Opportunity Scholarship: What effects would free college tuition have in New Mexico?

High school and college administrators across New Mexico agree: If the state Legislature approves the scholarship plan recently announced by Gov. Michelle Lujan Grisham, making tuition free for tens of thousands of in-state students, enrollment at public universities and community colleges will increase.

The governor's proposal comes amid a continuing decline in students attending state schools, which already offer some of the lowest tuition rates in the nation.

This fall, the state's flagship school, the University of New Mexico, has about 22,800 undergraduate and graduate students, a more than 16 percent drop from 2015, when enrollment was just over 27,300. The university's enrollment decreased 6.5 percent between last fall and the current semester.

New Mexico State University's main campus in Las Cruces, reported an enrollment of 14,296 students, effectively level with last year's enrollment of 14,289, but slowing a years-long decline. 

Some policymakers and other state officials worry, however, that demand for the proposed New Mexico Opportunity Scholarship will cause what the governor touted as a $25 million to $35 million annual initiative to become increasingly expensive and also could provide an incentive for institutions to raise their price tags.

"It's pretty simple," said Paul Gessing, president of the Rio Grande Foundation, a conservative think tank based in Albuquerque. "You have a captured group of students who are financially incentivized very strongly to attend your small group of schools. You can raise your prices with relative impunity.

"It's kind of a monopolistic situation as I can describe it," Gessing said.

What the numbers say

Data shows a precedent.

The introduction of the more than two-decade-old Legislative Lottery Scholarship program in New Mexico — which covered 100 percent of eligible students' tuition until about five years ago, when the fund began to fall short of demand — was followed by increases in both enrollment and tuition costs.

Brian Malone, director of the student financial aid office at UNM, said that when the state launched the lottery scholarship, the university's freshman class gained more than 1,000 students in two years, boosting enrollment from 1,658 in the fall of 1996 to 2,163 in 1997 and 2,669 in 1998.

When students began using the lottery scholarship in the 1997-98 school year, in-state tuition and fees for full-time students at UNM were $1,083 per semester, according to the school's Office of Institutional Research. By fall 2007, tuition and fees had jumped to $2,285, an increase of $1,202, or 111 percent, over 10 years.

In comparison, between fall 2009 and the current semester — a 10-year period in which state Higher Education Deputy Secretary Carmen López-Wilson said the department has lost 30 percent of its state funding — the tuition and fees for full-time, in-state UNM students increased only 48 percent, to $3,778 from $2,550.

Higher education officials argue that tuition increases often are because of mandated salary hikes, higher utility bills, insurance costs and a number of other reasons not necessarily tied to state-sponsored scholarships.

But a 2014 report by the American Association of Colleges and Universities, which examined lottery-funded scholarships in 44 states, found a link between such scholarships and rising tuition rates. Part of the reason for the rising tuition rates, the report said, is state funding cuts for higher education. The scholarship funds tend to replace, rather than supplement, state funding.

"States without lotteries, on the other hand, end up spending approximately 10 percent more of their budget on education than states with lottery funds earmarked for education," the report said.

More:New Mexico state income surges thanks to record oil production

It cites other concerns with lottery profits creating a revenue stream for education — in particular, the unpredictability of the funding source, a problem New Mexico has wrangled with as well.

Funds for Lujan Grisham's proposed Opportunity Scholarship would come from higher education appropriations from the state's general fund and would kick in for eligible students after federal financial aid and the state's Legislative Lottery Scholarship have been applied.

The lottery scholarship fund distributes about $40 million a year in aid from lottery ticket proceeds. While it began as 100 percent tuition program, a combination of higher demand for scholarships, rising tuition rates and declining lottery ticket sales eventually led to a shortfall in 2015, prompting lawmakers to decrease the amount each student received.

This school year, the lottery scholarship covers between 60 percent and 75 percent of tuition for some 16 percent of the state's public college and university students.

