Differential Tuition: A Matter of Fairness

Posted by: Louis Lavelle on February 21, 2012

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There’s a new study out from the Cornell Higher Education Research Institute that suggests that differential tuition—the practice of charging some students more than others at public institutions—is on the rise. The study found 143 colleges or universities with some form of differential tuition, including 29 percent of bachelor’s institutions, 11 percent of master’s institutions, and 41 percent of doctoral institutions. The number of schools following the practice has grown every year since 1985.

Why should this matter to business students? As we reported back in March, the burden of many differential tuition policies falls disproportionately on business students (as well as engineering and nursing). At the University of Virginia’s McIntire School of Commerce, business students pay $3,000 a year more than everyone else. At the University of Tennessee, Knoxville, they pay $50 more per credit hour, a surcharge that will add about $3,200 to the their tuition bill over four years.

Many schools that are opting for differential tuition are doing so out of desperation. When Tennessee started last year, the number of undergraduate business majors had more than doubled since 2004, while the number of faculty hadn’t budged. State budget cuts were looming, federal stimulus funds were drying up, and classes were packed. Without more cash, the school would have had to start turning students away.

Given that the average tuition at four-year public colleges is now $8,244 for in-state students and $20,770 for out-of-state students, three grand is nothing to sneeze at. But is differential tuition fair?

The logic behind differential tuition rests on the assumption that business and engineering students will earn more over the course of their lives. But the sad truth is that not everyone graduates with a degree. According to the federal government just over half the students who start a bachelor's degree program graduate in six years. For business students in the other half who are charged a differential tuition, the higher tuition just means a bigger student debt load--a hole made all the more impossible to dig oneself out without the job opportunities and higher salary that a degree would bring.

For now though, let's consider those who do graduate with a business or engineering degree and who go on to earn those fabulous salaries. If they're earning more, then they're paying more in taxes, a portion of which goes to support the very same institutions that awarded their degrees (or state institutions in another state, if they move). In effect, they're already paying a differential tuition--to Uncle Sam and for the rest of their lives. Hitting them up for another $3,000 while they're still in school adds insult to injury.

Business has been one of the most popular majors on college campuses for many years, so charging business students more makes a certain intuitive sense. After all, if business teaches us anything it's that when demand increases and supply remains constant, prices will rise. But should education--a social good paid for at least in part by taxpayers--follow the dictates of supply and demand?

I would argue no. If business and engineering education does, in fact, lead to a more productive and better-paid citizenry, then colleges shouldn't be in the business of discouraging it by charging more. If anything, they should use differential tuition to discourage academic disciplines with less economic impact and poorer job prospects. As a society, we need to decide what we value more and start pricing college accordingly.

Reader Comments

Andrew Boysen (@boysenandrew)

February 21, 2012 5:55 PM

This is an interesting idea, but I do wonder about the other side of the equation as well. It is very expensive to compete in the engineering and business education space, and I know that at least in business, the facilities and faculty salaries can be more expensive that you might find in the liberal arts. The sciences also have the added expenses of labs. Without a price differential, are the liberal arts subsidizing business and science, even though they're graduating with worse job prospects? As long as the extra money is directly benefiting the students paying it, it might be hard to claim they're getting a bad deal.

Reason

February 21, 2012 7:28 PM

I would argue this is totally fine. But in order to promote STEM education for US citizens, we should lower the tuition for STEM majors who are US citizens. Foreign students pay more to begin with. We should charge higher fees to Business, Law and liberal arts majors, which let's face it are degrees of the idle rich. No one who needs a real job to survive would consider spending $100k on a useless liberal arts degree. Make them pay more to subsidize the STEM majors which we need a lot more of to reduce our dependence on foreign H1-Bs.

UVA Alumnus

February 22, 2012 12:00 PM

As a McIntire/UVA graduate, I fully support business students at UVA paying higher tuition if it allows McIntire to stay competitive in terms of attracting and retaining the best faculty talent while also providing programs and technology necessary for a top notch undergraduate business program. Finance and accounting faculty are among the highest paid because their opportunity cost of teaching is higher, i.e. in theory they are forgoing, by teaching, the opportunity to earn high salaries in the private sector. The same is true for engineering faculty. History and English professors, for example will, on average, not have the same opportunity cost, and therefore cannot command the same salaries as their business counterparts.

