A number of students have been calling for a universal 50 percent tuition cut in light of the coronavirus pandemic. Their campaign is well-intended, but we must all consider the possible consequences from the resulting shortfall. While student advocates for UChicago for Fair Tuition raise important points, their demands are not grounded in the financial challenges faced by the University in the current crisis.
Such a significant loss in tuition payments will likely mean less money for the most financially at-risk employees: dining hall, cleaning, and other service staff. It will mean less money to support research and grants, including vital research on COVID-19. Furthermore, it will mean less money for the students currently receiving and dependent on financial aid for their attendance at the University—about half of undergraduates from year to year. While UChicago for Fair Tuition has asked that neither existing financial aid nor staff be impacted by the 50 percent tuition cut for which it advocates, it is unclear exactly how that is feasible.
I was an undergraduate at the College for three years, graduated early last spring, and have been on staff for the past seven months. Many of the students advocating for this strike were in my class year. I do not speak on behalf of the administration, but some quick math based exclusively on public data may help explain the University’s financial situation, and why cutting tuition by 50 percent is not possible without some serious sacrifices elsewhere.
At first glance, the demand for a tuition reduction may seem simple. As the students organizing for UChicago Fair Tuition have pointed out, we have a $8.5 billion endowment. There is also the $5.43 billion fundraising campaign the University completed just this year. Seemingly, they together could easily cover a quarter’s worth of tuition.
But these often-quoted figures can be misleading. Our $8.5 billion endowment sounds massive, but it only pays out about $500 million per year. In order for any endowment to remain sustainable, it needs to keep a low payout rate over time. We could try to disperse a larger amount than usual, but a majority is restricted anyway, and it depends on the rules guiding particular funds within the endowment made at the time of a donation—they cannot be changed retroactively. These inherent restrictions led to similar challenges following the 2008 financial crisis. Moreover, with markets taking a nosedive from COVID-19, our payout will now likely be even lower.
For comparison, the University spent $2 billion on employee salaries and benefits in 2018. There may be some shakable expenses in there, but if you want to support and keep paying University faculty, academic staff, and service staff—to which the University committed following effective student advocacy—this amount can’t be modified all that much. The difference leaves about a $1.5 billion gap between endowment payout and salaries. Our annual revenue from tuition and services makes up for part the gap, bringing in around $1.5 billion per year. This means that on a normal operating basis, we are relatively even with annual revenue and annual expenses, excluding charitable gifts. And again, we can expect revenue from on-campus services to decline during a campus shutdown, creating additional challenges. While some services could be offset by lower operating expenses, others will not be able to be modified, especially given the University’s commitment to continue paying all service staff.
Thus far, it seems unlikely that dipping into our endowment would provide the necessary funds. So, what about that $5.4 billion in fundraising we recently completed? As is the case for most nonprofit fundraising, many of those gifts are earmarked for certain purposes, or have already been spent for capital projects (for example, the Woodlawn dorm, or the Center in Hong Kong). If you don’t believe me, take a look at some of the announced donations between 2016 and 2020. The sum is large, but I could personally only find $1 million explicitly labelled as “unrestricted.” While there is no breakdown of these funds publicly available—and as the Fair Tuition campaign advocates, more budget transparency would be helpful—we certainly don’t have $5 billion in cash just laying around. Moreover, annual donations may significantly decline, if not evaporate entirely, as charitable giving is redirected (rightfully) to coronavirus relief.
Clearly, funds from our endowment and recent campaign are not so easily diverted to make up for lost tuition revenue—so where would that money come from, and how would a 50 percent cut in tuition at the college affect everyone? In 2018, tuition from the College raised $325 million, with $108 million allocated for College financial aid and $126 million for direct support costs—leaving $113 million for academic departments, major/minor programs, and professor salaries. Moreover, these amounts need to be considered as ratios, since money coming in for any particular quarter is concurrently dispersed. An imperfect estimate with this data would suggest that for every $3 that comes in as tuition, $1 goes toward financial aid, $1 for direct support costs, and $1 for supporting departments in educating undergraduates. If the College suddenly lost 50 percent of its tuition income, that loss could directly affect current income for financial aid, service staff, or professors, assuming the current budget allocation process. And as the simple math above indicated, it’s unclear where the extra revenue would come from given the overall challenge of the situation.
These challenges were confirmed in a email to staff, which did not directly address the Fair Tuition campaign, but separately announced a salary freeze for all faculty and staff, a partial hiring freeze, and other spending cuts—due to the existing economic and financial consequences from COVID-19. And these changes were announced expressly in part for the purpose of honoring and increasing financial support for the students who need it.
The pandemic is incredibly painful for everyone. Many difficult choices will have to be made in the months ahead. I realize many students are likely struggling right now with the transition, both emotionally and financially.
Yet a universal tuition strike is not the solution. Because the campaign has not made clear what source the money needed to meet their demands will come from, their goals could generate unintended consequences, hurting the very people student activists purport to help. It is important to note the University now guarantees full tuition aid for families earning under $125,000. While the virus negatively affects everyone, its economic impacts are unequal and extremely bifurcated: Families dependent on hourly wages will suffer much more than those with salaried earners making above $125,000. Allowing high-earners to continue to support those most impacted is even more important during a time of crisis. “Means testing,” the term invoked by UChicago Fair Tuition, is a very pejorative way of framing progressive tuition rates.
Advocacy is hard, and I deeply admire the students who have been standing up for their classmates. Other goals of their campaign are important: For instance, it is true that securing financial aid can be cumbersome and a lengthy process, especially for those who were only recently laid off due to COVID-19 disruptions. Student advocates for the tuition strike have highlighted several heartbreaking examples of what some community members are going through, and raising this awareness is an undeniably important service. But that advocacy must be grounded in economic reality. There are other ways these challenges can be ameliorated for individuals and families in our community that are struggling, and the University should continue to explore support options that are more targeted. Reinstituting part-time status (as UChicago Fair Tuition has already advocated), streamlining aid processes, or even providing temporary stipends to compensate for lost on-campus wages are possible examples. I am sure there are even better solutions.
The University has already taken many steps to help students through this crisis, which place us comparatively ahead of our peer institutions. They could of course do more. Additional direct support for students on financial aid is a good idea. Additional flexibility for all students is another good idea. Cutting tuition universally for the many students who can afford it is a bad one.
Zarek Drozda graduated from the College in 2019.