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My inbox this morning greeted me with two things. First this:

University Sets Tuition Rates for 2014-15 
Tuition for undergraduates in the College and the Eastman School will be $46,150 in the 2014-15 academic year, a 3.5 percent increase from 2013-14. Read more…

Then this:

Does Classroom Time Matter?  A Randomized Field Experiment of Hybrid and Traditional Lecture Formats in Economics
by Theodore J. Joyce, Sean Crockett, David A. Jaeger, Onur Altindag, Stephen D. O’Connell

We test whether students in a hybrid format of introductory microeconomics, which met once per week, performed as well as  students in a traditional lecture format of the same class, which met twice per week.   We randomized 725 students at a large, urban public  university into the two formats, and unlike past studies, had a very high participation rate of 96 percent.  Two experienced professors taught one section of each format, and students in both formats had access to the same online materials.  We find that students in the traditional format scored 2.3 percentage points more on a 100-point scale on the combined midterm and final.  There were no differences between formats in non-cognitive effort (attendance, time spent with online materials) nor in withdrawal from the class.  Comparing our experimental estimates of the effect of attendance with non-experimental estimates using only students in the traditional format, we find that the non-experimental were 2.5 times larger, suggesting that the large effects of attending lectures found in the previous literature are likely due to selection bias.  Overall our results suggest that hybrid classes may offer a cost effective alternative to traditional lectures while having a small impact on student performance.

Where to begin? The CPI increased by about 1.1% over the last 12 months, so our tuition rates are increasing at triple the “average” price increase. Of course, this is not Lake Woebegone, someone HAS to be above average just as someone has to be below average. This continues a trend where the sticker price of universities has increased at more than twice the rate of inflation going on 40 years. 

  1. This is sticker price. The “right” figure to focus on is what the “net price” (i.e. price you actually pay after financial aid awards) has done over the same period. I’ll leave it to my readers to imagine. I will note however that the net price of community colleges has been flat for nearly two decades.
  2. Almost no one has an incentive to keep college sticker prices down who is currently affiliated with the university, including yours truly. I suppose my “strategy” is to hope  the whole thing doesn’t blow up before I decide my time is up. 
  3. Let me give readers a flavor for how these tuition dollars are spent. It’s a flavor addition by omission if you will. For example, I teach about 600 students per year in my classes. Folks probably think I am overworked in my teaching load, and maybe that’s true in some relative sense, but to be quite honest I could teach one more full blown class with no problem, and probably several more. Indeed, I’ve offered to do so in the past and have been politely turned down (even when I offer to do it for no money cost, but that’s another story for another time). For arguments’ sake, suppose the “all-in” cost to have me teaching, including the indirect costs associated with my use of the library, office space, the direct and indirect cost of benefits, salary and a whole lot more, are somehow up at $150,000 per year. At $46,000, spread across 8 classes a year, a typical “full-pay” student pays $5,750 per class. So, it would take me only 26 student-classes to fully cover the costs of having me teach here at the University. This means that the tuition revenues generated by the other 574 students goes elsewhere. I will not here elaborate on the elsewhere, I just want you to focus on: 96% of the tuition dollars that “I generate” go somewhere other than me (which is fine by me by the way, I happily signed my current contract) – so in a universe filled with people claiming that labor markets are really exploitive, then it’s a bit striking that so much of “my” surplus is extracted each and every year. I bet that this is “worse” than even the most “extractive” Walmart and its “ilk” do. Again, we can lecture you on wage determination and exploitation at some other point. Another point is that despite this, tuition fees still increase, despite the fact that folks like me can both teach more, and given results like the paper above – that we can deliver our teaching in far more cost-effective ways than we currently do. 
  4. Among the other puzzling facts about university life, and there are many, is that the places are really like little islands of anarchy in a sea of  typical governance. Yet I would bet a decent pile of cash that most people who are drawn to university life would be quite vehement in their opposition to anarchy.  

Vance Fried has written on how he could deliver the same sort of education that we currently deliver for less than 20% of this cost.

