mc,

I can understand your frustration with these PACT people. College tuition continues to rise and here comes these people wanting you to pay for their children’s educations. Even the university presidents and other university system officials are giving you fair warning about these PACT people putting these huge burdens on non-PACT students with these tuition caps. How much can this burden be? Well, I put a pencil to paper for a rough calculation and made a calculation with some assumptions from information that I have read from various sources: 10% of university students on PACT, 90% are not; general needed/required tuition increase is about 10% but PACT students would be responsible for 2.5% of this increase so the non-PACT student would catch the 10% increase plus the difference that the PACT students were exempt from; and finally, that the secure investments that the PACT program were required to put the funds in yielded the required 5% i.e. no help from the “flexible” cap that is in the current bill in Montgomery. What I found, granted that it was a rough calculation, was that the amount of incremental burden on the non-PACT students was 0.83% meaning that they would have a 10.83% increase where the PACT student (actually the PACT program) would pay a 2.5% increase (in addition to the actual tuition). What does this mean in actual dollars? If tuition is $6,000 per year, then a 10% increase would be $600 dollars and a 10.83% increase would be $650, meaning that the non-PACT student’s extra burden is $50 for that year. I was surprised because while a $50 bill is nothing to sneeze at, it is nowhere as bad or as crushing as I was being lead to believe by a recent article by the university presidents and officials. To check the sensitivity to the other variables, I changed the general tuition increase to 7% and it turned out that the yearly incremental burden was $30 per year (the non-PACT student bearing a 7.5% increase or an extra one-half %). Since there is a flexible cap that allows PACT to bear more than a 2.5% increase if investments grow higher than the minimum 5% required. So say tuition had to go up 10% and the investment made 6%, then the PACT program would absorb a 3.5% tuition increase and therefore the non-PACT student would bear a 10.72% increase and incrementally only 0.72% (or $43 per year) more than the PACT student. Also as the number of PACT students decreases (as it should) and the total university population increases (as it has), the percent of PACT students should therefore decrease so there is less of a burden to share among non-PACT students. I am not an accountant and am just using a little basic algebra to make sense of he situation and don’t think that I am that far off in determining the truth of tuition caps. Hopefully the proposed changes to the PACT Board that require that some members be highly-qualified in investment management would mean that some investments with “safe” returns higher than 5% ought to be secured. Given all this, I am concluding that some smoke is being blown by the universities about how bad this bill would affect the non-PACT students. One thing that I recently learned was that the universities are giving a huge discount (50%?) to out-of-state non-resident students who live (have an address?) within a 50-mile radius of campus because they get to pay in-state resident tuition, which in total amounts to over $20 million dollars each year. I think this is ridiculous myself that when the PACT people (who are close to 98% Alabama residents) ask for a little help, the universities don’t offer any relief because it would not be fair to the non-PACT students while they are giving a huge discount to non-residents. Sounds fishy to me. Also keep in mind that PACT students bear all the other costs of books and rooming and meal plans, etc. so it is not the free ride that may be implied by some.

Another thing that bothers me is that when I have visited the various campuses, I see lots of new buildings under construction, bus services, etc. I know that much of the capital money for construction is coming from federal earmarks and rich contributors but I would imagine that some comes from tuition money and once these buildings are built, they have to be air conditioned, heated, maintenanced (inside and out), insured, etc. throughout the year even when it is likely used only a few hours a day. I would also have to assume that that money comes from tuition dollars or at least part of it does for these operating expenses. My point is that currently tuition is controlled by the universities and they are increasing their costs each year and passing it on to students (and their parents) through increased tuition (or mandatory fees) to a point that either a student has to have rich parents or parents who take out second mortgages and work second jobs or the students have to bear the burden of these student loans for many years and cannot enjoy the fruits of a college education because of their debt load. In this economy, everyone even universities should be cutting back so that they can give students an affordable (and quality) education. Unfortunately, the empire gets bigger without any say by anyone and that is how the major universities want it. Of the student loan that a graduating student carries, what portion was really necessary for a quality education and what portion is part is something unnecessary? I believe in free enterprise and if a person wants to sell a quality product to the public for the highest price that customers will pay, that is fine, if the price gets too high, then people will stop and he will have to evaluate his price vs. profits. This doesn’t happen here, if you can’t afford UA or AU, you can’t afford out of state tuition somewhere else, and unless I am mistaken, despite the quality of other universities across the state, the earning potential of graduating from the majors is higher. But I also believe that as an extension of the state government that gets tax dollars and is supposed to serve the people of Alabama, some limit needs to be put all tuition so that the child of a taxpayer can go get a quality education at a reasonable cost at any university in the state as long as they meet the admission requirements.

