Interim Joint Committee on Education


Subcommittee on Postsecondary Education


Minutes of the<MeetNo1> 2nd Meeting

of the 2002 Interim


<MeetMDY1> September 9, 2002


The<MeetNo2> 2nd meeting of the Subcommittee on Postsecondary Education of the Interim Joint Committee on Education was held on<Day> Monday,<MeetMDY2> September 9, 2002, at<MeetTime> 10:00 AM, in<Room> Room 149 of the Capitol Annex. Representative Mary Lou Marzian, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Jack Westwood, Co-Chair; Representative Mary Lou Marzian, Co-Chair; Senator R.J. Palmer II; Representatives Hubert Collins, Barbara White Colter, Charles Siler, Kathy Stein, and Mark Treesh.


Guests:  Jo Carole Ellis, Department of Treasury; Erin McNees, Legislative Research Commission; Joyce Dotson, Kentucky Education Association; Ann Mead, Western Kentucky University; Dennis Taulbee, Council on Postsecondary Education; and Tom Denton, Murray State University.


LRC Staff:  Sandra Deaton and Lisa Moore.


Representative Marzian introduced Dr. Sue Moore, Interim President, Council on Postsecondary Education, and Dr. Gary. S. Cox, President, Association of Independent Kentucky Colleges and Universities who discussed establishing tuition for postsecondary education institutions.


Dr. Moore said the Council on Postsecondary Education set tuition rates for all colleges and universities through school year 2000 by undergraduate, graduate, and professional programs as well as by the type of institution.   Dr. Moore said the tuition rates at the community colleges were the same as the rates at the comprehensive institutions.  She said the council’s approach in determining tuition rates was to compare them to the per capita personal income of Kentuckians.  Dr. Moore noted that institutions noted that institutions could change additional fees above what the council determined for tuition.


Dr. Moore said a new funding model needed to be developed for Kentucky postsecondary institutions, and the council desired more management flexibility for institutions due to the implementation of House Bill 1.  She said the council has set a very aggressive public agenda to help implement House Bill 1, and has established an accountability system with measurable goals in order to track progress of the system as well as individual institutions.  Dr. Moore said that giving more flexibility to the institutional governing boards was one way the council tried to deregulate the system.  She also said this change allowed the boards to determine tuition rates that would best address each particular institution’s enrollment goals and program mix.


Dr. Moore said the council is adamant about holding the long tradition of keeping postsecondary education affordable for Kentuckians.  She said the primary goal of the reform was to recruit more students into college, help students stay in college, and finally, to help students graduate with a degree or another type of credential.  She said this goal is not possible if postsecondary education is not affordable to Kentucky citizens.


Dr. Moore said the funding recommendation for 2002-2003 was to delegate the determination of tuition rates to the institutional governing boards.  She said the timing was appropriate because tuition is an important piece in the overall funding recommendation.  Dr. Moore said the council issued a set of guidelines to the governing boards and implemented a monitoring system to track the affordability issue. 


Dr. Moore said the three year average tuition rate increase for all institutions is 9.4 percent for full-time undergraduate residents.  She also said that Kentucky Community Technical College System (KCTCS), the University of Louisville, and Western Kentucky University included fees in their tuition rates, which if those large increases were omitted, the three year average is closer to eight percent.


Dr. Moore explained Kentucky’s tuition rate was compared to benchmark states to determine tuition and fees as a percent of per capital personal income for fiscal year 2001-2002.  She said it is taking a larger percent of Kentuckian’s income to pay for postsecondary education with the median percentage being 12.8 percent.  She also said data is being collected for fiscal year 2002-2003.  Dr. Moore noted that the tables in the members’ folders does not reflect any student financial aid.


