University Research: U.S. Reimbursement of Tuition Costs for University
Employee Family Members (Letter Report, 02/15/95, GAO/NSIAD-95-19).
Pursuant to a congressional request, GAO reviewed tuition assistance
costs charged to the government for family members of contractor
employees performing government-funded university research, focusing on:
(1) a comparison of U.S. policies governing payment of these expenses
and payment of similar expenses incurred by commercial businesses; (2)
the nature and extent of tuition assistance; (3) the costs to the
federal government and the agencies involved; and (4) the salary levels
of employees whose families receive tuition assistance.
GAO found that: (1) Office of Management and Budget guidance permits
educational institutions performing government-funded research to charge
for employee family members' tuition assistance costs; (2) federal
acquisition regulations specifically prohibit commercial businesses from
submitting such charges; (3) university-provided tuition assistance is a
common practice among many universities; (4) 4 of the 5 universities
visited have tuition assistance programs, but they vary widely in
benefits and eligibility requirements; (5) during 1991 through 1993, the
4 universities charged $17 million of their $53 million in tuition
assistance costs for employee family members to federal research
contracts and grants; (6) federal agencies awarded research contracts
and grants worth $2.5 billion to the 4 universities in 1993; and (7) 45
percent of the universities' employees receiving tuition assistance
benefits had annual salaries of $50,000 or less, 34 percent had annual
salaries between $50,000 and $100,000, and 21 percent had annual
salaries of over $100,000.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: NSIAD-95-19
TITLE: University Research: U.S. Reimbursement of Tuition Costs
for University Employee Family Members
DATE: 02/15/95
SUBJECT: Colleges/universities
Research grants
Research and development contracts
Contractor personnel
Dependents
Aid for education
Contract costs
Federal regulations
Fringe benefits
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Cover
================================================================ COVER
Report to Congressional Requesters
February 1995
UNIVERSITY RESEARCH - U.S.
REIMBURSEMENT OF TUITION COSTS FOR
UNIVERSITY EMPLOYEE FAMILY MEMBERS
GAO/NSIAD-95-19
University Research
Abbreviations
=============================================================== ABBREV
FAR - Federal Acquisition Regulation
FFRDC - federally funded research and development centers
HHS - Health and Human Services
MIT - Massachusetts Institute of Technology
ONR - Office of Naval Research
OMB - Office of Management and Budget
Letter
=============================================================== LETTER
B-257828
February 15, 1995
The Honorable Tom Harkin
Ranking Minority Member,
Subcommittee on Labor, Health
and Human Services, Education,
and Related Agencies
Committee on Appropriations
United States Senate
The Honorable John Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives
As requested, we reviewed tuition assistance costs being charged to
the government for family members of employees of educational
institutions performing government-funded research. Our objectives
were to (1) compare U.S. policies for paying these expenses with
U.S. policies for paying similar expenses incurred by commercial
businesses, (2) obtain information on the nature and extent of
tuition assistance, (3) ascertain the costs to the U.S. government
and the federal agencies involved, and (4) determine the salary
levels of the employees whose families are receiving tuition
assistance.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Under existing Office of Management and Budget (OMB) guidance,
educational institutions performing government research contracts and
grants are allowed to recover the cost of tuition assistance provided
to employee family members; however, under the Federal Acquisition
Regulation (FAR),\1 commercial concerns are specifically prohibited
from doing so.
A large number of educational institutions provide, as part of an
employee's compensation, tuition assistance to the employee's family
members and charge these costs to federal research contracts and
grants. Of 65 educational institutions surveyed by the Department of
Health and Human Services (HHS) and the Office of Naval Research
(ONR),\2 51 universities, or about 78 percent, provided such tuition
assistance.
To obtain insight into the extent of the programs, we visited 5 of
the top 10 universities with the most federal government-funded
contracts and grants during fiscal year 1992. Over a 3-year period
(1991-93), four of the five universities we visited had recorded
costs of about $53 million for tuition assistance to employee family
members and charged about $17 million, or 32 percent of these costs,
to federal research contracts and grants. These research contracts
and grants were received from various federal agencies, including the
Departments of Defense, Energy, HHS, and Education.
