Friday, May 19, 2006


Sunk Cost as a Motivator?

I heard an idea yesterday that gave me pause. We were discussing ways to improve enrollments and retention, again, when a professor suggested charging higher tuition in a student’s first semester, and lowering it each subsequent semester. The idea is to reward persistence, such that a student’s final semester before graduating would be nearly free.

Example (drawing on yesterday’s algebra discussion): if current full-time tuition for a semester equals x:

1st semester: 1.75x

2nd semester: 1.25x

3rd semester: .75 x

4th semester: .25 x

Or something like that. For part-time students, just pro-rate by credit hours. Use the ‘sunk cost’ fallacy to goad students to graduate.

I have to admit, I’d never thought of that.

Someone else had a variation on it: a graduation deposit. Have each new student put a chunk of money down as a graduation deposit, refundable with interest upon graduation. Sort of an incentive to stay the course. That one bothers me more, since it seems to create a perverse incentive for the institution.

Oh, wise and generous readers: what do you think? Would the sunk cost approach work, or would it just scare students away upfront? Would students just transfer in their first semester of coursework and screw us that way? The idea is just cool enough that I don’t want to discard it without batting it around first.

I would be really uncomfortable with the second option, for the precise reason you stated -- it gives a sense that it is in the school's best interest for you to drop out.

The first option sounds really interesting. However, I think I, as a student, would have avoided a school with that policy. It would just seem a little weird, a little complicated, and might indicate that the rest of the experience at that school would be similarly out of the ordinary. If *every* school did it, or every CC in a particular system, it might not seem so strange.

What about promises of fixed tuition rates? Perhaps your school already does this, or perhaps it's not a concern where you are. My state U system has recently been enacting some strange tuition increases -- strange in that students would find out in July that they needed to pony up another grand in August. One of the solutions that was called for was a fixed tuition rate for an incoming class, no matter how long it took them to get their degrees.
This may be a crazy idea, but what about about states moving back to their original charter of supporting the education of the population, rather than supporting the incarceration of them?
The idea is an interesting one. What would make more sense though is to charge 1.25x for 3 semesters and .25x for the 4th. It is less scary up front and creates the real incentive where you want it, to get to the finish.
It isn't quite sunk cost that's doing the motivating here-- by lowering the tuition in later semesters, you're lowering the marginal cost of continuing to take classes. Which is good.
How about cutting nearly all administrative positions. Do we really need deans?
The University of Houston is embarking on a plan something very much like this.

Starting in the Fall of 06, FTIC students who complete 30 credit hours in twelve months will recieve a $500 credit towards the next year. If they have 60 credits after 24 months, they get a $1000 credit towards the third year. If they complete 90 credits by the end of 36 months, then they get a $1500 credit for the fourth year.

This is designed to improve "retention".
One of my colleagues does something like this with her children. The kids pay for their first 2 yr of college and the parents pay for the last two.

It works for the girl, who is responsible, compliant, and motivated and probably would have been fine anyway. It doesn't work for the boy, who is a flake. N that small can't possibly answer your question but at least you know the idea is not completely from outer space.
One thing I'm wondering about is how this would work with student loans. I'm not in the US so forgive me if I'm overlooking something, but in Canada the amount a student can get in student loans doesn't change each year. The maximum student loan is barely enough to pay tuition and living expenses, so under this sort of system I can see things becoming really difficult for students who can not afford to go to school without loans.
It is a creative proposal to increase retention, but it may send mixed messages. Are later, more advanced worth less? Are first-term classes more costly to implement?

As Annie pointed out, it would be easy for students to shop elsewhere.

She also suggested fixing tuition. That seems to be well in the spirit of what you are trying to affect. By fixing tuition for continuously enrolled full-time students, you are still rewarding students, and keping it simple for you, the students and the bursar.

Students here at Mediocre U. would be thrilled with a tuition fixed at their matriculation.
"continuously enrolled full-time students"

seems like it would be very hard for our student population to work with this.
I like the concept. How about charging student double or triple tuition each time a course is repeated? Mabe start charging extra the third time a course is taken.
A previous commenter had mentioend a system wherein there was a fixed tuition cost no matter how long a student was in the system. Given how many students take an extra year or two to graduate, I'd rather see a system that rewards students finishing more or less on time - promise a fixed tuition rate for 4 or 5 years. Students have a strong motivation to finish on time, since if they don't, there may be a sudden jump in their tuition. It allows planning ahead for college expenses - even the jump is predictable. And if you are worried about losing students to the balloon payment, recall that the students still have 4 or 5 years invested in the education, and are still likely to want to finish. And if you motivate more students to finish in 4 or 5 years, you can educate more people with the same institution.
A previous commenter mentioned something very important - the impact on financial aid. The total award (Pell, loans, etc) is based on both total hours and cost to attend. A student could conceivably be penalized for continuous enrollment. I rely on my aid "profit" to pay for childcare - without which I could not attend at all. Perhaps retention scholarships or book vouchers would add some incentive, however.
I don't know how intentional this was but that's the way it was for me in college.

