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Alternatives to Across the Board Tuition Hikes

Updated on April 9, 2011

While the cost of tuition has continued to rise well above the cost of inflation at institutions of higher learning across the country, it may be inevitable that a tuition increase is necessary, but a straight percentage-based increase may not offer the desired results. There are alternatives to such tuition hikes that would be a benefit to both the school and the student body. Many viable solutions exist, but some are, obviously, more radical than others. The solutions discussed below are geared to provide a working alternative to the same approach to tuition increases.

The most palatable of solutions regarding tuition are, generally, the easiest ones to sell to the public. These are usually the most conservative in nature and the ones that affect the fewest number of people. The two approaches that follow have worked well in government and business and can just as easily be applied to the tuition revenue problem.

Tiered Structure Method

Universities and colleges already use the methodology behind the tiered approach. It just needs to be extended to affect more undergraduate programs. Consider that nearly all majors are treated equally under the current tuition structure. With the exception of a few minor course fees, an engineering or accounting student pays the same tuition as a student of philosophy or psychology. Is this fair and equitable?

It is readily accepted that a law student, medical student, dental student or pharmacy student will pay a higher tuition for their education. Tuition for these students is justifiably high since the level of expertise provided by the teaching staff comes at a much higher cost than faculty in other departments. However, when compared to the average starting salary for anyone in these fields, the tuition seems very manageable. The future reward far outweighs the cost.

This same concept needs to be applied to the undergraduate system. Future reward should be factored into current tuition. The average starting salary for accountants, electrical engineers, and computer science professionals well exceed the average starting salary for a liberal arts major. Accounting, finance, economic, chemical engineering, computer science, mechanical engineering and electrical engineering graduates can easily enter the job market with a starting salary of $45,000 - $60,000. This is a substantial pay premium given to business and engineering disciplines. Now, it is only a matter of changing the public perception of the tuition associated with these disciplines—tying future reward to current tuition. This will then more than justify an increase in the business and engineering areas while allowing the majority of academic programs to remain unaffected or, indeed, discounted slightly.

A simplistic model of how such restructuring could happen is easy to understand. Given an enrollment of 20,000 students paying an average of $3000 a semester for tuition will generate revenue of 60 million dollars. Now, suppose the same 20,000 students are split into two groups: 14,000 regular and 6,000 business/engineering students. The 14,000 students continue to pay $3000, but the 6000 business/engineering majors pay an increased tuition of $3500. This will generate revenue of 63 million dollars, representing a 5% increase over current tuition while only affecting 30% of the student body. Likewise, the tuition could be raised another $100 for the 6000 business/engineering students and lowered $100 for the other 14,000 students. This provides a break in tuition for 70% of the student body, but still generates the same 5% tuition increase for the university.

The increase will initially cause some dissent amongst the students in those fields so affected, but the arguments are easy to deflect. Their tuition will increase $1000 to $1200 dollars a year, but the starting salary for jobs in their chosen majors will generate between $10,000 to $30,000 a year higher than the non-affected majors will. Even if they graduate in five years with an extra burden of $1000 to $1200 a year tuition increase, this only amounts to $5000 to $6000 during the course of their academic career. This amount is easily offset by just the first year of higher wages they will earn. The public perception of business and engineering majors will increase because of the newly appreciated value that they bring to the marketplace and the idea will eventually be embraced by the community in the same way that tuition for medical, law, dental and pharmacy programs are substantially higher.

Diminished Returns Method

Another very conservative method is to invest more time and money into population/cost studies at the university. Just as a business must find it's optimal price point for a good (that is, seeking the price that will sell the number of units to generate the most revenue). Revisiting the numbers in our hypothetical situation shows those 20,000 students at $3000 tuition a semester generates 60 million dollars. Will raising the tuition across-the-board actually help? What if a tuition hike to $3500 a semester drops the enrollment to 17,200 students? This generates approximately the same 60 million in revenue. This example allows for a drop in enrollment equal to the percentage of increase in tuition. Reality may prove the enrollment to decrease even more. Likewise, a tuition cut may generate more students, but when the factors of more resources to teach more students are factored in, there is only a small change in revenue.

Studies comparing tuition increases and enrollment changes at other national universities would prove to be invaluable in establishing the proper rate of tuition that would generate the most revenue. There is a point where the price of tuition forms a perfect equilibrium with enrollment to generate the most revenue. Whether or not this optimal approach will lead to the desired increase in tuition would be unknown. What is known is that an arbitrary increase or decrease in tuition without properly understanding how enrollment will be affected could be financially devastating. It is up to the trusted leadership of each college or university to decide the proper balance of risk versus reward, but to also be prepared to initiate the kind of visionary leadership that their respective institutions so desperately need in these financial times.

Solving this problem will not be immediate, nor will it be easy. The rise in tuition is clearly needed as reflected by both economic indicators and budget cuts universities are facing, but if students cannot afford to learn than these increases are futile. Any tuition increases must be approached carefully.


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