Chip Taylor

Higher ed financing, continued

I ran across another article related to the one I posted about yesterday. It starts with a public official exhibiting shocking candor:

King Alexander, president of Murray State University in Kentucky, wants the world to know how many universities set tuition prices. It works like this:

1. The university raises its official tuition price.

2. The higher tuition qualifies many students for bigger federal and state grants, which are passed on to the school.

3. The university writes a "scholarship" to cover the rest of the tuition hike, so many students don't actually pay more.

"It is a shell game, pure and simple," Alexander says. "A lot of schools set tuition prices to maximize grant money and then use institutional (financial) aid — which isn't real money — to set the real tuition."

Alexander estimates that 28% of the 10,000 students at his public university in Murray, Ky., would get more aid if it raised its official tuition price and then gave scholarships as discounts.

Some schools offer other reasons than just scamming the feds for moving to a high-tuition/high-aid pricing model:

High tuition carries prestige, especially at top schools, and huge scholarships are a powerful tool to attract students. Private schools have used this strategy for years.

"The private-school model is based on 'perceived value,' and high tuition makes people think a school has a lot to offer," says James Garland, president of Miami University in Oxford, Ohio.

Miami University, a well-regarded public school, will move to the private-school tuition model this fall: a high list price and big scholarships. The university raised in-state tuition to match out-of-state tuition, $19,718. It then will give students from Ohio automatic scholarships of $5,000 to $6,200 to make up the difference.

According to supporters this can accomplish several objectives.

For one thing, according to Garland, the higher price signals to students (or their parents) the true value of their education. Eh. Maybe; maybe not. It will at least help make the taxpayer subsidy more transparent, a benefit pointed out by Alan Krueger back when Miami University announced their plan. So, when legislatures cut aid to public colleges the colleges can point out that tuition hasn't increased, but rather the public subsidy has been cut.

Furthermore, Garland and Krueger both suggest that this type of pricing allows schools to price discriminate by giving lower-income families larger discounts.

Garland says the private-school model lets colleges charge wealthier students more and use the money for extra aid to low-income students.

This makes college more affordable for the low-income students, but Krueger says that higher-income families should go for it also:

The students who would pay more under a high-tuition/high-aid policy are from well-off families. In return, they would get a higher-quality education with more diverse classmates.

Maybe. From what I've read elsewhere it's been kind of a tough sell in Ohio, though they appear to be going through with the plan. Last semester I wrote a short paper about this issue. I suggested two potential pitfalls for public colleges switching to high-tuition/high-aid programs, one political and one economic.

First, the political. They tend to be met with resistance by both elected officials and families. So, they can be tough to get passed in the first place.

Second, there are economic (really political-economic) reasons why they might prove unsustainable. Even if wealthier families are convinced to support the change, you narrow the gap between in-state tuition and tuition at private colleges or public colleges in other states for the families already most able and most likely to send their kids to those other colleges in the first place. This will tend to reduce the number of wealthy families using in-state colleges.

If you reduce the number of students from wealthier families who use in-state colleges, you reduce the number paying the higher tuition that is used to provide the aid to other families. Reduce those numbers enough and the system falls apart. Further, if you encourage more high-income families to use private or out-of-state schools, you may well erode political support for the taxpayer subsidy.

On the other hand, if enough states moved to this model you might pick up enough out-of-state students to offset your own defectors, as it were. So, I'm not saying it won't work.

Actually, I like it. All things considered, I think it is much better than the way tuition is generally set now. Of course, I'm not paying full tuition, so take what I say with a grain of salt.