Tugging on financial levers
U.Va. seeks ways to raise revenue and cut costs
- May 29, 2015
At a raucous meeting in March, the University of Virginia board of visitors approved a plan it said will raise tuition for some students while lowering debt for most.
But that claim didn’t pacify dozens of students who protested the decision with chants and signs. The hike also influenced the resignation of a board member who was absent that day.
Overshadowed by the tuition controversy, however, were a number of other steps the university says it is taking to increase revenue and reduce costs.
U.Va. officials are tugging on some new financial levers in the face of flat state support, higher operating costs and an expected costly wave of faculty retirements.
“It’s a challenging time for higher education,” says Patrick D. Hogan, the school’s chief operating officer.
Hogan and his staff have been scratching around the nooks and crannies of the school’s operating budget — $2.8 billion a year — where they found some ways to generate money and savings. “We studied all sources of revenue,” Hogan says.
One of those sources was the school’s $5.9 billion endowment. “Given its performance, we determined we could increase spending,” says Hogan. The increase means an additional $7.5 million payout annually for the school’s use.
The school also has restructured its debt, a move that resulted in lower interest rates expected to save the school about $15 million over the life of its bonds, Hogan says.
And like any household in lean times, U.Va. tightened its spending. The school ended up “achieving efficiencies” throughout the university’s operations, which Hogan says will save about $150 million during the next seven years.
How did they do it? Hogan says changes such as buying office supplies from one vendor instead of 200 will cut costs significantly — by as much as 10 percent annually. The university also plans to use single-source vendors for technology and computer supplies in hopes of garnering similar savings.
Hogan and his staff also looked at trimming costs in areas ranging from travel to heating and air conditioning. He says the school, for example, is taking steps to better control heating and cooling costs.
The overall savings will not only defray rising costs but also help pay for an expected “generational turnover” of about half the school’s faculty in the next five to seven years, Hogan says. “Replacing them will be difficult. There is a talent war out there,” he says. “And to get talent you have to be prepared to pay for it. We can’t afford not to.”
“I think it’s a very solid, plan,” Hogan adds of the overall thrust of the program.
The university insists the recent tuition increase will make a U.Va. education more affordable for most students. “Our objective is to have a university that is accessible to all people regardless of their ability to pay,” Hogan says.
Undergraduate tuition and required fees for Virginia residents will increase by 3.6 percent, or $470, from $12,998 to $13,468 in the fall. The corresponding rate for out-of-state students increases by 3.7 percent. The total price of education for an in-state student — including tuition, fees, room, board, books and travel — would increase by 3.3 percent, or $895, to $27,963, compared with $27,068 in the current academic year. For a non-Virginian, the price of a U.Va. education would increase by 3.5 percent.
First-year Virginia students entering this fall will also see a $1,000 step increase added to base tuition. Currently enrolled in-state students will not pay the step increase, which also does not apply to out-of-state students.
The tuition increases are expected to generate enough money to help reduce debt for students from low- and middle-income Virginia families. The average undergraduate student leaves U.Va. with about $21,000 of debt, says Hogan. “We didn’t like that.”
Under the new program, which begins this fall, for Virginians demonstrating high financial need, maximum student loan indebtedness will drop from $14,000 to $4,000. For all other in-state students qualifying for need-based loans, maximum indebtedness drops from $28,000 over four years to $18,000.
Hogan says that the new program would reduce the net cost of a U.Va. education for about 70 percent of Virginia households with some of that cost being passed on to the remaining 30 percent. “Families with an income of $100,000 a year or less are eligible for the new loan cap,” says Hogan. “But we are asking some people to pay more.”
“Still, at the end of the day, we’re at the top of the charts with our goal of being affordable,” says Hogan.
Not everyone agrees. Some students attending the board meeting protested the tuition plan, chanting “Whose university? Our university!” according to The Daily Progress.
The board vote on the proposal was 13-1, with one abstention and two members absent. Former Rector Helen Dragas cast the lone dissenting vote.
Her opposition to the tuition increase, however, was shared by board member Edward Miller, who was absent when the vote was taken.
Miller, the former chief executive of Johns Hopkins Medicine, announced in April that he was resigning from the U.Va. board at the end of June. In an interview with The Washington Post, Miller criticized the U.Va. administration for a decline in research funding as well as the tuition increase.