Protections against tuition hikes

The Governor's Office initially dismissed questions about whether the New Mexico Opportunity Scholarship could lead to tuition increases and whether there are plans to ensure legislation on the proposal in the 2020 session will include language aimed at preventing hikes.

"There's no feeling here of how an increase in an enrollment would necessarily lead to higher tuition," spokeswoman Nora Meyers Sackett said in an email. "And so I'd decouple those items."

More:NMSU enrollment increase is good news for Chancellor Arvizu, President Floros

Kim Sanchez Rael, a member of the UNM Board of Regents, has been pondering the issue though.

"Certainly that scenario has crossed my mind," she said, adding she hopes legislation on the scholarship includes safeguards against colleges and universities taking advantage of an increased market of students.

"I would think there would be some legislative restraint so the scholarship doesn't become an excuse to play games with tuition and fees," Sanchez Rael said. "In the way the legislation is crafted, there needs to be some rationale framework around how universities think about their budget in relation to tuition and fees."

Responding to such concerns, Sackett said in a later email, "We are going to do absolutely everything we can as we draft this legislation and formalize this program to enshrine protections against unwarranted tuition increases."

She added, "It's premature to talk specifics of legislation that still needs to be negotiated but that will be of primary concern for us as we are committed to ensuring the expanded access provided by the scholarship."

State Sen. John Arthur Smith, D-Deming, chairman of the Senate Finance Committee, noted after the governor's announcement of the scholarship proposal there's no certainty the state's recurring revenues will be sufficient to cover rising costs in future years.

"It's a great idea," he said of the Opportunity Scholarship, "but the devil is in the details. If we can increase enrollment and student outcomes, then that will be positive. The big concern is $25 million per year to grow into $45 million to grow into $65 million."

Kathy Ulibarri, director of New Mexico Independent Community Colleges, a consortium of 10 schools that includes Santa Fe Community College, shared Smith's concern.

"I think colleges are nervous because there will be some legitimate reason to raise tuition," she said. "But we also want to make sure the scholarship stays financially viable for the state."

She noted that tuition increases are often because of mandated pay raises.

"Even in years where the the Legislature appropriates compensation increases, they only partially fund it, expecting colleges and universities to raise tuition," she said. "The question now is how do we make sure institutions are adequately funded for inflationary needs so we minimize the need to raise tuition?"

New Mexico education: Test scores, teacher attendance dropped from evaluations

Sackett's answer: "Part of keeping tuition rates low is making greater investments in higher education — NM HED's proposed budget for the upcoming fiscal year includes a 58% overall increase for that very reason," she said in an email.

State Sen. Mimi Stewart, D-Albuquerque, a member of the Senate Education Committee, said she hopes the Legislature can find an alternative revenue source for the Opportunity Scholarship, such as a sales tax, to support the fund.

"I believe what the governor proposed is workable," Stewart said, "but I want to find a revenue stream dedicated to it."

Referring to the student tuition fees that flow into colleges and universities, she said, "The previous administration cut funding because they knew universities had a revenue source that's not available to K-12. It's going to take some time to right our universities.

"In the meantime," she added, "I still want to encourage students to go."

Will it build a better workforce?

López-Wilson said the Opportunity Scholarship would have the same requirements as the lottery scholarship — eligible students would have to attend full time and maintain at least a 2.5 GPA. Students who use the scholarship at a four-year university would have to enroll within 16 months of graduation from high school or receipt of a GED diploma.

Students who graduated from high school more than 16 months before enrolling in higher education would be able to use the Opportunity Scholarship only at two-year community colleges.

State Rep. Rebecca Dow, R-Truth or Consequences, a member of the House Education Committee, said she wants more strings attached to scholarships.

"We need more social workers and teachers and medical professionals who plan to work in New Mexico," Dow said. "If there are no restraints or conditions on tuition, then these scholarships will never be enough.

"It's building a workforce in New Mexico that interests me," she said. "If it's just giving money to colleges, that has not always worked out in the past."