One confusing thing about the higher education industry is the conflict between social goals and economic choices. The trend toward universal access to higher education has led to the notion that everyone should be able to find a route into higher education that matches interest, preference, ability and economic circumstance. This in turn has focused attention on the student selection and pricing structure of higher education, a topic of infinite interest, controversy, and confusion.
Q: Why do colleges and universities that all give the same degree with the same general requirements have such different prices?
A: Like other consumer industries, colleges and universities serve different markets and tailor their products to appeal to different segments of the market. This is not unlike the auto industry, where all cars do pretty much the same thing -- get you to the store and back -- but they come in an endless variety of styles, sizes and luxury, with differentiated prices as a result.
Q: Is education a social service that should be available to all?
A: Partly no. Higher education is a subsidized and regulated industry that in total provides almost universal access, but that in the case of individual institutions carefully selects the market niches they serve. Subsidies provide education only to a certain number of individuals, not everyone who applies or need support.
Q: Why are higher education prices so high?
A: Some higher education prices are high, some are low, and some are virtually free. The published price of higher education is often far from the actual price.
Q: Why do colleges and universities charge different amounts to different students even when they quote the same price to everyone? Is that fair?
A: Maybe not fair, but effective. The college?s goal is to select the highest quality student body possible. The college also wants a diverse population with students from different parts of the country and the world, with different skills, with the right balance of male and female, and with the right ethnic diversity. All these characteristics, whether demographic or test score based, reflect various forms of merit a college believes desirable. To get the right mix, colleges discount tuition, fees, and other costs through scholarships, grants, loans and other support to attract those students with the merit characteristics it needs to achieve these goals. Some students will pay the sticker price, some students will pay less, and some students will attend free.
Q: What are merit qualities, and which ones earn a discount?
A: Merit characteristics are basically anything that is not random. Those that earn students an edge in admissions include high scores on standardized tests (SAT), high grades from elite high schools, athletic talent, musical talent, ethnic background, extensive community service, international background, and a few others.
Q: Does the emphasis on these merit qualities give an advantage to rich people?s children over poor people?s children?
A: Yes. The cost of preparing a child for admission to a selective college is high, and this is a form of indirect price required for admission to selective institutions. Parents who have the resources or make the sacrifice to pay this price do so to ensure that their children will have every merit advantage to improve the children?s chances for admission to a selective college. The highly invested parents are a strong lobby for merit-based selection processes and the price discounting that follows.
Q: Then how can the admission and discount criteria be fair?
A: That depends on what we mean by fair. If it means selecting based on clear objective criteria, for the most part the criteria are fair because colleges apply them the same way to everyone. If fair means that the criteria take into account the disadvantages high school students from poor inner city schools experience, the answer is, sometimes the criteria are fair. Most colleges include in their criteria the ability to subsidize students whose merit indicators of grades and scores are not up to the level of the majority of the students in order to create access for promising but underprepared, and in particular underrepresented, students. Of course, this takes an admission opportunity away from a better-prepared student, so whether it is fair depends on whether you apply social criteria or merit criteria.
Q: What would a truly fair system look like?
A: A truly fair system, in a statistical sense, would do the following: It would assume that all students with SAT scores of 1000 and above and high school grade point averages of 2.5 and above have the ability to succeed in college. Although on average, students with higher SAT?s and higher GPA?s will have more success, students with the lower scores can succeed. To be fair, the college would allocate places in the freshman class by lottery and provide financial aid to any student selected in this random fashion who needs it.
Q: Will colleges and universities ever do this?
A: Most parents and students do not think this is fair because they think that college admission should be awarded based on an assessment of merit, not on a lottery, and so they prefer to argue about the criteria that determine merit rather than seek to implement a statistically fair system based on random selection.
Q: What is the effect of declining amounts of state support for public higher education on cost, price, and access?
