July 30, 2007
Differential Pricing in Higher Education
Posted by Christine Hurt

Yesterday's NYT had an interesting column by Jonathan Glater on public universities charging more for some degrees than others.  The degrees that garnered the higher price tag are degrees where the costs of recruiting professors are higher and/or the cost of equipment is higher.  Some of the examples given are business, engineering, pharmacy, and journalism.  The premiums are not astronomical -- from $250 to $500 more per semester.

Most administrators quoted seem very unhappy with this phenomenon, even at their own schools.  They predict that lower-income students will stay away from pricey majors such as engineering and business.  They bemoan the days when states educated their children to create better citizens that were well-rounded and enlightened.  They brush off apologists who defend the policies on the basis that some degrees are worth more in the marketplace.  Richard W. Lariviere, the provost of the University of Kansas, is quoted saying "Where we have gone astray culturally is that we have focused almost exclusively on starting salary as an indicator of life earnings and also of the value of the particular major."

A few thoughts.  First, I don't think we can read this article without recalling the almost daily newspaper articles about the high cost of educational debt that many graduates are shouldering.  With so many students going into debt for an education, and many with high-interest private loans, shouldn't we be teaching them something about the dollar value of a particular major.  Yes, students should seek out jobs that are interesting to them and that will bring them fulfillment throughout their lives, but they should think twice before borrowing $100,000 for a major where the starting salary is $22,000, right?  To say that this should not be a consideration is pretending that everyone that goes to university is wealthy and coming merely for self-actualization -- to take Latin, Greek, Philosophy and Theology and return to their position in the aristocracy.  That's not real life.  Students are going to college to gain knowledge, skills and credentials to support themselves and their families.

So, why shouldn't an Engineering degree cost more than an Education degree?  I don't think this is insulting to Education majors.  In fact, why raise tuition across the board and have people who want to teach kindergarten have to subsidize the education of people who want to become engineers, who will get paid much more after graduation?  Why not just let engineering students pay more?  (The article did not mention lab fees, which I had long thought were already a mechanism to have students in certain majors pay more than others.  Texts also cost vastly different amounts in various majors.)  Students already pay more for elite institutions than non-elite institutions; more for university education than community college; and more for degree-granting institutions than technical schools or cosmetology schools.  Surely this pay differential has something to do with the value of the degree.  And surely degrees within a particular institution are worth more than others. 

Of course, students going to law school can basically game the system by majoring in low-cost degrees such as English or Philosophy and then going to law school!

Finally, I think we have to take the quotes from these state university administrators with a grain of salt.  They are obviously pitching to their legislatures.  "We have to act this unfairly because you have tied our hands by not letting us raise tuition across the board."  What the colleges would prefer to do is raise tuition not just for Business and Engineering students, but also for English and Philosophy students.  So much for well-rounded, liberal arts education.

One last thing.  As a U. of Texas graduate, I try to stay away from Aggie jokes, even though I have a natural right to make them.  Well, this one makes itself.  The article quotes G. Dan Parker III, associate executive vice president of Texas A&M on the fact that the business school there pays starting professors $130,000 or more.  "The salaries we pay for entering assistant professors on average is probably larger than the average salary for full professors at the university.  That's how far the pendulum has swung at the business schools, and I sure wish they'd fix it."  Ummm, what are you going to fix?  I guess if you can clone sheep, you can alter the laws of supply and demand, too.

Economics | Bookmark

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Comments (10)

1. Posted by Miriam Baer on July 30, 2007 @ 12:21 | Permalink

I read the article too. And I was troubled by the idea that students, once in college, might make educational choices based purely on financial considerations, even though they arguably do that already when they try to weigh financial aid and scholarship options at different schools.

Although it seems entirely reasonable that the universities needs to recoup their costs for certain academic programs, it is not at all clear why they cannot spread those costs among all of their students, since this largely how they deal with the costs of numerous non-academic programs. I would imagine that most colleges' athletic programs cost a bundle (part of which is defrayed by tickets and donations by alumni) whose costs are spread out over the entire student body, regardless of how much or little students use or benefit from them. Is it fair for colleges to spread the costs of some programs (academic ones in particular) but not others?

One other thought: If there are departments (engineering and business apparently) that are more expensive than the norm, then that means there are probably departments that are less expensive. It would be interesting to see if, at the same time that colleges ramped up fees for the "expensive" programs, they also reduced fees (perhaps in the form of a rebate?) for those students who took more "cost-effective" programs. (I'm not holding my breath).


2. Posted by Laura Appleman on July 30, 2007 @ 13:19 | Permalink

Hi Christine,

I also noted with interest the Jonathan Glater article (he was a classmate of mine at law school). One thing that came to mind was the tuition pricing at law schools and med schools. It's long been the university's dirty little secret that law schools heavily subsidize the medical schools, though students pay roughly the same amount to attend. For most universities, law schools are the cash cow--relatively inexpensive to run, but highly profitable.