The universities have been beneficiaries of the PACT program for 20 years and the PACT program has paid the ever increasing tuition without question for 20 years and now the universities don’t want to help, they simply want to continue getting a blank check

Last, I have gone to these PACT rallies and I have seen the numerous parents and grandparents that made huge sacrifices so that they could buy into a program that was sold by the state as guaranteed or at least implied as guaranteed in later years (or not really told different). Especially with those that have kids/grandkids in or near college and there is no time to go to an alternate plan. It is wrong and simply dishonorable for these major universities to have benefited off the backs of these people and not give them some aid when they need it. And it is also wrong and dishonorable for the State of Alabama to not honor all these contracts they sold whether they are guaranteed or not. These people thought that not only were they buying something of great value for their children/grandchildren, they were also investing in the future of the state so that it could prosper too. I pray that the universities come to the table and show the honor I think that they have as Alabamians but that has been missing so far in this matter.

Bama88

Last edited by Bama88 (04-10-2010 10:24:53 am)

Thursday, after observing the House at work, I sat and listened to an attorney speak to the nature of contract law, what the Alabama Constitution, and the US Constitution have to say about the situatioin with PACT. Some of the things he said I have been saying, or thinking, for some time. (1.) We were sold pre-paid tuition; our contracts specify, defined benefits to which we, or our beneficiciaries, are entitled. We did not "invest" in a financial market product; we have no control over the money we paid; we would reap no profit over and above college tuition at a state college or university. This is unlike people who chose to invest in the markets, who control where their money is invested and can spend their dividends on anything they wish to, including a trip to Hawaii instaed of paying for college tutition. The state of Alabama gets anything left-over in PACT fund, if there would be anything.
(2) There is no difference in the defined benefit in contracts that say "garanteed" and those that do not use the term. The analogy used went like this: "If you promise to pay me a hundred dollars, I garantee you that I will mow your lawn;" no different than, "If you promise to pay me a hundred dollars, I will mow your lawn." The obligation of the two parties is the same.
(3) The state cannot legally change the terms of the contract unilaterally as they have attempted to do.
(4) Certain defined groups within Alabama already receive free college tution without PACT under state statutes. Four examples were given, including gill-net fishermen along the Gulf. Where does that money come from?
If the legislature fails to provide a solution, I feel good about the potential legal remedy based on what I have heard and discussed over the last few days. Legislature, do the right thing; be heroes not villains.

I am not a lawyer, but I have to think that the thousands of people who have already received full PACT contract tuition benefits will have some influence on the outcome if this issue goes to Court.  Why should some contract holders receive the full tuition benefits of their contracts, and others receive only partial benefit?  A discrimination claim always adds an interesting dimension to a lawsuit . . .surely the the legislature and the universities would not want to face discrimination charges as part of a legal battle.

Last edited by kittycollier (04-10-2010 10:53:00 pm)

Great post, Bama88.  While we hear universities profess how non-PACT students would have to bear the cost of PACT students under the current proposed legislation, along with a lot of other hooey, I too put pencil to paper and ran the exact figures on the impact of the 50-mile county rule, by institution, from 2002 to 2009.  For those few years alone, Alabama state institutions have vacated over $182 Million (uninflated) in tuition by granting in-state tuition to out-of-state students based solely on the 50-mile county rule.  (More have been granted in-state tuition based on other exemptions.) Specific numbers granted in-state tuition by institution are reported by the Alabama Dept of Higher Ed to the legislature and consolidated into various reports that are publicly accessible.  The rule was implemented in 1996, so the total number over time is much greater than $182M.  So if Alabama state universities are looking for a way to NOT pass on tuition increases to the IN-STATE taxpayers (non PACT and PACT), may I suggest they look at this revenue stream?

PACT purchasers:

I would like to float an idea. Since a rough calculation estimates that the higher costs due to capping PACT students' tuition at 2.5% are not as high as insinuated by the universities and are say $50 per year. What if a "PACT Recovery Fee" was imposed on both PACT and non-PACT students across the board? Although I want everything that the PACT contract said I purchased (and will rightfully pay all the things that were not included), I could stand paying $50 a year. (Not a "gap" cost.) The fee cost should decrease some with the cost spread over 100% of the students. If this was done, then there would be no argument that non-PACTs are paying more than PACTs - everyone would be feeling the PACT problem pain. The focus might be put back on the true problem that has really been the culprit in PACT's demise - ridiculous tuition increases likely due to empire building.

Feedback?

Bama88