A: As state support declines, the price of public higher education rises to compensate. The public institutions will discount the higher price with scholarships, subsidized loans and grants of various kinds. The range of discounting in public institutions will grow as their sticker prices rise. They will become more and more like private institutions in constructing their student population profiles through various subsidies and discounts. Students will choose institutions based on their desirability and on the discounted net cost to each student.
Q: What are the advantages and disadvantages of this subsidized and regulated free enterprise educational system?
A: It provides a college opportunity at some level and at some price to every student who wants to attend college. It is endlessly flexible, it responds to students and parents, and it reacts quickly to changes in government subsidies and regulatory environments.
At the same time, it produces a highly stratified set of institutions with different levels of competitive quality and different levels of resources devoted to undergraduate education.
If you believe that students who attend college in America should have the same opportunities and same level of instructional and institutional quality, the system is a failure.
If you believe that students should have the opportunity to select an institution that matches their ability, their means, and their aspirations, and if you believe that competition among institutions for high quality students is a method for achieving high quality education, then the system is a success.
With titles such as Our Underachieving Colleges, Going Broke by Degree,Excellence Without a Soul, and Remaking the American University, several excellent books have argued in recent years that there is significant room for improvement in American undergraduate education. As a former student, parent of students, college faculty member, and taxpayer, I share this view.
As a researcher who studies entrepreneurship, I have observed entrepreneurs successfully develop the non-traditional student market. I have wondered if the traditional student market could be revitalized by a major wave of entrepreneurially driven innovation. So, in "The $7,376 'Ivies,' " a study soon to be published by the Center for College Affordability and Productivity, I looked at undergraduate education for traditional students as if I were exploring a new venture opportunity.
I started by creating a value-designed model for a hypothetical college, and then determined its cost by developing a detailed pro forma income statement. By value-designed model, I mean a model designed for value “customers”. These are the students (or perhaps more often their parents) who are looking for “value” -- a high quality product at a relatively low price. When buying a car, they’ll take a $22,000 Toyota Camry over a $105,000 Mercedes S or a $10,000 Chevy Aveo 5. To get to a low enough price point for the value customer, a college must either have a large subsidy from public or private sources, or have lower costs. I looked at the cost side. As the title of my study suggests, I found that value-designed models of undergraduate education can radically reduce costs AND increase quality.
The hypothetical school I designed is called the College of Entrepreneurial Leadership & Society (CELS). CELS is designed for traditional, undergraduate college students of moderately selective to highly selective academic standing who want to be actively involved in the “college experience.” CELS is not for students interested in a pure vocational school or an ivory tower. Rather, CELS targets students who want to exit college a better, more mature person with a solid foundation for life and a successful career.
CELS will offer a broad curriculum that provides students with a strong liberal education, appropriate technical skill for entry level+1 jobs, potential to be general manager of an organization in their chosen profession early in their career, plus foundational skills and knowledge for life outside of work. Majors will be offered in Behavioral Science, Business, Communication Arts, Education, Engineering Science, Information Technology, Letters & Civilization (interdisciplinary humanities), Public Affairs and Science & Technology.
As a former student and parent, I think CELS would provide an extremely high quality education. You may not share this view. That is fine. The market for higher education is large with multiple segments. Several value designed models are viable, and can produce significant cost savings.
For example, a CELS with 3200 students would have a total operating cost (without room and board) of under $8,000 per student. This is the cost to the school, not the cost to the student. Price (i.e. tuition) is the cost to the student. Because most colleges are heavily subsidized by a state and or/private philanthropy, they are able to charge tuition well below their actual cost. CELS’s cost of under $8,000 is drastically below the cost of “top” liberal arts schools ($25,000 to $62,000) that cater to prestige-oriented customers. But it is also well below the $12,000 cost of public regional colleges who have many price driven customers and a less academically selective student body. So, if a CELS received the same level of subsidy as a public regional college, it could charge students about $4,000 less than the regional, even though the product was competitive with the “top” liberal arts schools.
