Iowa Bill Bars Use of Resident Tuition Funds for Financial Aid

Iowa state legislators have passed a bill that would prohibit the state’s three public universities from using resident tuition for student financial aid. Gov. Terry Branstad, a Republican, is expected to sign the measure into law.

The statewide Board of Regents voted last summer to begin phasing out a set-aside program that used tuition revenue to support need-based financial aid. Under the bill, the universities overseen by the regents—Iowa State University, the University of Iowa, and the University of Northern Iowa—would use money from their general funds instead to pay for the aid.

While the universities would still be allowed to use nonresident tuition for financial aid, the bill would be a “credit negative,” according to a report from Moody’s Investors Service, the credit-rating agency.

The bill also includes a 2.6-percent increase in state appropriations to help provide more student financial aid and would require a freeze on in-state tuition at all three universities for the 2013-14 academic year. Nonresident tuition would be increased as much as 2.6 percent at the institutions.

Despite getting more money from the state, the measure could have a negative effect on the institutions’ fiscal health because it “restricts their use of competitive pricing tactics used by nearly all” universities in the United States, the Moody’s report says.

In addition to the appropriations increase, the University of Northern Iowa would get $10-million from the state for financial aid. The bill is expected to have the greatest impact on Northern Iowa because it has the highest percentage of in-state students and the least philanthropic support of the three universities, according to Moody’s.

Moody’s cites the measure as “further evidence of increasing governmental scrutiny and regulation of higher education in the U.S., driven by growing public backlash against rising tuition rates.”

The Moody’s report is available to subscribers on its Web site.

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