A tuition rate only an economist could love

A major story in last Tuesday’s Inside Higher Ed was that Middlebury College “will plan its budgets each year by capping its ‘comprehensive fee’ – the equivalent of tuition, room and board at other private colleges—at an upward limit of 1 percentage point above the Consumer Price Index.” Certainly this move makes good sense in terms of positive publicity for Middlebury and it also provides a valuable fiscal restraint framework to operate under. But would I, as an economist, advocate this framework and does it make sense for higher education in general?

It may, in some cases, make good sense. If we are talking about a university that contemplates no or very few major changes internally and is subject to limited or no changes externally, such a system may make good sense. It certainly helps students and their families plan and the college to know in advance the financial parameters it operates under. Middlebury is very good institution with a very robust applicant pool that can continue to flourish within such a system. And if it also develops new funding sources, this fiscal discipline will be even easier to live with.

But if you are talking about an institution that is contemplating more major change, this system may not be workable. For example, if a college or university is making a major addition to its scholarship budget to either reshape the credentials of the entering class, or to generate more need or merit based financial aid, the system may not work. If a college or university is adding new majors or more first year or senior year seminars the system may not work. If a school is committed to a significant change in its student faculty ratio or if a school wants to implement a more robust co-curricular program or more student counseling or more academic advisement the system may not work. There are also external variables to take into consideration. What if there is a major change in payroll taxes, energy costs, health care costs, technology costs? Can these cost increases always be absorbed to make sure that tuition increases are limited to no more than one percent above the CPI? What if government funding or loan opportunities decrease? What if expenditures on intercollegiate athletics need to rise, can we always adhere to such limits? I know there is a possibility of every major cost increase being offset by a major cost decrease but is there really a likelihood of this happening?

Implementing a tuition limitation mechanism in the absence of planning and without continuous assessment is not a workable long term system. Tuition is a dependent variable; dependent on a host of educational, student life, and external variables. Let the planning come first; let assessment always be part of the process; and then set the tuition rate. Increases should absolutely be limited to the extent possible but formulas aren’t the answer.

I know there is important work that all of us in higher education need to do. The National Center for Public Policy and Higher Education and Public Agenda poll documents a perception among the public that we in higher education are more interested in “the bottom line” rather than the educational experience. Middlebury is responding to this public perception in a very reassuring manner. We all need to reassure the public. But at the same time the public needs to be educated that a good education costs money and continuous improvement of the educational experience may cost more money. Limit tuition increases by all means; limit such increases by a link to the CPI only if and when it makes sense.