The universities we visited have widely different program benefits
and eligibility requirements. For example, one offers no benefits,
while another provides tuition assistance for nursery through
graduate school. Another university provides up to one-half its
tuition if a dependent attends the university or another accredited
university but pays up to its full tuition when both spouses are
employed by the university. Some of the universities offer greater
tuition assistance benefits to faculty and senior administrative
employees; however, most employees are eligible to receive some
amount of tuition assistance for their family members. Of the 2,628
employees receiving tuition assistance benefits at 4 universities
during 1993, 45 percent had annual salaries of $50,000 or less, 34
percent had annual salaries of between $50,000 and $100,000, and 21
percent had annual salaries of over $100,000. During 1993, the four
universities that provided tuition assistance benefits to dependents
were awarded federal research contracts and grants totaling $2.5
billion.
--------------------
\1 The FAR contains uniform guidance for the procurement of supplies
and services by federal executive agencies and includes cost
principles on the allowability of costs charged to government
contracts by commercial concerns.
\2 HHS and ONR are responsible for auditing and establishing overhead
rates for most educational institutions.
COMPARISON OF ALLOWABILITY
UNDER OMB GUIDANCE AND THE FAR
------------------------------------------------------------ Letter :2
OMB Circular A-21\3 provides that tuition assistance for family
members of employees of educational institutions is an allowable
fringe benefit chargeable to government research contracts and
grants, provided the benefits are granted in accordance with
established institutional policies and are distributed equitably to
all institutional activities. This particular fringe benefit is
common among educational institutions and has been an allowable
charge to federal research contracts and grants for years.
In contrast, the FAR provides that tuition, textbooks, and similar
benefits provided by commercial concerns for other than bona fide
employees are expressly unallowable and cannot be charged to the
government, and it specifically makes unallowable the costs of
college plans for employee dependents. However, this was not always
the case. Before October 28, 1977, some commercial contractors
claimed tuition costs for employee family members as an allowable
compensation fringe benefit. To counter this trend and to explicitly
state what seemed to be existing policy concerning the allowability
of education payments by commercial contractors, a procurement
regulation review committee revised the regulation to make tuition
costs for contractor employee family members expressly unallowable.
In its deliberations, the committee cited several reasons for its
decision. It said it had historically accepted educational costs for
bona fide employees as allowable because training improved the
vocational effectiveness of employees, which benefited both the
contractor and the government. The committee believed, however, that
there was no benefit to the government from subsidizing tuition costs
of employee family members. It also stated that tuition costs for
employee dependents are by their very nature discriminatory and
potentially counterproductive because childless or unmarried
employees might resent the program.
At the same time, the committee recognized that the regulations
specifically allowed tuition assistance reimbursement for family
members of university employees as an acceptable staff benefit.
According to the committee, academic salaries were generally lower
than the salaries paid by commercial and not-for-profit concerns, and
tuition assistance was just one of a number of benefits made
available to university staff to compensate for the lower salaries.
The committee observed that the existence of these benefits did not
require that commercial firms provide the same benefits in addition
to higher salaries.
--------------------
\3 OMB A-21 establishes cost principles that educational institutions
are required to follow in determining allowable costs and methods of
allocating such costs to federally funded research contracts and
grants.
TUITION ASSISTANCE PROGRAMS ARE
A COMMON PRACTICE AMONG MANY
UNIVERSITIES
------------------------------------------------------------ Letter :3
Tuition assistance for employee family members is a common practice
at many U.S. universities and has been for many years. At our
request, HHS and ONR surveyed 65 educational institutions to
determine how many currently provide that benefit. Of the 65
universities surveyed, 51, or about 78 percent, provide it. The 65
universities consist of 33 public and 32 private institutions. Of
the 33 public institutions, 20, or about 61 percent, provide tuition
assistance to employee family members. Of the 32 private
institutions, 31, or about 97 percent, provide it.
For the 29 universities that ONR oversees, 23, or about 79 percent,
provide tuition assistance to employee family members. Of these 23,
10 limit the benefits to employee dependents, 12 extend the benefits
to employee spouses and dependents, and 1 limits the benefits to
employee spouses. For the 36 universities surveyed by HHS, 28, or
about 78 percent, provide tuition assistance to employee family
members. Of these 28 universities, 6 limit the benefits to employee
dependents, and 22 extend the benefits to spouses and dependents.
While these results cannot be generalized to all universities, they
show that tuition assistance for employee family members is a common
practice and is more common with private than public universities.
