Tuition: Earn More, Pay More?

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Business school students are being hit especially hard. At undergraduate schools, the majors impacted are ones where the cost of delivering the education is higher—such as in engineering or science—or ones that promise higher salaries and financial rewards after graduation, such as business. While prices at graduate business programs at public universities have always been higher—the University of California at Berkeley's Haas School of Business recently announced a plan to raise tuition to $40,000 a year by 2010-11 (BusinessWeek.com, 9/25/07), from $26,881 this academic year—undergraduate programs are just now beginning to follow suit.

A&M's Plan to Remain Competitive

Other schools planning to implement differential tuition are Texas A&M's Mays Business School, where administrators are hoping to charge business students an additional $500 per semester next fall. Meanwhile, the Iowa Board of Regents approved on Dec. 4 a proposal that will require juniors and seniors in the University of Iowa's Tippie College of Business to pay $1,500 a year more next fall, on top of $6,524 in tuition and mandatory fees.

Business school deans maintain that the tuition hikes are necessary so that business schools at public universities don't fall behind their peer schools and potentially risk losing accreditation, they said. It's a move that is better for students in the long run, said Douglas Anderson, dean of Utah State University's business school, where differential tuition fees will raise an additional $1 million for the school this year.

"It goes to the question of the brand value of your degree. Do you recruit top talent or do you fail to keep pace with the new talent that is out there?" Anderson said.

Texas A&M has struggled to keep pace with the competitive market for business school professors while also maintaining the quality of their program, said Dan Parker, associate executive vice-president of the university. It costs the school about $125,000 to $135,000 to hire an undergraduate assistant professor in finance or accounting, and state appropriations have not kept pace with the high salaries being commanded today by business professors, he said.

To cope, the school has decided to charge business students taking junior- and senior-level courses an additional $500 per semester, funds that will bring in between $2.5 million and $3 million for the school, Parker said. Like many schools that implement differential tuition, the school plans to set aside 20% of the additional funds raised for financial aid. If the plan is approved by the Texas Board of Regents, it will be implemented next fall, he said. The university also is considering differential tuition in its other colleges, but wanted to try out the model on business school students, he said.

"These guys have pretty [high-paying] jobs waiting on them when they graduate, so even if they take out loans, it is a lot less of a burden than a lot of students in other fields would have," Parker said.

Some Schools Buck the Trend

Still, not all schools are comfortable with the concept. Joe Gow, chancellor of the University of Wisconsin-La Crosse, briefly toyed with the idea of charging students more based on their major, but ultimately decided to implement a uniform tuition hike for all students at the school, where fees raised would go toward hiring new faculty and staff for the entire school. It's a different tactic than the one taken at a sister school, the University of Wisconsin-Madison, which is charging undergraduate business majors $500 more each semester for the first time this fall.

"I don't know if that particular approach would work for us. I think there would be students who would probably say, 'Why do I have to pay more to study business' and that question might be harder for us to answer than it is for Madison," said Gow, referring to Madison's strong reputation as a business school in the state.

The transition for students at schools like Utah State, which began differential tuition this fall, has proceeded smoothly, said Eddie Norton, a senior at the school who serves as the school's business senator. Students are already reaping the benefits, with seven new professors and new programs, such as a trip to Europe this fall where junior business majors learned about global marketing.

Donations Can Tip the Balance

"Initially, I think it was pretty hard on the students because no one ever wants to pay more money than they have to," Norton said. "But once we began to be educated about it and what the money was for, it has been a lot better received and a lot more understood."

Of course, the $1 million that Utah State is raising from differential tuition can pale in the face of big donations—such as the $26 million from businessman Jon Huntsman announced by the university Dec. 3. Almost all of that donation is going to the business school.

With the announcement, at least one person is questioning on the school Web site the need to continue the business-major surcharge. "Awesome!" wrote the poster, who called himself, "poor business college student." The poster added, "Now you can lower the business tuition back to where it should be…even with all the other tuitions."

Join a debate about differential tuition.

Damast is a reporter for BusinessWeek.com.