Selective Tuition Hikes Make Sense

Colleges are justified in imposing differential tuition—charging higher fees for certain courses of study such as business that pay more. Pro or con?

Pro: Free Choices, Fair Fees

In a business venture, greater value equals greater cost. Higher education is wise to follow that model by raising the tuition for business courses, which can propel grads into better-paying careers, as well as classes in certain other subjects, such as science and engineering, that cost the school more to deliver.

The practice, known as differential tuition (BusinessWeek, 12/4/07), especially makes sense for public schools, which often need to compete with prestigious private ones. Any extra monies that public colleges charge students can go toward luring celebrated professors and updating equipment and facilities.

For some schools it’s a matter of survival. An underfunded curriculum could lead to loss of accreditation for certain public schools, leaving high school graduates with no choice but to enroll in more-expensive private ones that have accreditation. Better to raise the prices. After all, a public school with higher fees for certain majors will still cost students less than a private one would.

Upon graduation, business majors—and many of those who studied science or engineering—will be in a better position to repay student loans than grads from other fields. (Know any philosophy majors whose first job pays $85,000 a year?)

And charging more for certain courses of study is nothing new. "At the graduate-school level, tuitions at business schools and law and medical schools are much higher than than they are at undergraduate institutions because of the financial payoff there is going to be," says Ronald Ehrenberg, director of the Cornell University Higher Education Research Institute. "So now, people are sort of doing the same thing at the undergrad level."

Con: Extra Charges, Bigger Headaches

Many students enter college with the goal of sampling different courses on the path to discovering their career goals and achieving general self-enlightenment. The prospect of asking already cash-strapped parents to fork over an extra $35 per credit, as is the case at Utah State University’s Jon M. Huntsman School of Business, could easily intimidate a French major out of trying a global marketing strategy class.

Likewise, the University of Wisconsin at Madison is making undergraduate business majors ante up an extra $500 per semester. Texas A&M’s Mays Business School is considering charging students $500 more per semester as well.

Such price hikes are antithetical to the traditional mission of public schools, to offer a quality education for those who can’t afford, or don’t want to pay, private schools’ frighteningly large tuition bills.

The higher tuition and extra fees schools require can sneak up on young people who, in the whirlwind of college spending and adjusting to a new way of life, may not fully understand exactly how tuition and living expenses can add up.

The University of Oregon charges "programmatic resource fees," not just to business majors but also to students majoring in certain other subjects that require special equipment, materials, or faculty services. "I didn’t know what the fees were when I first got the bill," says Emily McLain, a University of Oregon senior who serves as student body president. "Some students were forced into taking out emergency loans because they didn’t know the total cost."

And just because a school uses the extra revenue to hire bigger-name professors doesn’t mean all students win out. Eric DeFries, a senior business major at Utah State, notes that he hasn’t taken any classes from the seven new vaunted professors at his school. "I find it a little unfair for people who don’t get a direct benefit to be paying $500 extra per semester," he says.

Opinions and conclusions expressed in the BusinessWeek.com Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

andrew

In many ways, universities are more difficult to run than most businesses, because they have to deliver long-term value to customers (students/alumni) while facing short-term budget constraints.

However, differential tuition is not a solution to funding.

Differential tuition works better at graduate levels, because the education is more specialized and curriculum is more focused.

Undergraduate programs are too broad for this to be fairly applied. For example, engineering is one of the highest paid bachelor's degrees, but more than 50% of a B.S. engineering curriculum is composed of liberal arts and science classes (chemistry, math, physics, social sciences, foreign language). How should the extra money be divided among departments? Is this going to give the school incentive to change its acceptance criteria for engineering schools (less stringent presumably)?

Worse yet, is this going to give schools the incentive to value classes according to the sum of money they bring in? A consequence could be schools' cutting out the classes of "lower value."

Although differential tuition at the undergrad level sounds like free-market thinking, it is really an inefficient way of setting transfer price.

sue

I agree that charging extra tuition will discourage students from trying courses in more "expensive" areas. Plus it may discourage students from less affluent families from going into fields that would allow them entrée to higher paying jobs. This in turn may perpetuate the kind of socio-economic stratification that colleges should be trying to undo.

Andy

Why not? It is a basic of supply and demand law. The universities pay their professors differently, so why not charge their students differently, too?

Puneeth Joseph

All parents need to start saving for their children's education. Better to be safe than sorry. In this competitive world, it is better to pay a high price and give a quality education to children. Or else life becomes one long struggle for your kids.

Andy

Clemson University is already charging business school majors an additional $800 per semester. Of course, this extra fee is not mentioned to potential new students. Clemson surprises the student junior year when the student has to declare his major.