TUITION ASSISTANCE PROGRAMS
VARY WIDELY
------------------------------------------------------------ Letter :4
Four of the five universities we visited offer different types of
tuition assistance for family members of employees of the
universities and their research laboratories. The University of
California does not provide tuition assistance benefits to employee
dependents because, according to the university, its charges are low
compared with other educational institutions. The universities
providing the benefit limit their assistance under these programs to
tuition cost and do not provide assistance for such items as room and
board, books, and laboratory fees. Table 1 summarizes the tuition
assistance programs available to employee dependents and spouses.
Specifics of the programs are discussed following the table.
Table 1
General Description of Tuition
Assistance Programs Provided by Five
Universities
Undergraduat
Primary/ e assistance
Dependen secondar Undergraduat at other
Institution t Spouse y e Graduate institutions
-------------- -------- ------ -------- ------------ -------- ------------
Massachusetts Yes No No Yes Yes Yes
Institute of
Technology
(including
Lincoln
Laboratory)
Stanford Yes No No Yes No Yes
University
(including
Stanford
Linear
Accelerator
Center)
University of California Tuition assistance not offered
(including
Los Alamos National Laboratory,
Lawrence Livermore National
Laboratory, and Lawrence
Berkeley Laboratory\a)
--------------------------------------------------------------------------------
Johns Hopkins Yes Yes No Yes Yes Yes
University
(including
Applied
Physics
Laboratory)
University of Yes Yes Yes Yes Yes\b Yes
Chicago
(including
Argonne
National
Laboratory)
--------------------------------------------------------------------------------
\a These three laboratories are federally funded research and
development centers (FFRDC) operated by the university.
\b Benefit is available to spouses only.
PROGRAMS FOR DEPENDENTS
---------------------------------------------------------- Letter :4.1
Four universities provide tuition assistance to employee dependents
for undergraduate studies at the university where the employee works.
The University of California does not.
In addition, four universities provide tuition assistance to
dependents for undergraduate studies at other accredited educational
institutions. Three--Massachusetts Institute of Technology (MIT),
Stanford, and Johns Hopkins--limit their financial assistance to
one-half their annual tuition. The University of Chicago provides
assistance up to its full annual tuition, depending on the position
of the employee.
Stanford and the University of Chicago do not provide assistance to
employee dependents for graduate studies. MIT and Johns Hopkins
provide limited assistance for graduate studies. MIT has a program
in which dependents can receive tuition assistance of up to one-half
the tuition for graduate studies taken only at MIT. Johns Hopkins
has a program in which dependents can take up to 18 hours of
continuing education courses a year at the university and receive
assistance of up to one-half the tuition.
The University of Chicago has a unique program that provides one-half
of the tuition for employee dependents to attend the nursery,
kindergarten, elementary, and high schools it operates. During 1993,
the annual student tuition costs of these schools ranged from about
$4,700 to $9,300, depending on the grade level. None of the other
universities we visited provide tuition assistance below the
undergraduate level. University of Chicago officials pointed out
that this program is part of the university's commitment to
maintaining a high quality of life for the surrounding community.
These officials also stated the tuition assistance encourages faculty
and staff with young children to reside in the university
neighborhood.
All four universities have eligibility requirements for tuition
assistance. Requirements include the employee's position, employment
status (full time or part time), length of employment with the
university, and a number of other requirements. At two universities,
the amount of assistance provided depended on the date of employment.
PROGRAMS FOR SPOUSES
---------------------------------------------------------- Letter :4.2
MIT and Stanford do not provide tuition assistance to employee
spouses for either undergraduate or graduate studies, and Johns
Hopkins and the University of Chicago provide limited assistance.
Johns Hopkins has a program in which spouses can take up to 18 hours
of continuing education courses a year at the university and receive
assistance of up to one-half their tuition. At the University of
Chicago, employee spouses and same-sex university-registered domestic
partners can attend graduate studies at the university and receive
assistance of one-half the tuition costs.
FEDERAL SHARE OF TUITION
ASSISTANCE COSTS
------------------------------------------------------------ Letter :5
Part of the cost of the universities' tuition assistance programs is
charged to federal research contracts and grants. Four of the five
universities we visited include tuition assistance in their employee
fringe benefit packages. If the employee worked directly on a
government research contract or grant, the employee's salary and
fringe benefit costs were charged directly to that particular
research contract or grant. In those cases in which an employee's
work could not be directly identified with a specific research
contract or grant, the salary and fringe benefit costs were charged
to an indirect or overhead cost pool and then allocated to government
research contracts and grants in accordance with OMB Circular A-21.
