by James A. Bacon
As I argued in my previous blog post, perhaps the University of Virginia ought to go with the primal instincts of its faculty and administration by chucking its mission of providing an affordable, high-quality education to Virginians — what’s so special about them anyway? — and chasing the dream of rising in the ranks of the nation’s elite universities by converting to a private institution. In this blog post, I’m going to follow that idea. As I sit down to write and organize my thoughts, I don’t know where this is going to go. I’m just going to follow the flow of logic.
The University’s problem is the necessity of keeping tuition low for in-state students comprising 69% of the student body, even as the General Assembly tightens state financial support. Peer institutions, especially the elite, private universities, can charge what the market will bear. Even after accounting for the need to provide more financial aid, this line of thinking suggests, those institutions come out ahead financially.
Let us assume that Mr. Jefferson’s University decides to slough off the shackles of public ownership and become a 100% private university. What would that look like?
For purposes of comparison, I assume that UVa would adopt a model something like Duke University, a private “Southern Ivy” institution in a neighboring state with whom UVa has long-standing athletic ties. Duke has roughly two-thirds the number of students of UVa, and it couples its university with a medical system. The size of the institutions’ endowments are comparable: $4.8 billion in 2012 for UVa, $5.6 billion for Duke. Moreover, Duke is ranked No. 8 nationally in the US News & World-Report national university rankings, which means it has achieved a status to which No. 24-ranked UVa aspires.
In the 2012-2013 school year, Duke charged $42,308 in tuition (not including $12,000 in room and board). Fifty percent of all students require financial aid, which averages $37,400 per grant. The net tuition revenue for Duke works out like this:
$617 million nominal tuition revenue
– $273 million financial aid
= $344 million net tuition revenue
Here are the comparable numbers for UVa in the 2012-2013 school year:
$407 million nominal tuition revenue
– $40 million financial aid (Access Virginia)
= $367 million net tuition revenue
Here’s what it would look like if UVa shifted to the Duke model, charging what Duke charges for tuition, granting financial aid on the same basis, and foregoing any state support:
$893 million nominal tuition revenue
– $395 million financial aid
– $130 million state aid
= $368 million net tuition revenue
Whoah, I didn’t expect that! I was fully expecting UVa to come out way ahead financially under the Duke model. A a gain of only $1 million is hardly worth the political blow back of abandoning its traditional mission and converting from a public to a private institution.
Based on this back-of-the-envelope analysis, it appears that UVa’s institutional interests are best served by tweaking the current model as President Teresa Sullivan proposes — charging close-to-market prices for out-of-state students, aggressively jacking up tuition for in-state students (whose tuition will increase more rapidly under Sullivan’s proposed plan than for out-of-staters), dispensing a parsimonious level of financial aid and continuing to pocket the state contribution, all the while lamenting how chintzy the state is.
I have cobbled together the numbers from Internet sources, and there may be important financial considerations that I am overlooking. I freely admit, this is a quick-and-dirty analysis — and that may be describing it generously. Moreover, I am open to the idea that I should have picked a different university than Duke for purposes of comparison. But if I’m close to the mark, it appears that Sullivan’s plan is better calculated to advance the institution’s interests than any other. Whether the chosen path optimizes the aims of the students is a different matter entirely.