11 Responses to “The $46,150 University”

  1. Greg Van Houten says:

    Ah, it’s been awhile. The rising sticker cost is interesting. Are you aware of anyone examining the returns to marginal increases in tuition $ spent? As in, imagine two students (x and y) who are identical. Student x goes to Rochester for $50k, student y goes to MCC for $10k. How does that extra $40k/year translate to earnings post-grad for x and y? Is it worthwhile for x to go to Rochester?

    • wintercow20 says:

      Hi Greg,

      There are mixed findings on the OVERALL picture – such as attending U of R versus Geneseo. A famous study finds elite colleges matter, another one doesn’t. However, I have not seen a paper examine what the returns are to doing 2 years at a CC and then transfering to an elite college. In any event, the NET returns to college are still strong, despite this. And it’s not clear a priori where the gains would go should colleges get cheaper. However from an economic standpoint, if we are using fewer resources to deliver the same quality higher education then of course we are all better off.

      • RIT_Rich says:

        From an economic standpoint. But from an economic standpoint we’d also all be “better off” if all profit made by firms was eaten away by competition. Problem is, that doesn’t translate all that well to goods that don’t compete on price but rather on quality, like higher ed.

        Schools like U of R don’t compete on price. Obviously, there’s a “price per level of quality” measure we can think of, but that’s not directly apparent to the consumer. The selling point is the quality of the education.

        Now, I’m sure the literature is mixed on the results, as you say, but “anecdotaly” we all understand why the “quality” of a comparable degree at Geneseo vs. U of R isn’t the same, and doesn’t lead to the same long term results.

  2. Harry says:

    I am impressed with WC’s teaching load, and I hope the university’s bean counters and deans appreciate the contribution to the company. Given that WC drives himself to work and occupies an office that was paid for in part or in whole by someone named Harkness, he is a low-overhead guy making a big profit contribution to the university and a big service to his students, especially the ones who line up for office hours.

    In college I took an American Literature course taught by a star professor; he was great when he showed up, but after spring break he stayed in Italy for two weeks, missing four hour and a half classes.

    I figured that every class I took cost approximately what it would cost for a box seat on a Saturday night at the Met. I was not the only one who did not feel cheated, although at the time I did not have the wisdom to raise hell and ask for a tuition refund to my parents, who had just sent money for weekend food. This star probably had an annual workload of under a hundred students, and for me he had to grade just one paper. Don’t get me wrong, it was a memorable course, but I was cheated. I wish I had spent the class time listening to and arguing with WC.

    I wish I had done a project for an educational institution, to know fully where all the money goes and how it is wasted in full detail. I can speculate about how screwed up every area might be, but do not have any good job stories beyond the teaching jobs I have had, where I did not have access to the books and the big picture. (My brother was once Vice Chairman of the Board of our school, with access to numbers, but he had no way to know what was really going on without being on the floor, in the front line.)

  3. RIT_Rich says:

    I’ve always thought the problem with universities, all of them, is that they are too cheap, rather than too expensive. Surely the state ones are far too cheap, but so are U of R or Harvard or the rest. Price, as I understand it, is set by supply AND demand. At 6% acceptance rate for Harvard, or 35% for U of R, I’m guessing that the argument that they are “too expensive” simply isn’t being reflected in the demand for their good.

    Second, I’ve never understood the need to compare tuition rates with inflation. I know it’s shorthand, but still.

    Third, whatever we may all argue is the “problem” with US higher ed, or if there even is a “problem”…what we can all probably see with our own eyes is that the US university system is by far the best in the world, measured through any objective or subjective measure of performance and productivity. So the question is…what’s the “rush” to go tinkering with something that we can’t even understand what is causing this supposed “problem”, or when we can’t even figure out what this “problem” even is.