During 1991 through 1993, four of the five universities we visited
recorded costs of $52.9 million for tuition assistance to family
members and charged about $17 million, or 32 percent of these costs,
to federal research contracts and grants. Table 2 summarizes the
number of program participants, the cost of the programs, and the
estimated amount charged to the federal government over the 3-year
period for those universities.
Table 2
Tuition Assistance Program Participants
and Costs for 1991 Through 1993
(Dollars in thousands)
Total Estimated
program government
Institution 1991 1992 1993 costs share\a
---------------------- -------- -------- -------- ------------ ------------
Massachusetts 694 654 591 $12,566 $7,098
Institute of
Technology
(including Lincoln
Laboratory\b)
Stanford University 767 683 745 10,126 3,610
(including Stanford
Linear Accelerator
Center\b)
Johns Hopkins 1,090 1,125 1,142 13,399 3,744
University
(including
Applied Physics
Laboratory\c)
University of 839 925 983 16,842 2,461
Chicago\d (including
Argonne National
Laboratory\b)
================================================================================
Total 3,390 3,387 3,461 $52,933 $16,913
--------------------------------------------------------------------------------
\a The universities provided the estimate of the government's share
of total program costs.
\b These research centers and laboratories are FFRDCs operated by the
universities. FFRDCs are funded solely or substantially by federal
agencies to meet special research and development needs of the
government.
\c The Applied Physics Laboratory is not an FFRDC; however, it is
operated almost exclusively for naval research projects and programs.
Johns Hopkins operates the laboratory under the FAR cost principles,
which state that tuition costs for family members of employees are
expressly unallowable. The estimated government share represents
only the portion of program costs attributable to the University.
\d The University of Chicago operates the Argonne National Laboratory
for the Department of Energy. It does not charge tuition assistance
costs for Argonne employees to the contract because such costs were
not identified as allowable costs in the contract with the
Department.
Of the $16.9 million estimated government share of these costs, $13
million was charged as a direct cost to federal research grants and
contracts,\4 and the remaining $3.9 million was charged through
indirect costs. In cases in which dependents and spouses attended
the university where the employees worked, the four universities
charged the school's full tuition assistance benefit to the fringe
benefit pool. For example, MIT would have charged $18,000 to the
fringe benefit pool for a child of a tenured faculty member attending
the university during 1993. In cases in which employee dependents
attend other accredited educational institutions, the paying
universities charge tuition costs up to the limits provided by their
respective programs.
--------------------
\4 This amount does not include overhead charges applied to direct
costs.
FEDERAL AGENCIES AWARD
SUBSTANTIAL AMOUNTS OF RESEARCH
TO UNIVERSITIES
------------------------------------------------------------ Letter :6
A number of federal agencies have awarded substantial amounts of
research contracts and grants to the institutions we visited. Table
3 summarizes the value of research contracts and grants being carried
out by the four universities that charged tuition assistance to the
government during 1993, the year for which data was most readily
available.
Table 3
Value of Federal Research Contracts and
Grants Awarded During 1993
(Dollars in millions)
Johns University
MIT Hopkins Stanford of Chicago Total
---------------------- -------- ------------ -------- ------------ ========
Department of Defense $375.3 $431.8 $42.4 $2.5 $852.0
Department of Health 64.9 253.0 128.7 73.3 519.9
and
Human Services
Department of Energy 57.3 2.2 166.5 570.7 796.7
National Aeronautical 34.0 9.9 54.9 7.1 105.9
and
Space Administration
National Science 38.1 11.8 29.6 24.4 103.9
Foundation
Department of 0.5 7.1 6.7 7.1 21.4
Education
Other agencies 52.4 40.2 10.6 2.4 105.6
================================================================================
Total $622.5 $756.0 $439.4 $687.5 $2,505.4
--------------------------------------------------------------------------------
UNIVERSITIES' VIEWS ON THE
VALUE OF TUITION ASSISTANCE
PROGRAMS
------------------------------------------------------------ Letter :7
University officials advised us that they consider the continued
allowability of tuition assistance for employee dependents to be an
important part of their employee compensation packages. They pointed
out that tuition assistance is a common practice among universities
and is a cost-effective means to recruit and retain high-quality
employees. These officials also said that they should be allowed the
flexibility to manage their overall compensation programs so long as
total compensation was a reasonable amount. In this regard,
university officials commented that salaries at educational
institutions were lower than those in the commercial sector for
comparable positions.