We had 3 years with 3 terms each. First term was the most expensive and it went down each term. Although the cost of needed supplies went up. I found it nice becasue as I got more stressed with my projects, I was less stressed financially.
As a cc, our tuition is low enough anyway that we'd still be well under the student loan caps, even with the front-loading. More expensive schools might not have that option, though.

I'd be worried about the impact on part-time students, who usually try to work their way through, and (the flip side) about creating an incentive for students to take their first semester elsewhere and transfer it in.

And yes, we need deans.
Hmmm, I can see some ways of gaming the system. Defer harder subjects until later so you can take (and retake!) them cheaply. Defer graduation for another term or two because the tuition costs aren't really that much!

Sometimes the extra time in the system is for a good cause: I took five years to earn my B.A., not because of failures, but because I switched from hard science and engineering to history: I actually completed enough credits in the first area to walk away with an associate's degree but I didn't want to just come out with any degree, I wanted to get the education I'd learned was the best fit for me.
I do think you need to have some mechanism built in to avoid the 12-year undergraduate plan. Perhaps after earning x number of credits beyond what is required for a degree, the cost goes back to full (or even more)?
I don't really like the second option, seems it might exclude more students than the first. The first one is very intriguing. Really it might work and actually retain students.

To answer the loan question posted in a previous comment, I do know that a student that is a senior can borrow more in Federal loans than a student that is a freshman. When I was a freshman, I borrowed and my parents also borrowed to pay the university. As I progressed through my program, they borrowed less and I borrowed more to pay the bills.
Interesting thought. Could you make it optional? That is, could you give entering students the choice of financing strategies, to test the market for acceptance?

I would guess that 1.75x front loads the cost rather too much, and something closer to 1.5x would be more acceptable, without losing the incentive effect you want. Also, to compensate for the time value of money, you might enlarge the back end discount somewhat, so that the prepayment option saves 5% off the total tuition bill.

The financial credit for achieving certain goals mention above seems like a easier-to-implement alternative to the same goal, though it might cost some real revenue.

The hidden assumption here is that retention is inherently a good thing. In fact, some unknown portion of the students dropping out are better off quitting and entering the paid work force.
It isn't just the tuition that is scaring away students, it's the fees. Take for example the alma mater that my two oldest children attend. They are both in disciplines within the liberal arts, which encompases many majors as well as the university core curriculum of English, Humanities, etc. So why is it, when they have a captive population that MUST take courses within this college of the university, that they are in the red? And being in the red, they charge fees on top of every other fee just to have a class in that college, which screws those liberal arts majors, music majors, dance majors, literature majors are not only penalized for core classes, but for simply daring to take a major in that college. And what is worse is that certain populations are exempt from the fees. The criteria varies with the political whims of the administration. Frustrating. I would also add that some universities further abuse students and their families financially by changing degree plans on a whim, or simply dropping majors even when there are still students enrolled with significant hours toward that degree. And don't get me started on the whole book issue. I actually knew a family that ran the bookstore across from a very expensive private university in Texas. Their kids lacked for nothing. I don't begrudge making a profit, but I have an issue with doing it when the consumer has no alternative.
I have an unusual perspective on these suggestions, considering I'm taking community college coursework after already completing my B.A. I can't see that any of the adjustable rate tuition ideas could ever be fair to a person like me, who is going to school with the goal of building references and enhancing workforce skills.

Yes, I registered in a program that will eventually end with the granting of a diploma (and I think it's necessary to be in some "program" to get government loans), but I don't totally agree with the coursework mapped out by the school, so I am choosy. I don't intend to pay $400 for a couple of credit hours in keyboarding, for instance.

I think the "problem" of attrition is related to the worker's experience of the economy, and if things were to take a dive, you might have to readjust any tuition breaks that might get implemented for persistant students, because outside forces would compel more people to remain in school.

