Biz of Biz Schools
Thursday, December 5, 2019
By Rebekah Tilley

Jose Duran (BBA20) could practically claim a second major for all the creative ways he’s worked to graduate debt-free in May 2020.

Because his parents aren’t able to help him pay for college, Duran transferred credits he took at the lower-cost Des Moines Area Community College before he came to Iowa. He tends bar in the summers. And he’s cobbled together other part-time jobs and donor-financed scholarships to keep ahead of expenses.

Except for a $5,000 loan he took out his first year here, “I’m working my hardest to graduate with zero debt.”

Paying for college is a constant worry for many students (and parents), and it’s easy to blame universities for being bloated and inefficient. Maybe if Iowa had kept its old World War II-era Quonset hut classrooms and skipped the rec center with climbing walls, college would be more affordable, right?

Not really. And here’s why.

The way we pay for education has shifted.

Although his time on campus predates Duran’s by nearly six decades, Gary Fethke (BA64/PhD68) paid his own way through college by working as an orderly in the Iowa Psychopathic Hospital. Of course, when Fethke began school, in-state tuition was $240 a year. In 2017, when Duran started at Iowa, in-state tuition was $7,486 a year, not including the additional $2,826 he paid in supplemental tuition as a business student (the supplement funds college resources and programming only accessible to declared business majors).

Sticker shock aside, something else shifted pretty dramatically between Fethke’s and Duran’s time as students: state support for higher education. In 1961, the state of Iowa underwrote 75.9 percent of Fethke’s tuition. By comparison, just 29.3 percent of the University of Iowa’s General Education Fund comes from state appropriations in FY20.

Tuition comparison

Not only has state support dropped precipitously, necessitating regular increases in tuition and continual belt tightening, but the reliability of appropriated funding has become increasingly shaky. In fact, state appropriations are the university’s most volatile source of income, as recent state budget shortfalls have required “claw backs” mid-fiscal year to the tune of $9 million in FY17 and $5.5 million in FY18.

Iowa isn’t alone in this. For decades, state governments across the United States have disinvested in public higher education, at varying rates and for varying reasons but often with similar results: universities are forced to make up the difference in other ways.

Tuition has increased, but the real cost of education hasn’t gone up.

Fethke said the biggest misconception about tuition rates is between price and cost.

“Price is what people pay and the cost is what goes into making the product,” says Fethke. “List tuition has gone way up, so everybody says, ‘Well, the cost of education has gone way up.’ No, it hasn't. The cost of education has been relatively flat for a decade in real terms, and the cost of instruction in the United States is relatively flat or slightly declining.”

Instead, the cost of education has shifted from the taxpayer to the student.

Fethke would know. After graduating from Iowa in 1964, he went on to earn a Ph.D. in economics and co-authored Public No More, a 2012 book that offered an unsentimental examination of how public universities could survive in light of waning state support.

As state appropriations have inched lower and lower, the price of instruction—tuition—hasn’t increased at nearly the same rate. The UI now charges one of the lowest in-state tuitions in the Big 10.

A full-time, freshman-level, in-state business student at the University of Illinois Gies College of Business will pay $21,214 in tuition and fees in the 2019-2020 academic year compared to the Tippie College’s $11,332. The University of Illinois only receives 10 percent of its FY20 general education budget from state appropriations. Gies was ranked #19 in the 2020 U.S. News & World Report and Tippie was ranked #31.  

“It’s scandalous,” said Fethke. “You can say, ‘Well, we like to provide access,’ but then on the other hand, you want to be competitive with your peers. That kind of a gap challenges quality.”

The university is attempting to backfill the sizeable budget hole that isn’t covered by tuition and state appropriations with private fundraising, grants and contracts with government and industry, and by licensing intellectual property.

“Gary [Fethke] has been very influential in helping the University of Iowa understand that we must take control of our fiscal future,” UI President Bruce Harreld said. “We can no longer depend on state and federal governments to fund our teaching and scholarship. Instead, we need to explore more creative financing mechanisms and deepen our relationships with industry and alumni.”