Re the "business students will end up paying higher taxes down the road" point in the article, universities across the country (esp. in Virginia) are becoming more and more like private schools as states seek to cut costs by reducing spending within education. The cost of academic research and faculty salaries must be made up somehow. Increasingly, that funding comes from alumni and students. So while successful business students may end up paying more back to the state in taxes, that money is increasingly being funneled to plug budget deficits in other areas. Moreover, the most successful finance students tend to leave their home states after graduating (esp. when going to a school such as Notre Dame, Wisconsin, etc.) versus staying there to pay taxes that benefit their alma mater. As an example, 33% of McIntire grads in 2010 packed their bags for NYC with roughly an equal number staying in Virginia (excluding the 14.6% going to DC).

I also feel the student debt / failure to graduate point is overblown when referencing a school like UVA where there is a high graduation rate due to the initial quality of incoming students. Keep in mind that UVA students only stay in McIntire for their last 2 years of college.

Let's not forget a college education is a privilege and not a right. This country was built on people taking risks, and for some taking on student debt to aim for a high paying job is worth the risk. If you really want to talk about education as a social good, let's subsidize the heck out of science and math because that's where the US has already fallen behind the rest of world. I'm fine with finance majors supporting that (myself included), when we're going out and earning six figure incomes right out of undergrad while producing minimal value to society as a whole. Let's not kid ourselves that society should pay more money so rich white kids can continue to earn business degrees from elite public institutions when we're only talking about $3,000 in tuition differential each year.

Westernfan

February 22, 2012 2:40 PM

If the Business & Engineering Graduates are likely to start at higher salaries, and are likely to earn more every year of their working life than say, an English or Liberal Arts Major, why wouldn't they expect to pay more for the education that makes that income potential possible? Convserely, you might argue that the current undiferentiated tuition is grossly unfair to everyone except those majoring in Business, Engineering and maybe some of the Sciences.

CJH

February 22, 2012 3:46 PM

Differential tuition makes sense when the costs of providing the education are higher. For example, engineering faculty can earn very high salaries in the private sector; art professors not so much. Schools have to pay much higher salaries, on average, to engineering faculty compared to art faculty. Since it costs more to provide the education, there is nothing wrong with charging more for it. Just makes sense and is actually more fair than charging all students the same rate.

CJH

February 22, 2012 3:48 PM

Differential tuition makes sense when the costs of providing the education are higher. For example, engineering faculty can earn very high salaries in the private sector; art professors not so much. Schools have to pay much higher salaries, on average, to engineering faculty compared to art faculty. Since it costs more to provide the education, there is nothing wrong with charging more for it. Just makes sense and is actually more fair than charging all students the same rate.

Robert Laughing

February 22, 2012 3:51 PM

Just another BS GIMMICK to get more pork, for the greedy overlords! The public SHOULD BE outraged....but prefer to be simply mindless, ready to be abused from cradle to grave....it's WORKING!!!!

Book Buyer

February 22, 2012 4:36 PM

As someone who attended a land grant institution for an engineering and graduate business degree, I would expect that the way to pay more for a degree would be to increase the credit hours necessary to complete that degree. The college could then inflate the cost of the course by increasing the number of credit hours certain classes are worth. As has already been noted, lab fees and recitation classes are an additional cost to students of technical and science degree programs.

To be candid about UT-Knoxville, if they have no barriers to entering the business college maybe they are not managing it well enough. Raise the standards to a higher level and you will see a decrease in the number of students choosing "business" as a major because they aren't admitted to the college. At my alma mater, we didn't get accepted into the College of Engineering simply by being an undergrad; we had to have minimum grades in core classes before being accepted. If we didn't cut the mustard we could be admitted to another college (major) in the university.

Jane

February 22, 2012 4:53 PM

@Andrew Boysen,

I think it would be fine if the increased tuition was being spent within the commerce and engineering programs, but generally speaking, this is not the case.

I go to the University of Calgary, and the university as a whole was looking at a great cash shortage. Tuition increases were proposed for many different programs, but the only approved hike was for the commerce program. None of this money has stayed within our program, and I have not seen any noticeable difference in the quality of my education.

An instant 47% increase in tuition is insane. I am extremely lucky that they grandfathered in existing students, otherwise I might not have been able to finish my degree.

