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Medical School Merger Creates Financial Issues for Rutgers and Its Students

Rutgers' Credit Rating Takes a Hit as Tuition & Fees Jump 3.3%
Rutgers Sign
A Rutgers sign is affixed on the top of the Cancer Institute of New Jersey, as part of the UMDNJ-Rutgers merger. Facebook

NEW BRUNSWICK, NJ—On July 1, Rutgers finally absorbed the University of Medicine and Dentistry of New Jersey, a financially troubled but academically respected medical school that started as a part of Rutgers.

Rutgers took over most parts of UMDNJ this summer.  Meanwhile, the UMDNJ School of Osteopathic Medicine was absorbed by Rowan University and Newark's University Hospital became a separate state-owned entity, no longer be affiliated with any university.

The new combined university is expected to provide a wealth of research and academic opportunities for its 65,000 students, but the merger has also saddled the state university with about $503 million more in debt.

Before the merger, Rutgers already had accrued $1 billion in debt.  

Combined with high-profile athletic scandals and increased borrowing to fund construction projects, the financial uncertainties of the medical school merger caused Moody’s Investor Service to downgrade the University’s bond rating from Aa3 to Aa2 this summer, making it more expensive and challenging for Rutgers to borrow money.

The merger also expanded the Board of Governors from 11 to 15 members, a move that proved controversial after its passage and is currently the subject of a lawsuit filed by the President of the State Senate.

As the university borrowed heavily to build new dorms and academic buildings on the College Avenue campus, two other ratings agencies, Fitch's and Standard & Poor's (S&P), issued "AA-minus" ratings on those bonds last month. 

S&P credit analyst Ken Rodgers said in a statement published on NJBIZ.com the negative outlook and less than ideal rating reflected his agency's belief, "that Rutgers faces increased operational, financial and credit risk from the recent assumption of almost 72 percent of the assets — and related liabilities — of the former University of Medicine and Dentistry of New Jersey."

The university's budget, which is now at $3 billion, rose by 40% to accommodate the integration.

The merger itself brought $76.3 million in uncovered costs to the University, including the combining of computer systems and records, human resources, and campus facilities.  According to the 2013-2014 fiscal year budget, the State of New Jersey will cover less than 20% of all costs.

The rest of the funds will need to be made up from private donations, internal revenue, and tuition.  The Robert Wood Johnson Foundation donated $12.5 million to go towards the merger.

Rutgers President Robert Barchi promised students would not bear the costs of the merger, nor the millions spent on expensive settlements and internal investigations related to the Mike Rice scandal.  But the school's Board of Governors nevertheless voted to approve a 3.3% hike in tuition and fees in July, the largest hike in three years.

That will cost the average in-state student an addition $427 each year.  Rutgers increased its financial aid program by more than 10 percent to $30.5 million to help students in need cover tuition, officials said.

But students were not pleased and they descended on the July board meeting protested asking for Rutgers to freeze the tuition, as Rowan University and Richard Stockton College did.

During the emotional meeting, several students cried at the microphone as they spoke about their financial struggles. Some talked about having to choose between buying food or buying books because they simply could not afford both.

Margarita Rosario, a 19-year-old junior majoring in education and political science, told the board she temporarily needed to drop out of the Rutgers because she and her mother could not afford the tuition.

"I think that is an immoral thing to do -- to kick students out of university because they are not wealthy enough to attend," said Rosario.

Nearly three hours into the meeting, students who had been pushing for a tuition freeze, marched out of the crowded room in Winants Hall in New Brunswick, just as the board was about to vote.  The board voted 7-2 to approve the increases, with board members Anthony DePetris and Joe Roberts voting against it.

The hike means that the average in-state Rutgers undergraduate will pay $13,499 in tuition and fee for the 2013-2014 school year. Housing and a meal plan fees will rise 2.4% bringing the total cost for attending Rutgers to $25,077, an increase of $593 over last year.

According to Rutgers officials, they need to raise tuition to cover the cost of increases in salaries and to invest other initiatives to improve the university, whether it means that some students will be struggling with the payment.

Rutgers tuition and fees have more doubled since 2001, when annual tuition and fees were $6,654.

"I know lots of them are struggling," said Nancy Winterbauer, Rutgers' vice president for university budgeting. "But we're a public institution where state funding is flat -- it's at the level it was in the '90s -- and we simply can't provide the quality of an education that our students need without raising tuition."

To make matters worse, interest rates on students loans have increased under compromise legislation at the federal level.  The rate doubled on July 1 when Congress failed to agree on a plan.  Eventually, a compromise that will likely result in higher rates was adopted and signed into law by President Obama.

For the 2012-2013 academic year, students saw their tuition increase by 2.5%, despite protests.  The year before, the board unexpectedly cut the proposed hike in half, over the objections of then-President Richard McCormick.

Editor's Note: The authors of this article are current students at Rutgers University.