing partial aid out of the window, let’s take a minute to count the cost. Current tuition, which stands at $10,500, multiplied by 8,600 students, yields foregone tuition revenue of $90.3 million dollars, a hefty chunk of change and more than half of the total endowment– not even the revenues from the endowment that are supposed to pay for the project through residual income.
A detour from this discussion is needed to take into consideration the nature of an endowment. The permanent fund that the University of Texas is pulling from is a state-mandated fund that controls land in West Texas which they lease or use to draw revenue. This money is generally used for capital expenditure projects in the UT and Texas A&M systems, with the exception that it can be used for operational costs at UT Austin, thus allowing Austin to use funds to offer free tuition. The fund is valued at $24 billion, and in past years, the permanent fund has drawn roughly $1.5 billion dollars for projects at different universities.
Still we return to the question, how is UT going to finance this? The situation only gets more dire as one considers the financials of UT Austin. In FY 2018-2019, UT Austin awarded $33.2 million dollars in undergraduate scholarships, the lion’s share provided by Texas Grant, a legislated grant in Texas, for low income students that provides up to $5,000 a semester. This provides an interesting insight into how UT Austin expects to pay for these scholarships. With the aid of the Texas Grant program, there is less strain on the endowment to provide for all 8,000 students.
Still, despite receiving considerable help from the state, it seems the University is still short on its promise. One possible explanation might be that the $10,000 tuition is actually an inflated price that the University might not need in its entirety to maintain itself running. For the fiscal year ended August 2018, UT Austin received $508,819,535.27 in tuition and fees net of discounts and allowances, which amounts to $169,909,244.00. Taken together, the total cost to the student body without scholarships would be $678,935,508.94. The expense of instruction on the same income statement is $679,721,935.80. This nets out to a deficit of $170,902,400.53 before the implementation of this program. The costs average out to about $13,000 per student, which is higher than the undergraduate tuition because the line item includes all forms of instruction including medical, law, and MBA which can run expensive. It seems that UT Austin would break even if there were no scholarships, so we can put away the ideal that UT Austin is magically disinflating its cost to help students.
One interesting thing to note is the rest of UT Austin’s debits and credits. For example, the University spends $491 million on research, almost all of which can be accounted for by the $437 million it receives in “federally sponsored programs.” Further, the sum of “private sponsored programs,” “state programs,” “auxiliary enterprises” and “Sales and Services of Education” amount to a gargantuan $805 million dollars. Without an expert analysis, it can be seen that UT Austin might be able to justify some research spending to support students who are in need of education opportunities– and further would make good researchers.
How UT Austin exactly plans to fund its generous program remains a mystery to the public, as the current endowment does not add up to the projected cost of providing such generosity. One thing can be said for certain, which is that UT Austin is in a privileged situation to provide free tuition to a sizable portion of its body. This is something that most universities can only dream of, as the gargantuan cost educating America’s youth is often not subsidized by West Texas oil fields.
Works cited:
Annual Financial Report. (2018, August 31). Retrieved from https://utexas.app.box.com/v/annual-financial-reports/file/408923997943.
Fast Facts: Endowments. (n.d.). Retrieved November 15, 2019, from https://nces.ed.gov/fastfacts/display.asp?id=73.
Romo, V., & McInerny, C. (2019, July 10). University of Texas-Austin Promises Free Tuition For Low-Income Students In 2020. Retrieved from https://www.npr.org/2019/07/10/740387601/university-of-texas-austin-promises-free-tuition-for-low-income-students-in-2020
The Permanent University Fund (PUF). (n.d.). Retrieved from https://www.utsystem.edu/puf.
The Economics Review 
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