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Improve College Graduation Incentives


The 1997 Legislature created a tuition rebate program that allows Texas college students to apply for a $1,000 rebate of their college tuition fees upon graduation if they complete their undergraduate course requirements “efficiently,” as defined by the program’s criteria. Yet the number of rebates actually issued is low compared to the state’s graduation rates, due in large part to the program’s restrictive eligibility requirements. Easing these requirements in the area of advanced placement credit would make the rebate available to more students while furthering the program’s goal of efficiency.


The 1997 Legislature created a tuition rebate program that allows college students to apply for a $1,000 rebate of their college tuition fees upon graduation if they complete their undergraduate course requirements “efficiently,” as defined by the program’s criteria.[1] In this case efficiently means with as few hours taken as possible.

As stated in the rules developed by the Texas Higher Education Coordinating Board (THECB), the rebate is intended to “provide a financial incentive for students to prepare for university studies while completing their high school work, avail themselves of academic counseling, make early career decisions and complete their baccalaureate studies with as few courses outside the degree program as possible.” [2] The program benefits the state by encouraging the more efficient use of higher education resources.

To receive the tuition rebate, students must have entered college no earlier than September 1997 and have “attempted” no more than three hours in excess of the minimum number of semester credit hours required for their degree at graduation. For example, a student with a degree program requiring 120 hours of coursework could have no more than 123 hours to receive the rebate.

The program’s focus on hours “attempted” makes the requirements particularly stringent. Under the current rules, attempted hours include transfer hours, hours earned through credit by examination, courses dropped (if carried on a student’s transcript) and any other courses taken by a student even if they do not apply to his or her degree requirements. The program also requires students to have attempted all of their college hours at Texas public institutions.[3]

The focus on hours attempted makes sense because almost every example of an “attempted” hour represents an instance that may affect another student’s ability to enroll in a class. For instance, a student who drops a class well into the semester may not receive credit or a grade on his transcript, but still may have effectively denied another student the ability to enroll in that class.

The rebate program was intended to keep students focused on their degree requirements and to help them finish in a timely manner. Many degree plans call for a minimum of 120 semester hours.[4] With a typical course load, students can complete their studies in four years by taking an average of 15 hours per semester for four academic years (fall and spring semesters). In practice, however, full-time undergraduate students often take between nine and 18 hours per semester and juggle other responsibilities including jobs and family obligations.

Furthermore, students who change their undergraduate majors may be required to complete additional hours to meet new degree requirements. And students who are motivated to complete college in four years to comply with scholarship requirements often enroll in courses during the summer if they find themselves falling behind schedule. Some of these students may be automatically disqualified from the rebate program if they pile up excessive hours in the course of their efforts.

Still others carry larger course loads to earn double majors. Many of these students, too, cannot take advantage of the rebate, even though they are in fact moving “efficiently” through the system.

Advanced placement

Some students can disqualify themselves for the rebate even before their freshman years. Many entering college students already have earned some college hours while in high school by taking advanced placement (AP) tests. AP tests allow students to receive credit hours by demonstrating proficiency in one or more subjects.

Since students can take AP tests in several different areas, the hours they earn may not coincide with those required for the major they ultimately select. Students who wish to apply for the tuition rebate may be forced to decide early in the process whether hours not required in their degree plan should be carried on their transcripts. Such a decision is not always easy, because students may be forced to decline credit for AP tests for which they paid fees. Counselors, in turn, may be forced to tell students not to claim credits they have to receive the $1,000. The program’s policy, then, actually can discourage academic efficiency.

Tuition rebates in 2001

THECB recently began collecting data on tuition rebates. The number of rebates awarded, however, appears low compared to graduation rates at Texas’ public colleges and universities. According to THECB, 34 colleges and universities in Texas awarded 685 bonuses in the 2000-01 school year (Exhibit 1). Texas A&M-College Station awarded the most. Surprisingly, nine institutions awarded no bonuses at all.

E-Texas staff contacted several public institutions of higher education to study this matter. The University of Texas at Austin’s Business School provided statistics on the number of bonus applications it has received and awarded. In spring 2001, the school awarded 20 rebates for 81 applications received. Of the 61 applications rejected by the business school, 42 were rejected because of excessive hours.[5]

Texas A& M-College Station also rejects a high number of students applying for the bonus. Of about 1,000 rebate applications received after spring and fall 2001 graduations, only 400 were awarded.[6]

Officials at the University of Texas at Austin, Texas A&M-College Station and the University of Texas at San Antonio agreed that graduating students face competing pressures. Students apply for the rebate in the semester in which they graduate—and at this stage of their academic careers, most are focused on their degree requirements, not the number of courses they have attempted.[7]


State law should be amended to exempt up to nine hours of advanced placement classes from the total of “hours attempted.”

Advanced placement credit is earned via testing and does not entail the expenditure of state funds at public colleges or universities. AP tests are intended to help students progress toward degrees, and thus they further the goal of efficiency.

Other aspects of the rebate program should be examined to ensure that the program truly motivates students to complete their degrees efficiently. Revising the AP credit issue, however, could make an immediate impact on eligibility rates.

Fiscal Impact

Institutions pay the rebates from their local funds, but the state reimburses them for this funding and so ultimately assumes the financial burden.

By exempting up to nine hours in AP credits from the eligibility determination for tuition rebates, schools should see an increase in qualifying applicants; this estimate conservatively assumes that the change would lead to a 20 percent increase in rebates awarded. (UT, for instance, estimates its number of rebate rejections due to AP at about 30 percent.) The increase in rebates would be offset by a reduction in formula funding for higher education institutions, since many students would refrain from taking excessive classes to qualify for the rebate.

The fiscal impact of this proposal is based on the assumption that students seeking to qualify for the rebate under the new guidelines would take fewer total hours. The estimate of savings equals the reduction in appropriations based on fewer hours taken by students minus the costs of the additional rebates awarded due to the new guidelines.

To realize these savings, the state should reduce formula funding by an amount equivalent to the estimated amount of state funding that would result if students now receiving the rebate were to take fewer classes.

Fiscal Year Savings to General Revenue (Cost) to General Revenue Net Savings to General Revenue
2004 $0 $0 $0
2005 $364,000 ($312,000) $52,000
2006 $397,000 ($343,000) $54,000
2007 $439,000 ($378,000) $61,000
2008 $485,000 ($416,000) $69,000


[1]Tex. S.B. 1907, 75th Leg., R.S. (1997).

[2]Tex. Admin. Code, Title 19, Education, Part 1, Texas Higher Education Coordinating Board, Chapter 13, Subchapter E, Rule 13.80.

[3]Tex. Admin. Code, Title 19, Education, Part 1, Texas Higher Education Coordinating Board, Chapter 13, Subchapter E, Rule 13.85.

[4]Interview with Dr. Roger Elliot, assistant commissioner for Finance, Campus Planning, and Research, Texas Higher Education Coordinating Board, Austin, Texas, December 27, 2001.

[5]Interview with Lise Burson, associate director of Undergraduate Programs, School of Business, the University of Texas, Austin, Texas, and March 7, 2002.

[6]Interview with Don Carter, registrar, Texas A&M University, College Station, February 28, 2002.

[7]Interviews with Lise Burson and Don Carter; and interview with Dr. Rosalie Ambrosino, vice-president for Academic Affairs, University of Texas at San Antonio, February 2, 2002.