Also, I think you can't overlook the fact that for young adults, college (and community college) is a time of trial and error and learning about life. Some of them are already marginal students and just enroll in CC until they either repeat their earlier academic failures or a better option arises.

I think that attrition might be reduced by learning center strategies that help marginal or learning disabled students to become more successful academically. Some of these people have coasted through high school without learning writing or study skills, or without gaining the sense of personal responsibility that keeps them coming to class.
My ivy-league graduate school charged very high tuition in the first two years, moderate tuition in the third and fourth, and next to nothing thereafter. No doubt this system was one of many factors contributing to very extended time-to-degree for some students. The institution benefited in that students who dropped out had in most cases already paid the bulk of their tuition for the degree. The system reminded me a bit of the way mortgage companies make sure they get their interest before they let you start paying down principal.
Talk about erecting an entry barrier, especially for students who are financially stressed. This is not a very good idea. You could accomplish the same thing by agreeing to hold tuition constant for each entering class over a period of say four years for a cc and six for a university.
I noticed several comments regarding graduating in four years. My kids would love to oblige, but here's the deal, music, dance and theater degrees have required technical or performance classes that only give one hour of credit for what can be up to 120 hours of actual class time per semester. This impacts students in many ways. Financially, it makes them appear to be part-time students which can mean no medical insurance, no federal grants, no scholarships. So they take one or two of these classes per semester along with six to nine hours of conventionally credited classes.There hasn't been a single semester that my daughter has taken less than 15 hours and most times she's taken more than that. Last year they dropped the degree program under which she started and to add to that, refused to allow similar credits in another degree to apply. She's taking summer school, has a 3.9 GPA, so it isn't like she's slacking off in this regard. So she ends up going back, retaking classes due to the decisions made at the administrative level without regards to the students. My son has similar issues although his issue are that he can't get into the upper level classes that he needs to finish the degree because other students who couldn't get these same classes two years ago when the cycle started are now enrolled. Doesn't the law of supply and demand mean anything to administrators? And if you have students marking time waiting for seats in limited classes, wouldn't it make sense to open more sections? I have heard this from students in large state universities and smaller local colleges. It just seems that there's not very much consideration of the students, only the image of the institution. I know at one student senate meeting, the provost went on and one about how planting cherry trees would improve the campus, but didn't address questions students had about lack of sections in required classes. So we would all love for these kids to get out in four years, but it isn't going to happen the way universities are run right now.
For the last Anonymous: That makes sense. A newer grad student is still getting settled and is taking a lot of courses, so they cost the university more. A fifth-year student is probably only pulling one credit of degree-completion, and is spending almost all of his/her time as a TA or doing research and writing, both of which help the school. No need for heavy tuition.

Back to the broader topic: Dean Dad, what percentage of your student enrollment is people looking to extend learning, without trying for a degree? (I'm thinking folks like Z*lda, or me for that matter.) It sounds like they'd pay top dollar for anything you would offer, which might significantly cut into your enrollment.
I agree that the first option looks suspiciously like the university banking failures, though that could perhaps be ameliorated by saying that after X amount of time without progress the money defaults to some unaffiliated charity. Maybe even make it one that the student chooses (from a preapproved list) at enrollment.

The first option is intiguing, but I think it would be more fair to those of us who went to college part time at and/or evening to base it on the number of continuously accumulated credits, rather than semesters. (This could also apply in a limited fashion to fixed-rate tuition schemes.) This would go part way towards avoiding the end-loading problem, and might act as a deterrent for students at any level to overload themselves with classes and burn out.

Given the commuter and non-traditional dynamic common to CCs, the rules might be lenient enough to allow a one semester gap from time to time, to accomodate things like pregnancies, deaths, and other major life changes. This could simply be tied to eligibility to enroll, in most cases.

Referencing other comments, I can't say I'd agree with a per-class cost bias. In my particular U, the cost to take a 300 level or higher business class jumped considerably over 100 and 200 level classes. Which made pursuing a minor in business much less attractive, and ensured I took the only minimum necessary for the minor, instead of taking all the classes I would have liked to have knowledge in.
I dislike both suggestions. First year classes are typically a lot cheaper than upper-year classes, at least in the sciences and engineering, so you are making a much bigger profit on them, and encouraging the institution to encourage drop-outs before it starts losing money at the upper years.

You are also penalizing students who sign up for a course of study and, after realizing that it is not what they thought, have to retake first-year.
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