So should we apply the differential pricing model to professional schools? I'm sure law students would be delighted. But what would the effects be on medical education, which is much more expensive? Would we see fewer students attending med school? A shift to only wealthier students? Fewer doctors in primary and pediatric care, which pays much less than the big specialties?


3. Posted by Christine on July 30, 2007 @ 14:02 | Permalink

Miriam, I think when the university raises tuition for some degrees but not others, the other degrees are getting a discount. (I can't imagine tuition ever going down for any degree!) If the university has a choice of raising everyone's tuition $50 or just the expensive majors $500, then the other majors basically get a $50 discount if the latter is chosen. You are right that other costs are spread regardless of use -- library fees, rec fees, etc. I do disagree that I would be sad if students chose majors based on financial considerations. Only the upper class can truly tell their kids that it doesn't matter what they major in. And better for someone to say going in to Major X that she understands that she is choosing a path with much potential for personal satisfaction but little potential for wealth than to be disappointed and bitter ten years out.

Laura, I was also wondering how this applied to law school education. Look at Catholic universities -- most have a law school, but not all have medical schools. They learned long ago that law schools could be run very cheaply (hire practitioners from town part-time to teach students in large lecture halls with little or no equipment). Salaries are a lot higher now, and clinical education costs more, but you're right that a law school budget has to be a fraction of a medical school budget. I had assumed that med school would be more, but I just glanced at U. of Illinois, and law school tuition/fees is quite a bit more than at the medical school! I'm not quite sure what's up with that -- perhaps the legislature subsidizes medical schools because they are directly related to a public benefit? Perhaps medical schools can be cheaper because they have revenue sources other than tuition (clinics, teaching hospitals, etc.) I would guess though that the socioeconomics of an entering law student and an entering medical student are vastly different. Medical school is more costly not only in terms of tuition, but also opportunity costs because of the number of years between beginning of education and full M.D. salary and upfront costs because the MCAT tests you on the value of your education, not just your aptitude. So, I bet there is already sorting involved. I don't know if there is economic sorting among medical specialties -- I had always thought that sorting was done mainly by grades. Since specialization occurs primarily during residency, is there a cost difference between training a medical student who becomes a brain surgeon and one that becomes an internist?


4. Posted by Missionary Mom on July 30, 2007 @ 15:19 | Permalink

Really great post. I like your points. Thanks.


5. Posted by Fred Tung on July 30, 2007 @ 16:48 | Permalink

Christine, on the issue of medical school versus law school, it might be that start-up costs are what deter universities from starting a med school but not a law school. My sense is that med school accreditation is an enormously expensive proposition, and the AMA has generally done a much better job at constricting the supply of doctors--i.e., the number of medical schools--than the ABA or state bar associations have done with respect to lawyers and law schools.

Your information about med school tuition versus law school intuition comports with my intuition that operating costs may be lower for med schools once they've sunk the costs of establishing the school. Assuming they run a hospital--and depending on their clientele--they have an enormous apprenticeship system that generates revenue.

On economic sorting in med school, I know that medical faculty salaries vary by specialty. As far as costs of training a brain surgeon versus an internist, I suppose you can pass those costs along to your patients (or their insurance carriers, if they're covered).

My question after reading the NYT article is why can't these universities simply tinker more with their internal cross-subsidies. The nominal tuition figure does not tell us what any student actually pays. Instead, having a nominal price merely masks the rampant price discrimination that goes on. Call it "aid" or "grants" or whatever. My guess is that in many private schools, the majority of students do not pay "full" price. Perhaps state schools have less leeway in this regard.


6. Posted by Jake on July 30, 2007 @ 19:16 | Permalink

Agree wall-to-wall with Christine's excellent post. And there is nothing "troubling" about students choosing a course of study based purely on financial considerations, if that is what students choose to do. Is there a better yardstick than the price of a higher education? The debate seems colored by the expectations of those who have, or seek to attain, degrees from so-called "top drawer" colleges. There are plenty of affordable colleges around that can deliver a solid education, even if not name recognition.


7. Posted by Jenn on August 9, 2007 @ 14:05 | Permalink

I disagree with engineering students having to pay more for college than other students. There is a staggering decline in the number of American engineers and this will only discourage more people from majoring in engineering. There needs to be more encouragement for Americans to pursue these beneficial fields instead of road blocks.


8. Posted by Jake on August 9, 2007 @ 21:28 | Permalink

"Encouragement" for Americans to pursue fields of education deemed "beneficial" is a very slippery slope. Who gets to decide what studies are "beneficial"? A governmental bureaucracy, we must presume.

If the government is to choose, it could choose most wisely by subsidizing everyone who takes a course in basic economics.

(None of that Marxist stuff, mind you.)

A basic physics course is a strong second. It could -- and ought to be -- a prerequisite to getting a driver's license.



9. Posted by Jenn on August 14, 2007 @ 15:16 | Permalink

However, in response to Jake's comment, a structure that says that certain majors should have to pay more because they'll make more is Marxist in and of itself.


10. Posted by Medical Assistant Schools in MD on December 15, 2011 @ 5:02 | Permalink

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