I do not think differential tuition is fair at all. Don't penalize students for getting a degree from one of the "professional" faculties.

Andy

February 22, 2012 5:54 PM

Mr. Lavelle's argument is nonsense. The argument for differential tuition by major does not rest on whether graduates earn more or less after graduation. Hence it does not rest on whether tuition subsidies are paid by any government agency. The argument for differential tuition rests solely on the cost of production associated with that major. It has long been the case at many universities that hard science majors pay laboratory fees to adequately reflect the higher cost of a science education. Similarly, in the current market environment, business and engineering professors have better employment alternatives than do humanities professors. While we might wish that to be otherwise, business and engineering programs simply must pay more to attract high quality people. Students majoring in business and engineering should rightly bear the cost of studying in their chosen discipline and it should not be cross-subsidized by humanities majors within the university. Each student can then make a fair, and fairly priced, decision on whether they want to pay the freight to study in their chosen field. Having earned a Ph.D. and taught at the graduate level, I don't trust myself to tell an art major what the right amount of tuition is, other than the real cost of production, so as to maximize social welfare. I certainly don't trust Mr. Lavelle or a bureaucrat to make that call.

jondaly70

February 22, 2012 5:58 PM

I teach in the humanities at a small university in Ohio. I earn significantly less than my business and science colleagues. Consequently, it costs the university a lot more to offer business and science majors.
so....maybe it's not that unfair.

BW's Louis Lavelle

February 22, 2012 7:10 PM

This is a wonderful debate--thanks to everyone for participating. I would like to point out one thing. The consensus seems to be that higher faculty salaries in business and engineering increase the cost of providing a college education in those disciplines, and that the higher costs justify charging students a differential tuition. I'm not entirely sure I buy that, and here's why: according to the U.S. department of education, only about 27% of the $27,135 in total expenditures for each FTE student (2/4 year colleges, 2008-09) is spent on instruction. Business and engineering profs would have to be paid extraordinary sums to have an appreciable impact on the total cost of supplying an education. Also, the whole argument kind of assumes class sizes are the same in business/engineering and other disciplines, and I don't know that they are. If (for the sake of argument) business profs get paid more but business classes are more crowded, then they kind of cancel each other out. For what it's worth, lot of schools with differential tuition don't use all the money they raise to pay teachers salaries--some is used to fund institutional initiatives and some is used for financial aid. If it were needed for faculty salaries, you'd think it would all stay in the business or engineering school to cover payroll, but it's not.

Louis Lavelle
Associate Editor
Bloomberg Businessweek

business major

February 22, 2012 10:46 PM

I paid more for my business degree, but I think that's fair; classes were getting so crowded that people would have to stand at the back of the room to attend lectures, so extra faculty funding would be a big help. And I certainly don't want tuition be so relatively low that even more people enter business school-- my degree is already useless enough as it is!

I graduated a top 10% business major, dating a STEM major. The world had jobs for neither of us. I think tuition prices need to fall across all majors just because there are simply no full time jobs for new graduates to pay back current tuition prices with.

Keep classes small by raising admissions standards so degrees might mean something to someone again... but that won't happen, because schools are just another business only concerned with their bottom line.

RogerH

February 22, 2012 11:11 PM

I would think that a successful business student would understand the reasoning behind this more than anyone. From a supply side economics standpoint if there is a greater demand to study business and engineering, charging more seems logical, which then offers the ability to essentially subsidize less popular majors. The faculty costs and class sizes would be largely irrelevant in that equation. I feel that the converse of arguing that this would discourage citizens from pursuing productive and better paying degrees is arguing that by charging every student equally we're discouraging them from pursuing less popular lower paying degrees which are still essential to a well functioning society. On a more personal note I'm not completely convinced that having a disproportionate amount of business students in our society is having a sound economic effect.

Ryan

February 23, 2012 1:17 AM

If I am paying more for my education, I feel as if I should be given additional benefits at my University. This should come in the form of smaller class sizes, better research facilities, better professors, better materials, ect. I have yet to see this happen.

K

February 24, 2012 2:26 PM

As a parent who will soon be paying tuition for a business undergrad, I should caution UVA (and others) that there are limits to this sort of thing. Top students can attend most any top school they want, so tuition (and UVA's practice of requiring students to spend 2 years at the school before they can even know if they will be allowed to pursue a business degree) become very important factors in the decision process.

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