Institutions of higher education are bracing for a crunch, if they aren’t experiencing one already. Slowing population growth, mounting skepticism of academia, and various other factors have provoked college leaders—at least perceptive ones—to craft novel strategies to navigate these perilous waters. Universities will be increasingly competing for a shrinking pool of customers in the years to come. How these institutions differentiate themselves and win over students will determine their ability to survive in the 21st century.
Universities, like firms in any stagnating market, will need to find new revenue sources or cut costs. There is no other way out of this conundrum. As Beth Akers, an economist studying higher education, has argued, the looming crunch may actually benefit students: “Higher education, the golden child of the movement to advance social mobility, has rested on its laurels and failed to incorporate innovations that will better serve students and our nation.” Necessity is the mother of invention. Declining revenues coupled with fierce competition may be what universities need to slash waste and deliver economic results for students.
Paying at the program level reduces the cross-subsidization implicit in charging a flat rate for all programs.In light of such shifts, a growing share of institutions are weighing the adoption of differential tuition (DT) policies. Conceptually, the model is simple. Instead of charging a flat rate for tuition regardless of major area or degree program, universities charge tuition based on the instructional costs of particular areas of study. Mechanical engineering majors, for instance, would likely pay higher tuition than English majors at a university implementing DT.
Universities are adopting DT for several reasons. For one, paying at the program level reduces if not eliminates the cross-subsidization implicit in charging a flat rate for all programs. No longer would lower-cost degree recipients pay a “premium” that partially funds more expensive degree programs. You get what you pay for.
Moreover, the varying costs of degree programs align, more or less, with projected economic outcomes for degree recipients. Lower-cost programs typically lead to lower-paid graduates, and higher-cost programs lead to higher-paid graduates. Engineering students would be paying more up front, but on average they’d be better prepared upon graduation to start paying back their debts. This is not so different from graduate education, where students pay more for a juris doctor than they might for a standard master’s degree but are also more likely to be able to pay back their debts upon graduation—assuming they successfully pursue law.
On paper, such a reform would also better align market incentives. Traditional undergraduate institutions are behemoths that bundle a host of varying credential options. By partially unbundling these offerings through DT, schools could help higher-education consumers make informed financial decisions. It’s true that undergraduate degrees “pay off” on average. But as higher-education economist Preston Cooper illustrated in a May white paper, outcomes vary widely, depending on degree program.
While there is certainly a need for further research on the empirical impacts of DT, a landmark paper by Kevin M. Stange in 2013 found that DT, where implemented, had a modest impact on students’ pursuit of particular majors. In other words, the data seem to show that DT works, at least in certain circumstances.
The data seem to show that differential tuition works, at least in certain circumstances.While DT certainly has it boosters, there’s a reason it is not yet the default for all undergraduate institutions. First, higher education has traditionally been about far more than economic mobility. Some of the university’s greatest defenders are unwilling to turn higher education into even more of a marketplace. The university was originally understood as imparting a core liberal-arts curriculum to all students, educating them not only in how to produce value for the economy but in how to be competent citizens and govern themselves. Unbundling the university, even if just partially, could very well threaten access to a core curriculum for a critical mass of students. Even if the maintenance of such an education is, in the long term, necessary for the flourishing of a free society, that will not necessarily show up in immediate return-on-investment calculations.
Additionally, DT may stymie policymakers’ interest in filling strategic workforce gaps by disincentivizing the production of more STEM or nursing majors. These programs typically cost more per student than alternatives, and students could choose to pursue these degrees in smaller numbers because of higher sticker prices. While graduates of such programs may make more money in the long term, it’s not clear that students actually take that into account when making a decision to pursue a major.
As of 2019, over 60 percent of public, four-year, research-intensive institutions within the United States have already implemented such policies. That figure was only 6 percent in the early 1990s. The details vary by institution: “What one institution called ‘differential tuition’ others might advertise as ‘program fees,’ ‘major fees,’ ‘additional fees,’ or ‘enrichment fees.’” Transparency also varies, with some universities giving prospective students very clear avenues to calculate how much different degree programs will cost them. Other institutions are less clear, “including [prices] as a footnote to the main tuition table, in explanations of special fees assessed to students, in a linked webpage, and/or in a downloadable PDF file.”
Universities choosing to adopt DT would be wise to keep several things in mind. First, they should be clear about their goals. DT is a good way for institutions to align instructional costs with tuition, as well as to make students more aware of the various program offerings available at a given university and how cost-intensive they are. Adopting such policies in a vacuum is unwise. Instead, college leaders should clearly signal to administrators, faculty, and students that postsecondary study is a significant investment of time and money—it isn’t a four-year resort stay. Building a culture that encourages students to make wise economic decisions and that exhorts administrators to think critically about the resources they are deploying on a department-by-department (if not a program-by-program) basis will likely decrease costs and increase how much bang students get for their bucks.
College leaders should clearly signal to administrators, faculty, and students that postsecondary study is a significant investment.Second, institutions of higher learning should be transparent with students. Markets work well only when consumers have a clear understanding of what they’re paying for and how much it costs. Implementing DT and then hiding this information from students is counterproductive. Prospective higher-education consumers should have a very clear idea of how much they will be paying for the program they pursue, as well as the projected economic outcomes for their given field of study.
Lastly, universities should not lose sight of their non-economic utility. The university is the nucleus of the modern Western world. It is so not because it has served as an engine for economic growth (though it has!) but because it has fostered free and open inquiry, pursuing truth no matter its political unpopularity. Despite its decrepit state, higher education remains our best hope of cultivating the artes liberales—the knowledge and habits of mind requisite for the formation of free people and a free society. Universities are more than glorified vocational schools.
University leaders are right to pursue innovative solutions as they stare down the barrel of a shrinking consumer base, but they should be strategic in how they implement cost-saving solutions. Schools that can cut costs while improving outcomes will be well-prepared for American higher education’s looming winter.
Joe Pitts is the CEO of Odyssey Consulting, where he focuses on issues such as higher education, economic development, and smoking-harm reduction.
This article was originally published at www.jamesgmartin.center
