Non-resident tuition: “profit” = revenues - costs

An earlier post by Chris noted that there are presently a number of individuals and groups within UC that suggest that UC can increase its funding, independent of the fickle fluctuations in state funds, by admitting more out of state students and collecting the associated "non-resident tuition" and "fees".

So let's clarify just how much extra money is really available as apparent profit from a non-resident undergraduate student (assuming no profit from a California resident). I focus on undergraduates for two reasons. First (as of 2007-08) they make up about 84% of all the non-medical students in the University; second our various graduate and professional programs already take significant numbers of out of state (and even foreign) students, whereas for undergraduates we focus on recruiting California residents.

As we enter the 2009-10 academic year, a non-resident will pay $22,669 more than a California resident in undergraduate fees for the year. At present nearly all of these fees are not subject to "return-to-aid" (a tax that helps to fund student financial aid), and (since 2007) all the money from non-resident tuition remains at the campus where the student is enrolled.

Of course this money is not all profit, each student expects an education and (if the University is to be believed) the student's education costs more than the in-state fees alone provide. In fact this is the basis for the usual "marginal cost of instruction" figure that the state has provided to the University to encourage growth in the number of students at the University. In 2006 (the last time the University really got such funds) the amount per additional student was $9,901, though the Legislative Analyst stated (in 2007) that a somewhat higher figure was warranted ($10,856). Thus the apparent profit should be around $12,000 per non-resident undergraduate. 

As a case study, let's examine the fiscal implications of the suggestion voiced by Chancellor Birgeneau of UC Berkeley that UCB should admit a higher proportion of out of state students. First, let's assume that Berkeley currently enrolls 25,000 undergraduate students, that 13% (3,250) of these are non-residents and the rest (21,750) are California residents. (These figures -- from Chris's blog -- are approximate but reasonable for Berkeley's non-summer enrollments). It has been suggested that Berkeley might try to rapidly increase the proportion of non-resident undergraduate students to 25%, if it did so, how much money are we talking about?

If Berkeley were to maintain its current number of California residents, it would need to increase non-resident undergraduates by 4,000 students (a potential profit of about $48 million). Of course, the student body would then be significantly larger and it may well be that the current infrastructure (buildings, etc.) would be insufficient for the larger numbers. Fixing this would incur additional costs over and above the "marginal cost of instruction" thus reducing the "profit."

If, as seems more likely, the plan is simply to exchange a proportion of the current California residents enrolled at Berkeley for non-residents in the future (as the current students graduate) keeping the total undergraduate population constant, the increase in non-resident numbers would be smaller (3,000 students). However, an interesting question then comes into play. Would Berkeley continue to get its current share of the state's general funds although it would be teaching 3,000 fewer California residents than previously? Typical University practice might lead one to expect that it would (the usual incremental funding model does not take away "base" once allocated). In that case the apparent profit to Berkeley would be the full extra non-resident tuition, i.e. about $70 million (the number attributed to Chancellor Birgeneau in Chris's earlier blog entry).

It may well be claimed that Berkeley's general funds should indeed stay the same, as this reduction in student numbers largely addresses the over-enrollment issue (the increases in numbers of enrolled California students for which the State has not provided the "marginal cost of instruction" explicitly in the UC budget). This is usually stated to be about 11,000 students for the University as a whole (about $110 million per year) of whom about 2,2000 are enrolled at UC Berkeley. However, given the University's avowed intent to offer admission to all UC-eligible students (though not necessarily at their campus of choice) it remains to be seen whether limiting California resident enrollment at Berkeley results in a reduction in enrollments to the system as a whole. If it doesn't, the net effect will have the other campuses suffering still more (relative to Berkeley) as they continue to cope with "unfunded" students.

Of course, Berkeley isn't the only campus considering increasing its numbers of out-of-state students. What will be the implications of other campuses also moving in this direction? The same constraints apply -- if a campus can replace in-state students with out-of-state ones while being allowed to keep its "base" funding from the State general fund, then it could seem quite profitable initially (about $22,500 per student); however there will be a limit to this degree of profit corresponding to the current number of "unfunded" in-state students. After that, the "profit" reduces to about $12,000 per student. 

Furthermore, it is likely that the present distribution of the burden of "unfunded" students will not correspond to the initial distribution of growth in non-resident undergraduates thus potentially locking in effective reductions at those campuses that cannot immediately attract significant numbers of additional out-of-state students.

A final wrinkle will depend on how the state comes to view the increased fraction of non-residents as we seek capital funding for replacements / expansions. If it chooses only to support capital costs proportionately to the fraction of in-state students at a campus (a suggestion that would, I suspect, appeal to the Legislative Analyst's Office), then the costs associated with out-of-state students would grow, limiting further the ultimate profit.

So what does it all mean? In essence, Berkeley can maximize its "profit" by increasing the proportion of out-of-state students while keeping the total undergraduate population constant. Clearly the additional funds (estimated as up to $70 million per year by moving to 25% out-of-state undergraduates and assuming that Berkeley does not lose state funds as its number of in-state students is reduced) will be useful to Berkeley -- though perhaps not a silver bullet.

However, if such a plan is carried out there will be (less desirable) implications for other parts of the University. The reduction of 3,000 in-state-students at Berkeley demands that the University, as a whole, reduce its "over-enrollment" by at least the same amount (3,000 students) so as to minimize the fiscal impact on other campuses. Even then, this scenario implies that Berkeley would cut about 800 students from its "funded" enrollment without losing state funds thus effectively increasing its state support (relative to its "workload") by over $8 million. (This is included in the $70 million figure above.) These funds are implicitly lost from the other campuses, in that the number of students they have that are "unfunded" will be reduced, while their funding for students remains the same. On the other hand, the other campuses will be explicitly disadvantaged if the University-wide over-enrollment is not reduced by the full 3,000 students. They will be asked to accept a reduction in their average per student revenues as a result of accommodating the additional "over-enrollment".

Of course -- as with Chris's blog a few days ago -- none of this addresses other possible concerns of such changes in the resident/non-resident ratio. Rather I have tried to clarify the fiscal impacts by examining two scenarios using current information about revenues and costs. It may well be that what really happens is a mixture of the two: that Berkeley increases its proportion of out-of-state students by both increasing the total number of undergraduates and by reducing its actual numbers of in-state students. The fiscal impacts -- even if fees and the "marginal cost of instruction" also change with time -- can be estimated simply: "profit" = (revenues - costs); but remember to account appropriately for the costs!