To arrive at this low cost position, I didn’t cut corners on anything that was important to the CELS value proposition. CELS doesn’t use many adjuncts, faculty salaries are competitive with those at research universities’, a laptop is included in tuition, the Division III football stadium has a Jumbotron, etc. As the CELS example illustrates, a college using a value designed model could deliver a prestige quality product to its target market and yet have vastly lower costs .
The key to getting higher quality and lower cost is to constantly use a value mentality when designing the model. All decisions need to be made so as to maximize value to the target market. Who are your potential students and what package of benefits (primarily learning) and price is attractive to them? It is crucial to realize that different target markets may be looking for different benefits. Students at a No Frills University may not be interested in a “college experience”, but CELS students think it extremely important. Ivory Tower College students may see the study of “Knot Theory“ or “Divas, Death, and Dementia on the Operatic Stage“ as vital to their education, while CELS students will find these topics an academic curiosity at best. So how to maximize value varies from college to college.
However, there are some major techniques that simultaneously add value and decrease costs, no matter what the target market.
Having a coherent curriculum. A well-designed curriculum is key to both improving student learning and lowering costs. Providing a personalized education through mass customization is possible if you build upon a well-designed platform of courses for both general education and the major. While done to insure quality of learning, significant cost savings also ensue because you are reducing the number of class sections you offer. At CELS almost 50 percent of a student’s course work is a set of general education courses that are required for everybody. CELS faculty will spend a great deal of time designing these courses to insure that they provide a consistent learning experience so that every CELS student will graduate with the core general knowledge and skills for their future. The same approach will be taken in the design of required courses for the major. Given a strong platform in both general education and their major, students can use the remaining 20 percent to customize their education. They can pick specialized courses in their major, courses from other majors and off-campus learning experiences to match their individual career goals and personal interests.
Using appropriate teaching technique and technology. What is appropriate varies by course; but generally active learning works better than passive, and active learning can generally be done as well in a class of 100 as a class of 5. (The exception is when the students’ work product needs to be highly customized). A lecture format class of 25 students is much less effective than a class of 100 using an active learning format, but costs four times more per student to deliver. For example, Socratic case method classes of 100 have long been used successfully in major law schools and graduate business schools.
Consolidating majors. Intellectually fragmented arts and science majors and highly specialized professional majors are not appropriate for an undergraduate education. They also significantly increase the number of undersubscribed classes that have to be offered. In other words, rather than Accounting, Finance, Management, and Marketing majors, CELS has a Business major. Similarly, CELS has Letters and Civilization rather than English, History, Philosophy and Religion.
Keeping the undergraduate education mission primary. Other missions like graduate education and research can add significant costs. While good missions in their own right, they provide little if any direct benefit to undergraduate students. In addition, they have a tendency to distract attention from undergraduate education. Performing them may actually reduce benefits to undergraduate students. So, at CELS expectations for faculty research range from modest to non-existent. From CELS’s perspective, faculty can do research as a job perk, not because it is a vital part of our mission.
Reducing organizational silos. Disciplinary and functional silos are a barrier to providing a coordinated education that meets students’ needs. In addition, reducing silos lowers cost by reducing the number of faculty and administrators needed. For example, at CELS, faculty are in multi-disciplinary units along the lines of the majors. Individually, most faculty have some multi-disciplinary skills so it is much easy to coordinate interdisciplinary education, and you need fewer faculty. Because there are fewer faculty and CELS is not a research school, there is no need for an extra level of management (deans’ offices) between the front line supervisors (department chairs) and provost.
With a value-designed model, a college can deliver a prestige quality product to its target market at a fraction of current cost. Value designed models could radically remake higher education, however this cannot be done overnight. Most existing schools should not immediately convert to a value-designed model. New models need to be tested and refined on a small scale before wholesale adoption. Beyond that, the barriers to innovation at most colleges are probably far too high to make wholesale adoption feasible at this time.
