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07/18/95

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Proposed cuts in federal funding for tuition reimbursement costs

STANFORD -- The Clinton administration has proposed scrapping federal support for tuition reimbursement for children of university employees, a staff benefit available at dozens of schools across the nation, including Stanford.

Provost Condoleezza Rice said July 17 that there is a strong likelihood that the university will lose more than $1 million in annual federal funds that help pay for the program.

If that occurs, she said, the university will consider the feasibility of picking up the government's portion of the tab. Stanford could continue to offer the benefit to university employees "as is," offer it in some limited form or eliminate it.

"We are absolutely aware of how important it is to people who have been making choices on the basis of this benefit being there, so we aren't going to do anything precipitously to hurt people's interests," Rice said. "We will try very hard to take those interests into account when we're trying to figure out exactly what to do."

The recommendation to eliminate federal support for the program is one of seven proposals made by the federal Office of Management and Budget to streamline the government's annual expenditures of $12 billion on research at colleges and universities. Many of the other proposals relate to standardizing the indirect costs of research, which include overhead expenses that are related to research but cannot be directly assigned to individual projects. (See related story, page 3.)

A change in the federal government's tuition reimbursement policy was proposed formally in the Federal Register in February. Although no date has been set for a decision on the matter, the earliest date that the federal funds for the benefit could be eliminated would be Sept. 30, 1997.

Under the current policy, the federal government pays a portion of the cost of the tuition reimbursement program. At Stanford, 36 percent of total salaries are funded by federal research grants, and therefore, 36 percent of all benefits, including the tuition program, are funded by federal research grants. For fiscal year 1993, Stanford provided $3,457,000 in tuition assistance to 745 children of employees. Approximately $1,245,000 of this tuition assistance was reimbursed by the federal government.

Tuition reimbursement programs at different schools vary widely. Stanford's policy is limited to dependent children of regular full-time employees -- staff and faculty alike -- who have completed five years of continuous full- time service. The benefit provides payment of tuition (course costs) for the first four years of undergraduate work at any accredited college, university or trade school up to a maximum of one-half of Stanford's tuition.

Report released in February

Controversy over the policy was sparked in early July after an Associated Press article publicized the results of a General Accounting Office report, which had been released in February, on tuition reimbursement policies at a handful of universities that receive the most federal research grant money.

The story, however, was misleading because it lumped Stanford with three other schools as giving benefits to wives, husbands and same-sex domestic partners. It also indicated that the recipients of the benefit were limited to highly paid researchers.

The GAO report clearly indicates that the tuition benefit has existed for several decades and is a common practice for American universities. Of 65 universities surveyed by the General Accounting Office, 78 percent provided financial assistance to employee family members.

The GAO report also notes that Stanford's tuition reimbursement benefit is offered to all of its employees, not just researchers. In 1993, approximately 70 percent of the recipients were children of staff and 30 percent were children of faculty members, according to figures from the university's benefits office.

Critics of the tuition reimbursement policy charge that the federal government has no business paying any of the tuition costs of university employees -- a perquisite that isn't offered to employees of private companies conducting federal research.

But officials from Stanford and other schools that receive federal research grant money say that the long- standing policy provides a critical edge that allows universities to compete for highly skilled individuals without having to compensate at corporate salary levels.

"One way to recruit people is to give them benefits," Rice said. "We [universities] can't give people stock options. This is a little benefit that we can give them that makes us more competitive in the market. I think that it has been well worth it to us, and certainly well worth it to the federal government, which in turn has been getting the best talent to do its research. But if we can't, as a country, afford that kind of competitive edge now, then maybe that's the case. But I would hope that people think hard about the competitive issue. There were good reasons that people wanted to structure [the benefit] this way."

Critics are wrong to compare the way in which universities and private companies are reimbursed for the costs of doing federal research, said Judith Brown, professor of history and chair of the Committee on Faculty and Staff Benefits, in a memorandum sent to university officials July 11.

"Such comparisons are unwarranted because there are many differences between the cost reimbursements the federal government allows in private industry from those it allows in educational institutions," Brown wrote. "Many of these differences favor industry. Private companies, for example, are not held to a maximum rate in the administrative costs for which they can be reimbursed by the government. By contrast, the administrative component of the indirect cost rate that universities are allowed to charge is held to a maximum, regardless of real costs."

Robert Weisberg, vice provost for faculty recruitment and development, said he thinks "it would make life extremely difficult here if it's eliminated."

Brown said the tuition benefit has garnered broad support from employees because it is consistent with the university's overall mission as an educational institution.

"Most of the recipients of the benefit are staff, not faculty. So we are not talking about just a few highly placed individuals receiving this benefit. This tells faculty members and staff that we really value education and are willing to invest in human capital."

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