Dr. Moore referred to the report “Measuring Up” issued by the National Center on Public Policy in Higher Education that gives each state a grade in six categories including affordability.  She said that within the category of affordability, six indicators tell the actual cost of college to families after deductions for federal and state financial aid.  The indicators include need-based aid available to low-income families, and the proportion of income that the state’s poorest families need to pay in order for their children to attend the least expensive institutions, which for Kentucky is KCTCS.  She said the report also analyzed the student’s loan debt.  Dr. Moore said Kentucky received a B grade for affordability while the other grades consisted of C’s and D’s.  She said the national center concluded that Kentucky is a top performer on the share of family income required after financial aid to attend its two-year colleges and compares favorably to other colleges and universities on its costs for four-year universities.  Dr. Moore said the “Measuring Up” report for fiscal year 2002 will be available nationally on October 2, 2002.


Dr. Moore concluded with fours points: 1) tuition is rising across the state in a time of recession; 2) Kentucky’s tuition rates remain relatively low compared with other states; 3) tuition rates should not be the only criteria considered when deciding how affordable colleges and universities are; and 4) the council is committed to its statutory responsibility to make sure postsecondary education is available and affordable.


Representative Collins asked if out-of-state students paid an increased amount of tuition or does Kentucky have agreements with certain states for pre-determined tuition rates.  Dr. Moore said the tuition rate that institutions charge for out-of-state students is three times the rate for resident students.  She said there are some reciprocity agreements with other states for contiguous counties, and institutions are charging reduced rates in addition to the reciprocity for contiguous counties.


Representative Collins asked how the tuition rate increase on average would show for each institution.  Dr. Moore said she would get him the information, but the data will depend on enrollment increases at each institution.


Senator Westwood inquired about the Kentucky Educational Excellence Scholarship (KEES) monies affecting tuition rates.  He asked if students were bringing KEES money into the universities or if the number of students utilizing KEES monies was going up or down, and how KEES is affecting overall tuition rates.  Dr. Moore said more students are coming into the institutions with KEES dollars, but KEES is not tied to tuition rates and is therefore paying a smaller proportion of tuition rates for students.  She said the council is in the process of doing an analysis on KEES focusing on effects on enrollments and it should be completed in a couple of months.  Senator Westwood said he looks forward to seeing the report and is also glad that more students are taking advantage of KEES resulting in more enrollments for the colleges/institutions thus impacting tuition rates.  Dr. Moore said all institutions are expecting enrollment increases for school year 2002-2003 although the exact numbers are not known at this time.


Representative Marzian said she is pleased that tuition as a percent of the per capita income is at or below the median of benchmark institutions for Kentuckians.  She said it validates that Kentucky is keeping postsecondary education affordable and noted that Murray State University made the top 50 of “America’s 100 Best Public Colleges” in the October issues of Kiplinger’s Personal Finance magazine.


            Representative Siler asked about the timeframe for establishing residency rates for out-of-state students.  He said we have people that transfer with their companies to Kentucky and their family does not want to pay out-of-state tuition rates.  Dr. Moore said there is an administrative regulation on residency and referred the question to Mr. Dennis Taulbee from the Council on Postsecondary Education.  Mr. Taulbee said people who are transferred to Kentucky with a company can establish residency in Kentucky fairly quickly.  He said problems can occur when a person enrolls in school immediately after coming into the state.  He also stated that the regulation clearly states that people who are transferred into Kentucky for their jobs and leave their homes in another state are Kentucky residents.


            Dr. Gary S. Cox, President, Association of Independent Kentucky Colleges and Universities, testified to student prices and costs for independent colleges and universities.  He said the graphs enclosed in the members’ packets show that Kentucky’s independent colleges are affordable and the cost benefit relationship of the state’s investment in student financial aid pays big dividends for the state.


            Dr. Cox said that Kentucky’s independent college tuition is about two-thirds of the national average, and less than 80 percent of the southern average.  He said Kentucky’s annual tuition increase for independent colleges has been five to six percent each year over the last ten years.  He said Kentucky’s independent colleges are very affordable compared to our counterparts and most cluster around the $10,000-11,000 range which is still considerably higher than public institutions.


