In the coming year U-M will implement the lowest resident undergraduate tuition increase since 1984, paired with a record amount of undergraduate financial aid and a new Economic Hardship Program designed to offer additional help to Michigan families.

The $1.55 billion General Fund budget for fiscal year 2011 was approved June 17. It contains a 1.5 percent increase in undergraduate resident tuition and a 10.6 percent increase in centrally awarded financial aid for undergraduates. In addition, qualified resident students will receive a $500 Economic Hardship grant designed specifically to reduce the burden of student loans.

The Board of Regents approved the Ann Arbor campus budget on a 6-2 vote during a meeting June 17. Regents Denise Ilitch and Andrea Fischer Newman cast dissenting votes. Also approved were budgets for the Flint and Dearborn campuses and the U-M Hospitals and Health Centers. Illitch also voted no on the Flint and Dearborn budgets.

“This budget expresses our unwavering commitment to the quality of the institution, while we continue aggressive cost cutting in non-academic areas,” President Mary Sue Coleman said. “Our goal is to make a U-M undergraduate education the nation’s best, most cost-effective investment in higher education.”

The lowest tuition increase in 26 years and the largest-ever amount of financial aid — $126 million — were proposed based on the $315.1 million state appropriation recommended by the state Senate Appropriations Subcommittee on Higher Education.

“We are heartened by the commitment from the Legislature and the governor to avoid deep cuts in higher education funding, and this budget depends on that commitment,” Coleman said. “Should a mid-year cut occur, it may be necessary to revisit our budget plans and return to the board for a possible tuition increase.”

Provost Teresa Sullivan, the university’s chief academic and budget officer, said the unprecedented combination of a low tuition increase and a record level of financial aid is made possible because the university has been aggressively cutting costs since 2002. This disciplined approach to making structural changes to cut costs has eliminated nearly $159 million in recurring General Fund obligations over the last seven years.

“As a consequence of our sustained efforts, we have a stable financial base from which we can continually enhance the educational experience of our students,” Sullivan said. “State support of the university remains critical, but equally important is our obligation to protect a long-term future for our institution.”

Regent Julia Donovan Darlow said that with the limited tuition increase and increased financial aid designed to assist not only low-income but middle-income students, “the university is reaching out to hard-pressed Michigan families.”

“This is an achievement for the university, not as a resting place but as a major step in making sure all students have access to education at this institution.”

Doing what she said was a simple calculation that may not take into account all factors in an aid package, Darlow said it is conceivable a middle- income student could pay less this year than last, when factoring in the increased support for financial aid.

Ilitch, who voted against a tuition increase the last two years, said, “My concern then as it is now is for working families. The simple fact remains that Michigan families remain strapped.

“It can no longer be the assumption each year that we will increase tuition. Instead we should be asking how we can avoid it.”

Calling it a restrained budget, Regent Laurence Deitch acknowledged the tough economic conditions facing families but said it was essential to consider the long-term health of the university. “We have to keep our eye on the long term in the midst of this economic crisis, which is probably unprecedented.”

The budget increases tuition 1.5 percent for resident undergraduate students, 3.0 percent for nonresident undergraduate students and 2.8 percent for most graduate programs.

Tuition and fees for first-year students in LSA in 2010-11 will be:

• $11, 837 (a $178 increase from the previous year) for Michigan residents.

• $36,001 (a $1,064 increase) for nonresidents.

The budget also continues the university’s longstanding commitment to meet the full demonstrated financial need for all undergraduates who are state residents and to continue to increase financial aid by at least as much as tuition.

Additional details on financial aid

U-M’s substantial investment in financial aid, coupled with a federal tax credit for tuition of up to $2,500, means many students and their families will pay less out of pocket to attend the U-M in the coming year than they did in the previous year.

Overall, nearly 67 percent of resident undergraduates and 57 percent of nonresident undergraduates receive some form of financial aid. The budget includes an increase of more than $8 million in centrally awarded financial aid, most of which will go to need-based aid for undergraduates. The 10.6 percent increase in centrally awarded undergraduate financial aid is designed to accomplish three objectives:

• Provide additional grant aid to cover the full increase in the cost of attendance for both resident and nonresident students with need.

• Reduce the average loan for resident students with need.

• Reduce the average unmet need for nonresident students.

To reinforce the university’s commitment to Michigan families during the current difficult economic times, the new Economic Hardship Program will add $500 in grant aid on top of the financial aid package for qualifying resident students.

The program is designed to assist current students and freshmen entering this fall with an expected family contribution — as calculated by a standard process — between $6,001 and $17,450. That roughly translates to a family income range of $60,000-$100,000, depending on individual situations.

Qualifying students would continue to receive the $500 grant each year until they graduate, for a maximum of four years. The university estimates that 2,800 students would qualify for the grant program in FY 2011.

Other budget highlights

Cost cutting and reallocating funds to higher priorities allows the university to make significant investments in several priority areas. Among those:

• Smaller class sizes: The FY 2011 budget includes funding for an additional 50 tenure-track faculty members that will, over time, enhance the student academic experience through smaller class sizes.

• Expanded academic programs: The internal reallocation of resources will allow the university to expand programs that engage students in research experiences and give them more skills-based courses where appropriate.

• Entrepreneurism: To help spur technology transfer from research labs to the marketplace, the university will launch a new faculty start-up accelerator at the North Campus Research Complex. The university also will bring the resources of the Office of Technology Transfer and the Business Engagement Center to the NCRC to sharpen its focus on getting new ideas to the marketplace.

• Economic development: The university remains committed in the coming year to playing a lead role in the economic transformation of the state. Through business engagement, technology transfer, industry partnerships, student internships, entrepreneurship and community assistance, the U-M will bring its significant resources to bear on addressing our region’s economic challenges.

Background on the General Fund

The General Fund pays for teaching, services and administrative support for the university’s academic operations. General Fund money comes from student tuition and fees (about 65 percent), state support (20 percent) and indirect cost of sponsored research and other revenue (15 percent).

The General Fund represents about one-third of the Ann Arbor campus’ total operating budget. Auxiliary funds — self-supporting units that pay their own way and receive no state appropriated funds — comprise more than half of the U-M’s all-campus $5.8 billion budget. The largest auxiliary units are the U-M Health System, Intercollegiate Athletics, Student Housing, Student Unions and U-M Parking Services.

For more information about the General Fund budget, go to vpcomm.umich.edu/budget/fundingsnapshot.

— Jillian Bogater contributed to this report.

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