Today CELS and other value-designed models should be pioneered by: 1) the social or for-profit entrepreneur interested in starting up a new independent college, 2) the successful multi-college university that wants to pursue radical innovation through a new college without disrupting their existing colleges, and 3) the existing small college that is willing to make major disruptive changes internally in order to drastically improve its value externally.
At this time, public policy makers, concerned citizens, and educators should actively encourage pioneer innovators. Then over time, many existing colleges will imitate the successful pioneers, both because the pioneer has developed the innovation and demonstrated its usefulness, and because the pioneer’s success puts pressure on under-performers to increase productivity. Thus higher education industry performance could improve dramatically overtime. However, in order to reap widespread benefits from innovation in the future, there must be pioneer innovators today.
Vance H. Fried
Vance H. Fried is a professor of management at Oklahoma State University.
Each summer, the registrar at our university distributes the official Tuition and Fees table for the upcoming academic year. Generally, I glance over the document quickly, taking care not to commit any of its content to memory. (How else can I eschew any culpability for them?) This year, however, for some reason, my eyes lingered a little longer than usual over the document's multitudinous fees.
Most were fairly predictable and straightforward. One, however, was conspicuously nondescript: the Excellence Fee. A library fee, presumably, provides critical information resources and systems (e.g., card catalogs) for students. But an excellence fee? Don't get me wrong, no one supports excellence -- and quality, and high performance and a host of other equally nebulous words and phrases -- more than me. (Just look at any one of the grant proposals I’ve written in the past few years.) But an excellence fee?
My discovery soon lead me to wonder whether my institution was unique in levying such charges. So, like any researcher worth his or her salt, I Googled the fee structures of a number of area colleges and universities. Having thoroughly reviewed several, I can confidently report that excellence (and other, similarly ambiguous) fees are quite commonplace.
On some level, one has to appreciate postsecondary administrators’ creativity in developing -- and, especially, naming -- fees which will be warmly (or at least not coldly) received by policymakers, boards, funding agencies, students and their parents. (After all, who's going to argue against “excellence”?) To this end, I've concocted a few more fees which higher education leaders may wish to consider implementing as additional revenues become necessary. Note: the following fees have been made up. Any resemblances to actual fees, though likely embarrassing, are entirely coincidental.
21st Century Fee: applied toward preparing students for the current century's challenges and issues.
22nd Century Fee: applied toward preparing students for the next century's challenges and issues. (Given ongoing medical advancements and modern fiscal realities, I suspect most students today will still be working in 2100.)
Jargon Fee: applied toward ensuring students and their parents gain broad exposure to the unique and often confounding acronyms and terms utilized by postsecondary personnel.
Non-Technology Fee: applied toward providing students access to non-technology-related educational resources (e.g., desks, lighting, toilet paper, etc.).
Bureaucracy Fee: applied toward ensuring students are directed to at least three different institutional offices before any issues they may have are resolved
Superior Fee: applied to ensuring students believe their educational experiences are better than those of students at other institutions.
Of course, such charges are implemented because the costs of facilitating postsecondary educational experiences continue to increase, and institutions struggle to generate funds through sufficient existing revenue sources. While most fees are legitimate and appropriately utilized to provide legitimate services and resources, some smack of attempts to avoid cost transparency.
In such cases, postsecondary leaders should be clearer about why the fees are needed, how they are (or will be) used, and, over time, that they are, in fact, being applied as originally proposed. Otherwise, higher education administrators are merely gaming the notion of excellence in education, and modeling the wrong behaviors to the very individuals they serve: students
As for me, I’m going to recommend that my institution replace its existing Excellence Fee with a Fee Fee to cover the expenses associated with the development, implementation, management and explanation of its other student fees. For one, a Fee Fee is more justifiable -- even if in an ironic sort of way. Most importantly, however, it’s honest, and better reflects the level and type of transparency institutions should be practicing in the first place.
Now, about those card catalogs ...
Clarence Sowers is the pseudonym of an academic administrator at a university in the south central United States.