            Dr. Cox said public institutions receive a substantial public subsidy from Kentucky’s taxpayers through the state budget.  He said this tax subsidy for public comprehensive universities amounts to $6,633 per student per year.  Dr. Cox said if the subsidy figure is subtracted from the tuition of independent colleges, the rates compare favorably.


            Dr. Cox said there are several sources of support for students attending Kentucky’s independent colleges and universities including a family contribution of 38 percent, student loans of 23 percent, college aid of 25 percent, state grants of 7 percent, and federal grants of 7 percent.  He said based on fiscal year 2001, the average college cost (before grants, loans or scholarships) is $15,341.  He said this cost includes room, board, tuition & fees.


            Dr. Cox said that Kentucky independent college and universities is a major source of grant and scholarship aid providing over $70,000,000 in support for students in 2001.  He said tuition assistance is provided by raising scholarship dollars and discounting tuition. 


            Dr. Cox said the tuition discount rate of attending Kentucky’s independent colleges and universities has dramatically increased since 1997-1998.  He said the discount rate today at a public institution on average is about 35 percent.  He said the discount rate and the scholarship money raised represents the independent colleges’ efforts to provide financial aid to needy students.  Dr. Cox said Kentucky has a vast majority of students that are in financial need.


            Dr. Cox concluded that independent colleges are affordable and they are cost effective partners in providing quality, postsecondary education.  He said this is very important in Kentucky’s economic times.  He also said that student investments such as Kentucky’s Affordable Prepaid Tuition (KAPT), Kentucky Tuition Grant (KTG), and KEES programs are effective uses of state dollars in Kentucky’s future.  Dr. Cox said 75 percent of all students enrolled stay in the independent college system and 25 percent of Kentucky’s teachers are graduates of the system.


            Representative Stein asked how Berea College figures into the data.  Dr. Cox said Berea College does offer a tuition-free program, but even with Berea College not included, it would only raise the average amount by $300.00.


            Representative Treesh asked about the impact of House Bill 1 on the dramatic increase in the tuition discount rates of 1997.  Dr. Cox said there was some impact, but across the country there is a concern over discount rates.  He said the legislature needs to work with the independent college system to encourage enrollments and a number of policy issues could help with this effort so that public and private institutions are not competing for the same students.  Dr. Cox also said that their students received 6.5 million dollars from KEES funding in the past year and that is very valuable for students.


            Senator Westwood asked how Kentucky’s independent college system tuition rates compared with other states’ public tuition rates.  Dr. Cox said it is safe to assume that a student could attend a private college in Kentucky at a lower cost than attending a public university out-of-state.


            Jo Carole Ellis, Executive Director, Kentucky Affordable Prepaid Tuition Plan (KAPT), said KAPT is the most recent program that the legislature has adopted to help Kentucky citizens afford college.  She said KAPT was created in 2000 and is administered through the State Treasurer’s office and governed by a 12 member board of directors.


            Ms. Ellis said that KAPT and the Kentucky Education Savings Plan Trust (KESPT) work closely together to help Kentucky families save for the entire cost of college education.  She emphasized that the advantage of KAPT is a guarantee of tuition payment.  She also said that KAPT accrues no state or federal taxes on earnings, has flexible plans and payment options, accounts are not counted in calculation of Kentucky state student aid eligibility, and funds not used for tuition can be used for other educational expenses.


            Ms. Ellis said there are three tuition plans including the value, standard, and premium and all three plans can be used at any accredited higher education institution, public or private, anywhere in the country.  She also said the KAPT program does not limit where a student can attend school.


            Ms. Ellis said the value plan is basically designed for the Kentucky Community & Technical College System (KCTCS) and it guarantees tuition at all KCTCS schools based on today’s tuition.  She said the standard plan covers tuition at any Kentucky public university or community colleges and it guarantees to pay out the highest university rate when the student goes to school.  Ms. Ellis said the premium plan aims to cover average Kentucky private school costs and the account will increase at the rate of tuition inflation at the University of Kentucky.