Further, university officials pointed out that there are a number of
other differences between universities and commercial firms with
respect to cost allowability and that commercial concerns are
reimbursed under the FAR for some costs for which educational
institutions are not reimbursed under OMB Circular A-21. The
officials said such differences reflect a fundamental distinction in
the missions and operations of educational institutions compared with
commercial concerns. One university official commented that, because
of these distinctions, every cost that is available or prohibited to
one type of organization should not have to be identically treated by
the other.
SALARY RANGES OF EMPLOYEES
RECEIVING TUITION ASSISTANCE
------------------------------------------------------------ Letter :8
We obtained the current salaries of employees at the four
universities that offer tuition assistance programs. Table 4
summarizes the employees' salary ranges.
Table 4
Salary Ranges of Employees Receiving
Benefits Under Tuition Assistance
Programs
Number of
Salary range employees Percentage
------------------------------------ ---------- ----------
Less than $25,001 350 13.3
$25,001 to $50,000 827 31.5
$50,001 to $75,000 493 18.8
$75,001 to $100,000 407 15.5
$100,001 to $125,000 254 9.7
$125,001 to $150,000 149 5.7
$150,001 to $175,000 66 2.5
$175,001 to $200,000 33 1.3
$200,001 to $225,000 16 0.6
$225,001 to $250,000 7 0.3
Over $250,000 26 1.0
============================================================
Total 2,628 100\a
------------------------------------------------------------
\a Numbers do not add because of rounding.
Of the 2,628 employees receiving benefits, 45 percent were earning
annual salaries of $50,000 or less, 34 percent were earning between
$50,000 and $100,000, and 21 percent were earning over $100,000.
We also observed that Johns Hopkins University provides full tuition
when both spouses are employed by the university. Normally, the
university provides up to one-half its tuition if a dependent attends
the university or another accredited university. However, if both
spouses work at the university, each employee receives tuition
assistance such that together they receive assistance up to the
university's full tuition cost. We identified 41 instances in 1993
in which both spouses worked at the university and together received
tuition assistance up to the university's full tuition for a total of
51 dependents.
AGENCY COMMENTS
------------------------------------------------------------ Letter :9
In commenting on a draft of this report, OMB stated that it had no
reason to question the report's factual accuracy and that it would
develop policy options for reimbursing tuition assistance to
dependents of university employees. On February 6, 1995, OMB
published in the Federal Register a proposed change to OMB Circular
A-21 to make charges for tuition benefits for any person other than
the employee unallowable. The proposed change is to take effect for
educational institution's fiscal years beginning after September 30,
1997.
SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :10
We compared the allowability of tuition assistance under OMB Circular
A-21 with the allowability of such costs under the FAR. We discussed
the basis for the costs being allowable to educational institutions
with OMB, HHS, and ONR officials. We researched the basis of the
decision to make these costs expressly unallowable to commercial
concerns. In addition, we visited 5 of the top 10 universities with
the most government contracts and grants during fiscal year 1992 and
obtained information about their tuition assistance programs for
employee family members, the number of family members participating
in the programs, the total costs of the programs, the estimated
amount of the cost reimbursed by the federal government, and other
related information about the programs. We also obtained information
from HHS and ONR on tuition assistance programs provided by other
educational institutions to determine how widespread this practice
was within the university community. We discussed various aspects of
tuition assistance with OMB, HHS, ONR, and university officials.
Finally, we obtained written comments on a draft of this report from
the five universities and OMB and incorporated their comments as
appropriate. We conducted our review from October 1993 to May 1994
in accordance with generally accepted auditing standards.
--------------------------------------------------------- Letter :10.1
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from its issue date. At
that time, we will send copies to the Chairman, Subcommittee on
Labor, Health and Human Services, Education, and Related Agencies,
Senate Committee on Appropriations; the Chairman, House Committee on
Energy; the Secretary of HHS; the Director of OMB; the Chief of Naval
Research; the universities we visited; and other interested
congressional committees. Copies will also be made available to
others upon request.
Please contact me at (202) 512-4587 if you or your staff have any
questions concerning this report. Major contributors to this report
are listed in appendix II.
David E. Cooper
Director, Acquisition Policy, Technology,
and Competitiveness Issues
(See figure in printed edition.)Appendix I
COMMENTS FROM THE OFFICE OF
MANAGEMENT AND BUDGET
============================================================== Letter
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C.
-------------------------------------------------------- Appendix II:1
Charles W. Thompson
ATLANTA REGIONAL OFFICE
-------------------------------------------------------- Appendix II:2
George C. Burdette
Kelly A. Davis