Buck Scalese

Universities aren't businesses; they are nonprofit institutions. I can understand lab fees for fields such as science, engineering, and aviation, but each credit of business classes should cost the same as any other class. To do otherwise will only discourage low-income students already dependent on financial aid from taking higher-value courses. Then again, that might be the point of selective tuition, though I dearly hope not.

daniel

Being an economics grad, I must say this is totally ridiculous. Universities are out to make money, plain and simple. Ever wonder why your professor only teaches two or three classes a week but drives a Porsche? Also, the university selects the courses within the degree plan. Talk about tempting them to load everyone down with mandatory expensive classes. College is just one big scam in today's world. Please give me a massive amount of debt for the chance of a $30k cubical. Thank you sir, may I please have another?

Ric

As long as the price hike is matched with low-interest loans freely accessible to students and it improves education, do it.

random

I'd like to do this in a dialogue.

"Hey dad, I want to take a law class next semester. I want to get an idea of what business law is like today."

"No. I'm sorry. Lawyers make a lot of money, so the class costs triple what all your other classes cost. This of course means that your major will land you in a profession with a pretty low wage outlook and poor starting wages."

"Ugh. Great. So we're spending $15,000 per year so I can get a $35,000 a year job that's considered a low tier career choice?"

"I suppose so..."

"I'm gonna go look in the paper. Maybe Mickey D's is hiring."

Srinidhi Prasad

Students who come from financially poor families may not be able to afford. In spite of some students being talented and deserving, they may not be able to take a the course because of the matter of price.

Doug

So what do they do when a philosophy major gets a computer science job and is paid more than expected? Is that student required to pay back tuition for getting a good-paying job?

carlosramirez

Universities already charge enough. What is needed is to reduce prices for lower-tier degrees as someone already mentioned.
Universities say their mission is to educate, blah, etc., but they are out to make money, to enhance their football team, Rutgers in New Jersey, for instance.

Amit

Why it is okay for the universities to be influenced by demand and supply? They should not completely lose sight of the primary reason for their existence and the social role that education plays in a society. Problems happen when market forces completely takeover.

Minick

Notions of supply, demand, long-term goals, and short-term constraints are universal and apply to nonprofits and for-profits alike. The only difference is that revenue generation is the means to an end in nonprofits, but is the end unto itself in for-profits. So let's ignore those issues for the moment since the difference really isn't significant.

I believe the primary issue is the implications of changing incentives for students. First, based on the basic economic principle that those with fewer resources have a greater value of money, it is undoubtedly true that this policy will change demand for "higher value" classes disproportionately based on wealth. The decrease in demand will be largest among those without wealth, leading to greater stratification as mentioned by Sue. Second, students will now have greater incentive to choose less costly courses for electives, which itself will change cost structures for departments. With fewer students in the higher cost areas, the fixed costs get spread among fewer incoming dollars and effectively raises the per-student cost of education (whereas the reverse would be true in the less costly areas). Unless administrators are careful, this could create a cyclic effect that damages fiscal health and raises large barriers to education in the "high value" areas.

dr. hoosier

I go to Indiana University, and I just got into the Kelley School of Business after my freshman year. I just found out that they have an additional fee for all students in the business school. I think it's like $500 a semester or something. It is just another way to hide real costs from prospective students. On the other hand, business professors get paid more than most professors, so it makes sense that biz students contribute more.

James

I can see why institutions would charge more money for some majors rather than others.

I just question the whole thing with limiting less fortunate students to majors that they can't afford rather than a major of their aspiration. I feel like imposing this will limit kids to major in topics of only what they could afford--especially an undecided freshman.

Isn’t the whole college experience to study in an area that you are most passionate about? Colleges are already expensive and will continue to rise as time goes on for all majors, so nobody will be catching a break.

Sheila

I was a business student. I'm not making big bucks. Where are those jobs? I'd love to know. How on earth is this even trackable? It seems grossly unfair to me. You punish everyone for a few who are lucky. A lot of business students seem to have lots of connections because of their parents. I hate this idea.

Sajinder

Universities could charge more for business courses as long as they make student loans and scholarships available to everybody, irrespective of the students' economic conditions. It's fair enough to charge more, when B-school degrees pay back the entire course fee in about a year.

Mike

So you're saying that since I make the career choice to study business, I should pay more just because that sector has a historically higher pay scale than other job sectors? That is just an absurd statement. The course fees should be the same for every department. Universities and colleges are non-profit organizations. A business class doesn't cost the school more than a writing class. In fact, most business classes are much cheaper for the schools than science and engineering courses. The prices of courses should not reflect the pay scale of the potential profession, but the cost to the school for actually teaching the course.

Stephen

One commenter mentioned supply and demand. In that case, the courses that the most students take, i.e., basic math and English, should cost the most, or the ones that have the fewest sections, upper level small programs.

Business classes cost more to the university, because the professors could be making more money working in business rather than teaching. And many more students want to study business because they think it will pay more.

It seems from the discussion that this argument only applies to public universities. It is assumed that private ones will charge however they want. I agree that public universities have an obligation to make any and all programs available to any student capable of doing the work. Therefore as long as loans, grants, and scholarships are provided to offset the increased tuition, for student in need only, then I feel it is sound. The students whose parents can afford the additional cost can help those who can't.

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