            Ms. Ellis said pricing is set each enrollment period by the program actuary and there is an option to pay in installments instead of lump sums with an investment premium added into the pricing.   She said installment payments can be paid over three, five, or seven years, or can be paid up until a child enrolls.  Ms. Ellis noted that the most popular plan is the standard plan purchased by 89 percent of the public and this costs $15,433 for four years of tuition in a lump sum payment. 


            Ms. Ellis explained that only one purchaser can open an account such as one parent.  She said if something were to happen to one parent it automatically would transfer to the other.  Ms. Ellis said the beneficiary has no age or grade limit, but you have to wait at least two years before you can utilize the KAPT benefit after an account is opened.  She also said that the beneficiary must either reside in Kentucky or intend to attend college in Kentucky.


            Ms. Ellis explained that the cancellation policy after July 1 of beneficiary’s college enrollment year ensures KAPT refunds tuition payout value, but the purchaser pays ten percent federal tax penalty and taxes on earnings refunded.  She said if an account is cancelled before July 1 of the beneficiary’s college enrollment year then KAPT refunds payments made, and the KAPT board may determine to refund a nominal rate of interest on the payments. 


            Ms. Ellis said if the beneficiary cancels due to death or disability no refund fees or tax penalty will be imposed, but earnings will be federally taxed.  She said if the child receives a scholarship the KAPT refunds the value of the plan up to amount of the scholarship with no refund fee or tax penalty, however, earnings refunded are federally taxed.


            Ms. Ellis noted that enrollment periods are defined normally occurring once per year while newborns can enroll year round.  She said the next enrollment period is
September 23, 2002 through January 27, 2003.  Ms. Ellis said in KAPT’s first year there were 15,202 phone calls, 66,664 web site hits, 8,516 enrollment kits mailed, and 4,247 applications received including 1,729 applications received on-line.


            Ms. Ellis concluded by stating that 30.5 percent of the beneficiaries are ages zero to five years, 32.5 percent are ages six to ten, 32.5 percent are ages 11-15 years, and 4.5 percent are over 16.  She said the purchased value of all the plans is over $69,000,000 and the ending fund balance as of June 30, 2002 was $19,000,000.


            Representative Stein asked about ownership of the KAPT policy in case of divorce.  Ms. Ellis said there is a provision in the regulations for transfer of ownership in the case of divorce by a court order although she has never had to deal with a specific case yet.

            A motion was made to approve the minutes of the August 19, 2002 meeting by Representative Treesh and seconded by Representative Collins.  The motion was approved by voice vote.


            Representative Siler asked what the monthly payment would be to purchase a standard plan for a child in the 0-5 year age group.  Ms. Ellis said it would depend upon how long the parents choose to pay because the amount varies depending on timeframe in which it is paid, but would be close to $250.00 a month.


            Senator Westwood asked if the fund balance and purchase value of all plans would pay for about $16,000 tuition per year per student.  Ms. Ellis said the actuaries took today’s prices and current figures include a 6.5 percent increase in tuition over time.  Senator Westwood asked about inflation and what if the 6.5 percentage is not enough to cover rising costs.  Ms. Ellis said if investments do not keep pace with tuition inflation in order to pay out obligations, the program has a statutory backing of the state’s unclaimed property fund up to 75 percent of which can be used to pay tuition.


            Dr. Joe McCormick, Executive Director, Kentucky Higher Education Assistance Authority (KHEAA), said the Kentucky Education Savings Plan Trust (KESPT) program was created by the 1988 Kentucky General Assembly to help families save for future higher education expenses.  He said KESPT is a 529 savings  program and KHEAA has administrative oversight responsibilities for the plan, but the actual financing is managed by TIAA-CREF Tuition Financing, Inc.


            Dr. McCormick said that KESPT advantages include earnings being exempt from federal and Kentucky tax when used for higher education expenses.  He said there are no income limits and it gives families at all income levels the same opportunity to invest.  He also said that funds can be used at any qualified higher education institution in the nation or abroad.


