The University of Kentucky had the highest number of out-of-state students in its history last fall, with more than one in four coming from another state.
Non-residents pay a tuition rate that is roughly double that of Kentucky students, which when combined with an overall 6 percent tuition increase, helped raise tuition revenue by about $41 million from the year before.
UK officials said that additional money has played a key role in UK's $2.7 billion budget for the fiscal year that starts July 1. It has helped fund a 5 percent merit-raise pool for faculty and staff; limited next year's tuition increase to 3 percent, the lowest such hike in the past decade; and raised UK's scholarship pool to an all-time high of $75 million. It also helped lessen budget cuts that will continue in the next fiscal year.
UK officials said the decision to accept more out-of-state students is not merely mercenary. Interim Provost Tim Tracy called the new mix "an academic decision with financial implications."
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From 2008 through 2012, the number of Kentucky undergraduate students has increased by about 6 percent, compared to a 24 percent increase among out-of-state students. The makeup of first-year students is more dramatic: the number of students at UK from other states has jumped about 44 percent, while the number of in-state students rose 3 percent in the same five years.
Tracy said enrollment in Kentucky's high schools is flat, so accepting more students from outside the state will help UK continue to grow.
In addition, choosing students from all 50 states helps UK's diversity in all areas, including cultural, ethnic, racial and socioeconomic. It also enlarges the potential pool of top students to choose from, including more National Merit Scholars.
"It makes sense, it has a lot of benefits, and it's clearly part of our strategic plans," Tracy said.
UK's total budget for the upcoming fiscal year is up $71 million, most of that from tuition revenues and growth in UK HealthCare, which accounts for 36 percent of the budget. The total UK budget has almost doubled during the past decade, due largely to growth at the medical center, which took in almost $1 billion this year.
Nearly half of UK's budget — 48 percent — is spent on personnel; 42 percent goes to operating expenses.
The UK Board of Trustees finance committee and full board approved the budget without discussion Tuesday.
State appropriations have dropped to an all-time low of 10.5 percent of the budget, or about $284 million. UK has lost about $50 million in state funding since 2008, leaving the university more dependent on tuition revenue.
Since 2003, the cost of UK tuition has gone up 120 percent.
UK Treasurer Angie Martin said the 2014 budget tries to uphold the priority of keeping UK affordable for students. Martin said a study of the class of 2006 found that about 3,140 students, or 52.6 percent, graduated with some debt. The average debt was $25,611.
Eighty-five percent of in-state students get some kind of financial aid from UK, compared to about 50 percent of out-of-state students.
Of the Kentucky students who receive aid, the average student still paid $1,211 out of pocket for tuition and fees in 2012. That does not include housing and books.
New spending in the budget includes $20 million for salary increases, $3.9 million to implement a new budgeting method, $1 million for online learning initiatives and $1 million for new police officers and counselors.
Martin said that by aligning the budget to UK's goals, "we're putting our money where it counts."
President Eli Capilouto said challenges remain, including improving graduation rates and faculty salaries, but that the budget "honors promises we've made to our state, our staff and our students."
The finance committee and full board also approved UK's top building priorities, which would require approval from the General Assembly. They are divided into two groups: those that would require state money and thus increase the state's debt load, and those that UK could pay for using a revenue stream generated by the project.
Projects needing state bonds and their estimated costs:
■ $45 million to transform the M.I. King Library, a special collections library, into a high-tech learning center with classrooms. An additional $15 million would be needed for a new building to house the archival materials now in the King Library.
■ $23 million to move UK's data center from McVey Hall to the Coldstream Research Park, and to turn McVey Hall into a centralized Student Success Center, with classrooms and offices for support staff, such as counselors and advisers.
■ $60 million for a renovated and enlarged law school. UK officials said $30 million would be requested from the state and $30 million would be raised privately.
Projects the university would pay off using revenue generated by the project:
■ $115 million to renovate and enlarge the main student center on campus, including dining spaces.
■ $76 million to construct a new satellite student center on south campus. The UK master plan shows this building near the William T. Young Library.
■ $250 million for the continued work of putting beds and equipment into the new patient bed tower at the UK Chandler Medical Center. This project will be stretched out over the next five years.