A significant percentage of university activities collect their own revenue and cover their own costs, including Iowa Athletics and UI Housing and Dining. Thanks to growing graduate and undergraduate enrollments, as well as new program development, Tippie is a net revenue generator for the university. The college also benefits greatly from increased donor support, revenue generation from off-campus programs for working professionals, grant support, and supplemental tuition.

Tippie’s careful stewardship of its resources can now be seen and rewarded under the university’s new approach to budgeting.

Buckle up. We’re about to talk about university budget models.

Without getting too inside baseball, historically one of the challenges in responding to the fluctuations in university funding sources has been a lack of clarity about how dollars flow into the university and out to the colleges; and how efficient various colleges are in using those resources. Beginning FY19, the university moved to a modified version of a “Responsibility Center Management” or RCM budget model, under which revenues and expenses in the campus academic budget are fully transparent.  It also changed how revenue is allocated to university colleges.  

“The RCM model takes a very different philosophy and says you should eat what you catch,” Dean Sarah Fisher Gardial explained. “The more tuition you bring in, the more you get to keep. It allows us to be market-driven and grow new programs.”

The decision to close the Full-time MBA Program preceded the introduction of the RCM budget model, Gardial says, but the new budget model incentivizes collegiate units across campus to take a hard look at where their unit is bringing in revenue and where it is losing revenue. Units that make values-based, financially strategic adjustments have a better chance of surviving, and thriving.

“Our college has always been market-driven,” says Gardial. “What we're finally seeing with RCM is an alignment of a funding model with a philosophy that we've always had, which is ‘What do our students need?’ Whether it’s undergraduate students or working professionals needing continuing education, we are following that need. And now the stars have aligned as our strategy maps onto the new campus funding model.”

But what about all the facility upgrades?

Within the Pappajohn Business Building, the Pomerantz Business Library has undergone a complete transformation in the past two years. The finance lab has moved from a small former break room to a new suite with Bloomberg terminals on standing desks, expanded study space, state-of-the-art instructional technology, and key card access. 

All of this was 100 percent donor financed.

Keeping up the curb appeal of Tippie is important when competing for students. Especially when the college looks toward the future: both opportunities and risks. Remember the 2008 economic disruption? One of the effects of the financial fallout was American millennials delayed starting families. Even with the national economy cranking again, birth rates haven’t recovered to pre-2008 levels.

FY19 Tippie Scholarships

Nathan Grawe, a labor economist at Carleton College, is forecasting a 15 percent decrease in the typical college-attending population beginning in 2026. Regional forecasts are even bleaker, projecting a 19 percent drop in the number of students attending four-year institutions like Iowa.

Gardial says the UI is set up well to weather this transition because it’s a comprehensive Big 10 university with a distinctive value proposition: relatively low tuition coupled with a stellar academic ranking and reputation. However, it doesn’t mean the university can be complacent.

“Once you start shrinking the supply, the colleges that are left standing are going to be very aggressive about going after the students that they want,” Gardial said. “That means we're going to have to be very competitive as well.”

And at the end of the day, it’s about our Hawkeyes.   

More than 60 years separate Fethke and Duran’s experiences as business students at Iowa, but they have a lot in common. Both came here as hardworking Iowans, first-generation college students trying to work their way through without financial help from home.

The underlying economics of how people pay for college has changed dramatically since the 1960s. Society has largely abandoned talk about students putting themselves through college all on their own. Instead, talk has shifted to how families pay for college. And with their advocacy, mentoring, and giving—again and again—the Hawkeye family has stepped up to help each other and guarantee student success for the next generation.

Big10 Business School Tuition 19-20

*Additional supplemental tuition charged beginning junior year. 

This article first appeared in the Winter 2019-2020 issue of Tippie Magazine