            Dr. McCormick said savings from the program can be used for all required higher education expenses including tuition/fees, room/board, and books/supplies.  He said there is a low minimum contribution of $25.00 or $15.00 if made through payroll deduction.  He explained that the savings is not included in the calculation of state student aid eligibility.


            Dr. McCormick said KESPT account owners retain control of the account with a choice of investments, and receive investment expertise.  He said families currently have two investment options.  He explained the managed allocation option is an age-based investment plan that takes into consideration year of birth of the beneficiary and is designed to provide an appropriate mix of growth and protection of principal to keep pace with future tuition inflation.  Dr. McCormick said as the beneficiary nears college age, the asset allocation becomes more conservative.  He said the 100 percent equity option invests in both domestic and international stock mutual funds (approximately 80 percent in the TIAA-CREF Institutional Growth and Income Fund, and 20 percent in the TIAA-CREF Institutional Equity Fund).  He explained that this option has a potential for higher returns, but there is also greater risk.


            Dr. McCormick said there is no application fee, no broker commission or load fees, no transfer fees, no annual administrative fees, and a low management fee of 0.8% computed at an annual rate to pay for the cost of managing the fund.


            Dr. McCormick said there are options for the beneficiary in the KESPT program. He said if the child received a scholarship and their entire college is paid, the ability is there to change the beneficiary of the fund, and the withdrawal is taxed at account owner’s rate but with no penalty.  He said if the child chooses not to attend college, there is the ability to change the beneficiary with a nonqualified withdrawal.  He explained that if for unforeseen reasons, a family has to withdraw their savings early, there is a ten percent federal tax penalty on earnings and a one percent state tax penalty on earnings.


            Dr. McCormick said that as of June 30, 2002, $25.4 million dollars have been invested in the program representing 6,010 accounts.  He said during the past fiscal year, there were 2,294 accounts opened representing a 65 percent increase from the previous year.  Dr. McCormick said the increase in accounts was due to a revision in federal tax laws in 2001 that provided for exempt status on earnings.


            Dr. McCormick said marketing of KESPT is provided through KHEAA and TIAA-CREF which advertises nationwide.   He said KHEAA distributes materials to students, parents, and counselors, provides links to KAPT and KESPT web sites, distributes information sheets to families at the Kentucky State Fair, promotes college savings month, gives a presentation to financial aid officers at the Kentucky Association of Student Financial Aid Administrators Conference, and offers an affordable education bus tour.


            Dr. McCormick summarized by emphasizing that tuition alone is not the total cost of attending college.  He said it costs over $12,000 to send a child to the University of Kentucky for nine months.  He explained that low tuition rates does not guarantee access and affordability to all Kentucky children.  Dr. McCormick said tuition rate increases exceed the Kentucky median income level which is the ability of a family to be able to purchase goods or services.


            Dr. McCormick said that KEES has grown dramatically, but the amount of the KEES scholarship has remained the same at $2,500.00.  He said that while tuition rates have increased five percent yearly, KEES purchasing power has decreased.  He said in fact, KEES can act as a penalty for a child attending a private school because the dollars do not go as far.  He said this issue of parity will need to be addressed in policy in the future.  He also said funding of the needs-based program such as KAPT, KTG, and KEES have not kept pace in terms of actual costs for students. 


            Representative Treesh said that the Kentucky community college system is an excellent avenue for students to complete their first two years of postsecondary education.  He also mentioned the Kentucky Virtual University (KYVU) as a wonderful means for student accessibility, and possibly expanding accessibility issues in the community college system.  Dr. McCormick stressed that a very aggressive outreach and intervention program needs to be implemented to address the accessibility issues.


            Dr. Moore said tuition rates for KYVU are the same as four-year universities.  She said KCTCS and KYVU are partners and focus has been placed on the area of transferring credits.


            Representative Marzian said the next meeting will be October 7, 2002 and the meeting adjourned at 11:45 a.m.