    Seems to me…higher ed…is the Global Warming of libertarians 😉

    • wintercow20 says:

      What makes it so is that the output is indeed hard to measure. RIT_Rich has an excellent point on his last comment, but what I’d argue is that we are not seeing an equilibrium here that permits competitive unbundling of what happens at the traditional universities. So,I see no reason why the U of R cannot go on existing in a similar capacity as it does today, but I also see no reason why “Wintercow College”, an overpriced, middling liberal arts college in Palucha, needs to be all things to all people and charge $46,000 for it. Problem is that the accreditation system makes it hard to unbundle and be certified, and long-lived signaling issues afflict the certification of students who attend lower-cost unbundled options.

      As far as sticker prices being too low: spot on.

      One last thing, despite the (correct) insight that the sticker prices are too low, this does not imply that the places operate efficiently, but also universities and students are actually engaged in a joint production process, and therefore it makes sense to ration incompletely by price.

      • RIT_Rich says:

        Right. I totally agree. Unfortunately I don’t see many on “our side”, at least in pop-culture publications (like blogs, newspaper opinions etc.) make these arguments in the way you are making them. I.e., there are real…and costly to overcome…information problems (there’s asymmetry and costly to unbundle). Which leads to a…natural…or economically efficient reason for universities to exist in the way they do. And leads to strict, but at the same time general third-party rating systems.

        What I see more of, in the “pop culture press”, is either a hand-waving of the massive costs associated with trying to reduce these efficiency constraints, or the assumption that what leads to universities being as they are is purely “self-interest” of the “bureaucracy”.

        I.e., the “default” “libertarian” position on any particular…seemingly…economic inefficiency is that it’s a) malice, or b) government intervention’s fault. When the default position ought to be “there’s probably a good economic reason for this arrangement”.

        I.e., the argument is that the current arrangement serves to reduce transaction costs…for the employer, given the massive information asymmetries that exist between them and prospective employees, and the cost associated with unbundling specific types of information. It’s not clear to me how any of these alternate “models” provided by “pop culture libertarians” a) reduce these transaction costs, instead of raise them, and b) affect the underlying value of the education provided.

        In fact, the existence of a “problem” in itself isn’t entirely clear to me given that the performance of the current system seems to be, more than really good.

  4. Speedmaster says:

    The first thought I’ve had on this so far …

    We’ve visited a bunch of colleges over the last year (two kids in high school), most of them private. It’s overwhelmingly clear to me that college (at least, or especially the first 4 years) has become a high-end country club for 18-22 year olds. The amenities in these places are mind-blowing now. It seems like they simply can’t spend enough.

    Second thought …

    In every American city I’ve visited in the last 10 years (not that many really), it seems like the places where you see the most cranes and construction equipment are almost invariably colleges.

  5. Harry says:

    RIT_Rich (a monicker difficult for iPhone users), I learn something each time I read TUW; when you and WC talk of problems with colleges and universities, I defer to you two, who are employed academically and have a direct interest in and knowledge of the river which you swim.

    Rich, my daughter has applied to RIT’s online executive MBA program. You some time ago told me that the program had drawbacks versus getting, for example, a straight MBA from Harvard, or the best full-time MBA program one might find. What I told her, in encouragement, was to go for it. Understand that long ago I relinquished any control over my daughter, who has found success. She wants to run a company, but knows there are voids in her business experience.

    She also expects two hard years of study as a part-time student. Her company, and her boss, who also got an MBA from RIT, will give her slack. I am not worried about any of this, because she is my daughter, as capable as her dad.

    It would be most ironic if Rich were one of her Perfessers. (:-)

  6. Harry says:

    Thinking about it, even given that according to the Federal Reserve inflation has been subdued, how can $46M be a bargain, unless the bargain could be sold for a big profit tomorrow? Would I spend a third of a million dollars on my child’s education, hoping that somehow our general family situation might be improved, by any measure, thirty years hence?

    We of course provide for our the education of our children for many reasons where we do not calculate the net present value of the total return. They are our children after all, and we will starve ourselves for them, give them our all, as our parents did for us.

    But I have zero sympathy for paying underworked professors, idle administrators, and other folks who populate a bloated payroll. $47,000 buys ten of us an Oxford tutor and pays for a lot of extras, too, like heating bills, real estate taxes, food, etc.

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