Episode 13

If Purdue Can Do It, Why Can’t U?

Purdue University has frozen its tuition for the last 12 years.  How has it been able to do this and why don’t other universities do the same?  We will answer the first question on today’s episode.  I am Larry Bernstein and welcome to Charging U.

In 2013, incoming Purdue President Mitch Daniels proposed that in-state tuition and fees be frozen for the next year at the current level of $9992  “just to send a message that we could break this long, long run of increases." Ten years later, Daniels stepped down as President with the tuition still $9992 per year. In addition, tuition and fees for out-of-state residents did not increase during his tenure and the price in nominal dollars of room and board actually decreased.

Daniels has a history of demonstrating fiscal responsibility. As head of the Office of Management and Budget, he attempted to cut domestic spending. As Governor of Indiana, he reduced the state workforce by 18% and controlled spending, thereby turning a deficit into a $300 million surplus, as well as increasing the state reserve fund. In January, 2013, he brought the same mentality to West Lafayette, Indiana.

The principle which guided Daniels was that Purdue, a land grant college, had three functions: teaching, research, and community engagement. If a program did not fall under one of those categories, then funding it was not a priority.

The former Governor had a two pronged approach to addressing the shortfall in revenue caused by not increasing tuition. He looked to decrease expenses AND increase other revenue.

Large savings were achieved by cutting the lobbying budget, and computerizing the financial system of the university.  Purdue canceled plans to build a $22 million storage facility and, instead, contracted with a local company to perform the service for $325,000 per year.  It saved $4 million by changing health care administrators and $7 million by altering the merit pay raise system.  But, most savings came in smaller allotments.  Daniels compared the inefficiency of the university to fat which is "marbled" throughout meat, so many small cuts were undertaken which together made a large impact. Departments were forced to forgo the purchase of nonessential equipment.  Land lines were eliminated from the dorms, since nearly all students were using cell phones. Food service and security were centralized. The university dismantled its transportation system and contracted with the city to expand bus routes in and around the university.  Purdue reduced administrative spending per student by nearly $700 per year.  The number of employees at the university has gone up minimally while the undergraduate enrollment has increased substantially.

The fact that costs could be reduced is even more remarkable when one takes into account that the number of students pursuing STEM degrees increased and that it costs more to provide STEM instruction than instruction in the humanities and social sciences.

While all these cuts were being made, spending on instruction, the number of full-time faculty, and its compensation all increased.  Adjunct faculty numbers were reduced. The intercollegiate sports program was already operating independent of student fees or institutional support, so any of their budgetary issues remained their own.

As important as cutting costs was increasing revenue. Enrollment increased from 39,000 to 51,000. There are more out-of-state students, but also more Indiana residents enrolled. Tuition revenue has increased from $629 million to $832 million over 10 years.  Total research funding increased from $595 million to $679 million.  The Annual Alumni Day of Giving has raised a total of $420 million in ten years.  28,000 individuals or groups donated $111 million in 2023. This was a greater than 4 fold increase in the number of donors and a nearly 15 fold increase the amount donated compared to 2014.  The institution added $5 million of income by moving its short term cash reserves to a higher yield account, also improving its bottom line.  Purdue has not raided its endowment to make up for spending increases. In fact, it has decreased the percent of the endowment that it spends each year.  It is also important to point out that the increase in revenue was not supported by an increase in state funding, which has remained essentially unchanged over 10 years, even in the face of increased enrollment and inflation.

As a result of the tuition freeze and room and board reductions, the average net price paid by students decreased by almost $1,000 in nominal (not inflation adjusted) dollars per year from $13,541 in 2012-13 to $12,576 in 2021-22.  Purdue estimates that students have saved nearly $6000 per year over what their costs would have been if those costs had risen at the rate of its peer Big 10 schools. This savings has increased the number who have graduated debt-free from 48% to 60%. Of the 40% who take out loans, the amount borrowed is $2000 lower in nominal dollars than a decade earlier. Over 99% of Purdue graduates repay their loans.

Along with the improved affordability, four year graduation rates have risen 10 points to 66%. This is not a surprise since difficulty paying for college is one of the main reasons students are not able to continue their pursuit of a degree.  In addition, pathways have been created to increase the number of students completing requirements for a degree in 3 or 3 1/2 years, further reducing their cost of college.

At first glance, what is somewhat surprising is the improvement in Purdue’s U. S. News and World Report ranking, which climbed from 68 in 2013 to 51 in 2022.  But on closer evaluation, while tuition did not increase, the total revenue taken in did increase and the school’s spending was more efficient.

So it is clear that containing the cost of a college education can be accomplished and reputation can be improved if the intent and leadership are there. It requires both cost-cutting and revenue generation.  There are sure to be inconveniences along the way, but the questions to ask are, “Is the bother worth $24,000?” and,  “Is it worth the hassle caused by the cuts to improve access to higher education for low and middle income students and to reduce the debt of borrowers?”  The solution does not need to be perfect; it just needs to be better than what we have now.

To some degree Purdue’s enrollment success has come at the expense of its competitors. But our system should be rewarding those who are efficiently able to provide a good product at a reasonable price.   Higher education need not be a zero-sum game.  When the price is made more affordable to more people, enrollment will go up and the pie, itself, will get bigger.  The question for the other 2,000 colleges and universities is, “If Purdue can do it, why can’t you?”

Thank you for listening to Charging U.  In this episode we discussed how Purdue University was able to freeze tuition for 12 straight years and still improve its ranking.  In the next two episodes, we will tie together all the factors responsible for the high cost of college and offer recommendations for improving the situation.  I hope you will listen.  Until then, be well and be safe.