UC Berkeley warns of 7% tuition hikes - thoughts on financial aid

Recently this came to my attention:

Letter from Chancellor Birgeneau regarding 2008-09 fees

As you may know, the Governor’s 2008-09 proposed State budget includes deep cuts to the University of California to address a projected $16 billion State budget deficit. As a result, UC faces a $417 million gap between what is proposed in the Governor’s budget and the amount requested by the Board of Regents for the University’s operations.

The University is doing all it can to advocate in Sacramento against cuts of this magnitude, but given the gravity of the budget crisis, it is likely that the Board of Regents at its May meeting will consider raising student fees as one part of the University’s response.

The Governor’s January budget assumed the University would enact a 7.4 percent increase in mandatory systemwide fees, composed of a 7 percent increase in the Educational Fee and a 10 percent increase in the Registration Fee.

Given California’s tax (often direct voter led) borrow and spend tendencies, the current state budget crisis shouldn’t be a surprise to anyone. Still, as someone who will be paying tuition later this Fall - ouch!

That said, this part of the letter caught my attention:

Keep in mind, too, that financial aid would increase along with any possible fee increases. For undergraduates, the Governor has proposed sufficient additional funding in Cal Grant awards to offset any mandatory systemwide fee increase for UC Cal Grant recipients. In addition, as it has done in the past, the University would dedicate 33 percent of new fee revenue generated by undergraduate students to provide additional financial aid for needy undergraduates. For graduate students, at least 45 percent of new fee revenue generated by those students would be earmarked to help offset the impact of higher fees. Finally, the University would dedicate 33 percent of new fee revenue associated with professional degree students for financial aid to those students.

Perhaps it’s just me, but doesn’t this sound like circular reasoning? Tuition will go up, financial aid will go up, but financial aid is funded from tuition. I wonder if this would work backwards: cut financial aid, reduce the amount of tuition spent on financial aid, lower tuition.

That said, I can sort of understand why one would want to implement a policy like this: price discrimination. For those who can’t possibly afford tuition due to gross lack of income, tuition would remain the same. For those who can possibly afford tuition, they would be socked with bigger bills and larger debts.

Recently I recalled the story of a colleague to a financial planner: the colleague moved to another state, took a small pay cut of about 12%, but saw a cost of living decrease of nearly 30%. The financial planner pointed out that this was a very smart move, as our tax system and financial aid systems are all tied to income, not purchasing power. So it’s far better to have less income and less spending, than more income and more spending - even if the purchasing power is the same.

It seems that all of this just further drives the debt-culture of our nation.