Dissecting UVA’s High-Tuition, High-Aid Business Model
During the University of Virginia Board of Visitors meeting last week, President Jim Ryan made a big announcement: UVA alumnus Scott Stephenson and his wife Beth were donating $10 million to provide financial aid to students pursuing a degree in data science. UVA would match the gift with another $10 million from its Strategic Investment Fund for a total of $20 million.
“With Stephenson Scholarships nurturing the future leaders in data science at the University, their thoughtful and well-timed investment will enable the University to lead the way in this rapidly developing field of study,” Ryan said.
Stephenson, a 1979 UVA engineering grad, had a successful business career as founder of SGS Capital and CEO of Verisk Analytics. He has served on the School of Data Science Board since 2015. The scholarships will meet one-hundred percent of students’ demonstrated financial need and allow them to graduate debt free.
“In our family, we were fortunate that all three of our children emerged from their undergraduate studies debt-free, and we saw how this permitted them to accelerate into their chosen fields,” Stephenson told the Board. “We’re excited to support other young scholars down the same path.”
This will sound churlish, but I’m going to say it anyway. Stephenson’s philanthropy is inspiring, his motives are beyond reproach, and his generosity excites our admiration. But his benefaction, like the gifts of many others like him, enable the Ryan administration to perpetuate a high-tuition, high-aid financial model for UVA that (a) is financially unsustainable, (b) is pricing out the middle class, and (c) sustains a large and growing administrative caste.
As I laid out in a just-released report published by The Jefferson Council, UVA has adopted a financial model similar to that of Ivy League institutions and other elite private universities. It’s not exactly the same model, of course, because UVA as a state agency receives state aid and favors in-state students. Better to call it a hybrid model: one tier for in-state students that is subsidized by the Commonwealth yet is still expensive by the standards of other states, and a separate tier for out-of-state students who pay close to Ivy League tuitions.
UVA promises to meet one-hundred percent of students’ “demonstrated financial need.” Some financial aid comes from federal grants and loans, some from outside scholarships and private loans, and some from the state grants, but most originates from the institution itself. There are two primary institutional funding sources for UVA’s financial aid program, “AccessUVA”: tuition revenue and endowed scholarships.
Financial aid has become such a large component of UVA’s cost structure that it consumes twenty-two percent of all revenue generated by tuition. That’s over and above the millions of dollars generated by scholarship endowments bequeathed by generous alumni. But this financial structure has created a vicious cycle: when UVA jacks up tuition, students’ “demonstrated financial need” increases. To cover that need, UVA diverts a larger percentage of its tuition revenue to financial aid. And to cover its other expenses, UVA has to jack up tuition another notch.
The Ryan administration has coped with the affordability issue by increasing financial aid for lower-income households. Indeed, university leadership is committed to increasing the enrollment of lower-income and “first generation” students. As a result, the pressure for more aid — and the ratcheting up of tuition — will be unrelenting.
Gifts from philanthropists take the heat off the administration, allowing the system to lumber along without undergoing deep structural reform.
President Ryan alluded to parts of this dynamic in his report to the Board of Visitors on Friday, September 13. But it was a highly sanitized version that overlooked how the high-tuition, high-aid structure unquestionably penalizes middle-class students and, arguably, is financially unsustainable in the long run.
Ryan explained how the Strategic Investment Fund (SIF) consolidates hundreds of small pots of money set aside as reserves and other dormant funds sitting in low-yield bank accounts. The funds are managed by the University of Virginia Investment Management Company, which generates a higher return on investment and spins off tens of millions of dollars a year in additional revenue that UVA can spend anyway it pleases.
People often ask why UVA doesn’t use SIF revenue to reduce tuition, Ryan noted. In a way, it does, but the mechanics are complicated. Rather than directly subsidizing tuition, UVA uses SIF proceeds as matching funds to stimulate private philanthropy and build up endowments. Those endowments then throw off long-term revenue streams.
“Over the past five or six years since we started this, we have been able to generate $380 million in donations for student scholarships and have matched that with $270 million for a total of $650 million for student scholarships,” Ryan said. “To give you a sense of the impact of this, there are seven hundred new scholarship endowments, and over the last four years the percentage of students who are on donor-funded need-based scholarships has increased by 170 percent.”
Ryan didn’t put it this way, but the approach is far more fiscally conservative than, say, using SIF revenues to subsidize ongoing programs directly. The short-term impact is muted compared to shoveling dollars straight into AccessUVA, but funding streams from endowments are sustainable over the long term, and they grow over time.
As prudent and laudatory as that approach may be, the amassing of endowed scholarships does not come close to covering the cost of AccessUVA. The balance comes from tuition revenue — a fact that Ryan mentioned only in passing.
As I wrote in The Jefferson Council report, UVA’s Public Ivy Business Model:
Three decades ago, UVA did not use tuition revenue to fund financial aid. According to SCHEV data, grants from institutional funds leaped from zero dollars in 1992-93 to almost $102 million in 2022-23. The practice got off to a slow start but took off in 2001-02 with only an occasional interruption to its upward climb. By 2022-23, institutional aid was equivalent to almost fifteen percent of the University’s $691 million in tuition and fee revenue — one-in-seven dollars.
The share of tuition dollars diverted to AccessUVA is even higher now than in 2022-23: more than one-in-five dollars.
Who pays? The cost of attendance (tuition, fees, room, board, textbooks) at UVA ranges from $34,000 a year for in-state students to as much as $80,000 for out-of-state students. For families with incomes less than $100,000 a year, AccessUVA covers free tuition and fees; for families under $50,000, the program also covers and board. And the middle class? AccessUVA provides a mere $2,000 a year in tuition relief for families making between $100,000 and $150,000 a year. Almost all households with incomes over $150,000 a year pay the full freight.
The mechanics of the high-tuition, high-aid financial model are complex and, as long as I have been attending UVA Board meetings, have never been fully explained. President Ryan owes the Board more than feel-good stories of generous donors like the Stephensons. He owes a full accounting.
James A. Bacon is the founder of Bacon’s Rebellion and a contributing editor with The Jefferson Council.
