The Economics of Higher Education, Part 2: Different Major, Different Tuition

It has become increasingly common for colleges and universities to charge different tuition for different undergraduate majors. Do those prices actually influence degree production? In a new working paper (abstract; PDF), Kevin M. Stange argues that the answer is yes:

In the face of declining state support, many universities have introduced differential pricing by undergraduate program as an alternative to across-the-board tuition increases.  This practice aligns price more closely with instructional costs and students’ ability to pay post-graduation.  Exploiting the staggered adoption of these policies across universities, this paper finds that differential pricing does alter the allocation of students to majors, though heterogeneity across fields may suggest a greater supply response in particularly oversubscribed fields such as nursing. There is some evidence that student groups already underrepresented in certain fields are particularly affected by the new pricing policies.  Price does appear to be a policy lever through which state governments can alter the field composition of the workforce they are training with the public higher education system.

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  1. Andy Rupert says:

    Would it be wise for a university to publish, next to the price of the major program, the average entry level salary for such degrees? This way a rate of return can be measured.

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    • Geoff says:

      You’d have to do it by industry AND major (similar to the way the NACE salary survey does), unless every major gets a job in the same industry or field. Let’s say an economics major takes a job at JP Morgan in Denver (~$65k), and the same year another economics major takes a job as a math teacher for Teach for America in the same city (~$32k). Or another economics major works at a non-profit research org (~$28k)… Three very different salaries, three very different fields. Average salary: $41.6k–very misleading.

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    • Katie says:

      A little off topic but to expand on what Andy says, as a recent college graduate (B.S. in Accounting / Finance) who was able to pay 90% of all college costs with scholarships, I think many of my peers would have benefited from knowing more about the average entry level salary for degrees. This does not apply to every college student, but there are numerous recent graduates that I know who have Liberal Arts degrees from private universities with $150,000.00 plus of school debt and now that graduation has come they are beginning their careers making less than $30,000.00 (pre-tax!); Not everyone thinks in an analytical way, but I think it would be beneficial to college freshman (18-19 year old individuals) to be presented with some sort or cost / benefit analysis before entering into any type of degree program.

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  2. Ken says:

    If ability-to-pay post-graduation is a factor, does this not imply that STEM and other fields notionally underrepresented in the work force will need to pay more? Won’t this have a negative societal impact in that will further discourage study in the very fields most in need?

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    • Phill says:

      As a STEM major who attended school in the 90′s I can say with high certainty that English and Communications majors partially subsidized my tuition. This system seems to have worked pretty well in the 20th century, but I can sympathize with an English Lit major who doesn’t want part of his/her tuition being used to pay for an electronics lab.

      If differential-tuition were brought to its logical extreme, engineering degrees would be some of the most expensive ones at a university. And local/regional/national governments would probably need to subsidize or otherwise encourage students into those programs.

      The question that comes to my mind is this: are tuitions at liberal-arts schools much lower than tuitions at tech schools and large universities?

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      • Mike B says:

        I think its is actually more of a Wash. Yes science labs cost more than waste paper baskets and pencils, but humanities departments need more diverse classes and smaller classes. Lab space is also often paid for in part by grants and other direct research funding. Humanities doesn’t produce much residual value and must be fully funded from tuition.

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      • Joe J says:

        ‘are tuitions at liberal-arts schools much lower than tuitions at tech schools and large universities?”

        A quick look would indicate not really.
        Tuition MIT 43,000
        Tuition RPI 45,000
        Tuition RIT 34,000

        Tuition Yale 42,000
        Tuition Harvard 40,000

        I’m fine with the idea of charging based on cost. But charging based on future possible earnings, could cause undesired feedback loops. For example, a degree in say Music gets you little future pay, so it’s tuition is lower, causing more to take that degree, making competition increase and the pay to drop even further.

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      • tylerh says:

        “If differential-tuition were brought to its logical extreme, engineering degrees would be some of the most expensive ones at a university. ”

        Agreed. However, a development since our day mitigates this: Engineering schools also have higher enrollment requirements.

        When I went to my state engineering school the BeeGees where still touring, anyone who wrote’ Engineer” as the intended major on the one page application form could attend engineering classes. Now, a prospective engineer demonstrate proficiency and fulfill a formal admissions process to enroll.

        Combining this screening with intelligent financial policies would be mean state dollars (marginally) flow to students likely to succeed, but maringally most likely to not complete for financial reasons.

        That seems like a good use of my tax dollars.

        Also, this how Germany, Japan, Israel, China, and many of our other economic competitors ration their engineering ecducation resources.

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  3. Bridget says:

    If what you or your parents can afford now determines how much you have the potential to make after you graduate, what does this do to social mobility?

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