FROM THE PRESIDENT
Undergraduates aren't widgets

We have just emerged from the season in which colleges and universities announce tuition rates for the coming academic year. This has come to mean announcing the amount by which tuition will go up, and this in turn has typically led to articles in the press comparing institutions and decrying the degree to which the increases exceed the consumer price index.

This year has been no exception. Under the headline "As Endowments Slip at Colleges, Big Tuition Increases Fill the Void," the New York Times surveyed the scene and gave its own hypotheses. The rate of growth of tuition does seem to have accelerated again somewhat this year, but the reasons are somewhat more complex than the headline in the Times suggests. Why does tuition tend to go up faster than inflation, and what is the University of Chicago's particular version of this?

The leading private research universities (as distinct from some of the publics and smaller privates included the survey by the Times) will almost all have tuition increases clustered between 4 percent and 5 percent, and the top dozen or so will be within a few hundred dollars of one another. Undergraduate tuition at the University of Chicago for 2002-2003 will increase by 5 percent to $27,324. MIT will probably be the highest of these institutions at $28,230. Others will be quite close to us: Dartmouth at $27,600, Johns Hopkins at $27,390, Cornell at $27,270, Princeton at $27,230, Stanford at $27,204, Yale at $27,130, Northwestern at $27,108, Duke at $27,045, and so forth.

The upward pressure on tuition derives from the upward pressure on costs in what is a very people-intensive business. Whereas what has enabled the U.S. economy to begin to pull out of recession has been principally productivity gains (i.e., more goods and services produced per unit of work), higher education as we have wanted to practice it at Chicago is not a business in which productivity (in this sense) can easily be increased.
On the one hand, the ratio of students to faculty, which is what underlies the largest part of the University's economy, cannot be increased steadily over significant periods of time. To be sure, the current program of increasing the size of the College will have something of this effect, though it will add some costs and thus will not be an increase entirely at the margin. But as we well know, this has not been undertaken lightly, and we will have reached the limit with the current program if we are to maintain the small class size and the amount of teaching by the senior faculty (whom we simultaneously expect to be extraordinarily distinguished in research) that we think essential to a Chicago education.

On the other hand, neither can we lower costs over time by reducing the effective rate at which we compensate the faculty and associated staff-at least not if we want to have the quality of faculty that has made the University what it is. Imagine saying to a new assistant professor that, because we wish to keep tuition increases in line with inflation, he or she can look forward to retiring several decades hence with absolutely no increase in real income. The facts are that undergraduates aren't widgets, and faculty members aren't assembly-line workers.

Then there are the other sorts of pressures associated with an enterprise that rests primarily on attracting and retaining very talented people. We compete for a very small pool of the most talented people. Whether one describes it as a feature of the winner-take-all society or as free agency having come to academe, the compensation of the academic world's most talented citizens has a way of going up much faster than other categories of expense, as is the case in most professions.

What are the factors that particularly affect Chicago? A crucial one has to do with the difference between gross tuition and net tuition. That is, how much of the tuition that we nominally collect is given back to students in the form of financial aid? For undergraduates, we "give back" about 24 percent (we award half as much again in financial aid that comes from endowment income). This means that if we raise undergraduate tuition $1, only an additional 76 cents becomes available for faculty salaries and the like. Add to this the fact that the University continues to be the teacher of teachers in higher education and that we have a much higher proportion of students in Ph.D. and M.A. programs than competing institutions do. These programs "give back" almost 67 percent of nominal tuition income in the form of fellowships.

Tuition income remains, especially for us, the largest single stream of unrestricted revenue. But with our mix of undergraduates and graduate students, our net tuition overall is somewhat lower than that of some competing institutions. A number of our wealthier peers also have distinctly more endowment income dedicated to financial aid, both undergraduate and graduate, with the result that a greater share of tuition income is available for general purposes. Thus we are likely to be on the higher end of the rather narrow range of tuition increases while nevertheless staying within the range of tuition actually charged by competing institutions.

These factors are all at work independent of the performance of the endowment. A decline in the value of the endowment does, however, add to the pressure on tuition. Simultaneously, most institutions have a formula for payout from the endowment that attempts to buffer the volatility in the markets. Indeed, some have a formula that will produce no downturn at all in endowment payout in response to recent market trends because it does not respond to striking growth in the markets either. For others the downward effect will not be felt for another year or more. On balance, then, the downturn in the financial markets in 2001 is probably not the principal factor in tuition increases for 2002-2003

Tuition increases in excess of the consumer price index will probably be with us for the foreseeable future because of the kind of institution we are and must continue to be. But we are committed to enhancing other streams of revenue and to managing costs effectively so as to make this difference as small as possible.

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President Don M. Randel writes each issue on a topic of his choosing. - Ed.

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