Probing the Limits of Tuition Hikes at VCU

VCU is going where no Virginia university has gone before: high tuition, needy student body, low financial aid.
VCU is going where no Virginia university has gone before: high tuition, needy student body, low financial aid.

Virginia Commonwealth University is pondering a tuition increase of between 3% and 5% — over and above a 2.8% increase for the current academic year — to compensate for an $8 million reduction in state appropriations and a 3% salary raise authorized by the General Assembly, reports the Richmond Times-Dispatch.

Meanwhile, the university plans to hire a firm to recruit more international students to bolster revenue with lucrative out-of-state tuition payments. (The total cost of attendance for an out-of-state student is about $19,000 higher than for an in-state student).

If the VCU board of visitors OKs the tuition hike, Virginians will get to observe an interesting experiment in higher-ed economics — how high can a second-tier university push tuition before diminishing enrollment? Is there an upper bound to the cost of attendance at which point students say, “No more!”?

VCU has increased its tuition aggressively over the past decade. By the 2015-16 academic year, the Richmond university had the second highest in-state cost of attendance of any public, four-year institution in the state: $26,700. That was higher than the University of Virginia’s and second only to the College of William & Mary’s. Likewise, VCU’s out-of-state cost of attendance, at $48,500, was the third highest. (I draw these numbers from the SCHEV’s higher education database.)

Two Virginia universities with stellar national reputations, the University of Virginia and the College of William & Mary, arguably have the latitude to boost their tuition & fees should they choose to do so. Perceived as near-Ivy League in quality, they likely could get away with charging near-Ivy League prices. Virginia Tech is not quite in the same league, but its undergraduate engineering school is one of the top rated in the country, so the institution probably has some pricing leeway, especially considering that its cost of attendance is lower than the state average.

Although VCU has a rising reputation among state universities, it has not reached the rarefied atmosphere where it can charge top dollar. Demand for a VCU education is more “elastic,” meaning that students are more sensitive to price increases. Here’s my question: Will higher prices at VCU push down enrollment by discouraging students from applying?

The chart below compares VCU to two peer institutions — big research universities located in large metropolitan areas — George Mason University and Old Dominion University — and adjusts the sticker price by the amount of financial aid provided.

“Financial aid per student” was derived by dividing total in-state financial aid by total in-state undergraduate enrollment. All numbers are for undergraduate students.

VCU is not a bargain: Its net cost of attendance per year is almost $2,500 higher than George Mason’s and about $11,000 higher than Old Dominion’s.

Now consider that VCU draws from a less affluent demographic base than, say, UVa or W&M. Sixty-eight percent of its students graduate with debt. Indeed, 29% of VCU students receive federal Pell grants reserved for lower-income students. Needless to say, these students are highly price sensitive.

How much in higher expenses can VCU’s less-affluent demographic absorb? At what point will enrollment numbers start declining? VCU’s board of visitors seems determined to probe the outer limit.

The economics of admitting international students are different. Let’s start with the cost of attendance.

Judging by the net cost measure for out-of-state students, VCU looks somewhat more competitive than for in-state students. Although its sticker price is higher than GMU’s and ODU’s, the net cost of attendance after adjusting for financial aid is a little lower than GMU’s. On the other hand, it remains significantly more expensive than ODU.

According to the Times-Dispatch, VCU had 1,600 foreign students enrolled last fall, with the largest groups coming from Saudi Arabia and China. These students are highly desirable from a revenue perspective because they pay out-of-state tuition, in effect creating a profit for the university — according to a statewide rule of thumb, they pay roughly 60% more than they cost to educate. But international students aren’t committed to Virginia. They are motivated to shop around internationally for the best educational value.

The VCU board is considering hiring a recruiting firm to land more international students. Here’s the trick: Typically such firms receive 80% to 90% of the student’s first-year payments. (It’s not clear from the T-D account if that is 80% to 90% of tuition or the total cost of attendance, which includes fees, room, board, textbooks and other expenses.) Payments of that magnitude would cut sharply into any surplus revenues VCU would derive from the students.

The VCU board faces hard decisions — decisions it didn’t ask for. But the choice to close the shortfall by raising tuition instead of cutting spending is fraught with risk. If higher tuition leads to a decline in enrollments, VCU may not get the revenue boost it’s looking for. In a worst-case outcome, further revenue declines could start a vicious cycle. Buckle your seat belts!

Share this article


(comments below)


(comments below)


2 responses to “Probing the Limits of Tuition Hikes at VCU”

  1. jalbertbowden Avatar

    When will state schools realize their first and foremost reason for existing is to provide education to citizens of that state?
    That is an entirely different discussion to have, but the point remains: focusing on out-of-state students is not why these schools exist.
    Considering the number of visa’s currently being denied or simply not applied for because of the current political climate under the new federal administration, this policy seems even more doomed to fail out of the gate.
    You’re right it will be interesting to watch, as well as horrible to digest, particularly when they do not get the numbers they need and demand cash influxes from the state.

  2. There is cost of attendance, and then there is actual cost of education. Many state universities (e.g. the University of Alabama and the University of Michigan) are supporting the the overall enterprise with out-of-state students who pay more than cost of education. In the case of the University of Michigan, they have used this model to climb in rankings and relative selectivity while UVA and W&M have been stagnant. Note that Teresa Sullivan came from the University of Michigan.

    Back to VCU, they clearly want to experiment with a similar model. They do not have the reputation of Michigan or even Alabama (due to their extraordinary success in football) to propel it. If I recall correctly, Larry cited data showing that VCU is already having to be less selective to fill slots.

    It it interesting to see the strategies of the three urban universities. ODU, more than the others, appears to view its mission to be to provide affordable education to Virginians, particularly those of the region. It keeps cost of attendance lower and has a higher percentage of low income students.

    (I note that George Dragas, the father of former UVA Rector Helen Dragas was on the board at ODU. He successfully forced out a president. George Dragas lived in poverty in Greece during WW2, and I believe he supported the mission described above. Perhaps at UVA we saw the collision of the Michigan/Sullivan model and the ODU/Dragas model on higher education.)

Leave a Reply