Sunday, January 08, 2017

Price, Cost, and Fees

When I interviewed for the job I eventually got at Holyoke, the president there asked if I had any questions.  I asked why their fees were about four times higher than their tuition.  He stood up -- all six foot seven of him -- and proclaimed, arms flailing, “It’s Alice in Wonderland!”  I felt affirmed in my observation, though I wouldn’t call the answer clarifying.

Subsequently, I discovered that “tuition” was set by the state, and remanded to the state for sections taught by full-time faculty.  In return, the state paid the benefits for (some) full-time faculty.  Fees, on the other hand, were set locally, and kept on campus.  So every year tuition is flat, and every year fees increase.  For 2016-7, the tuition is $24 a credit, and the “educational service fee” is $150 per credit.  That makes Massachusetts schools look great on comparative tuition charts, but much less great on total cost.  (It also made the “free tuition” employee benefit a lot less beneficial.)

Massachusetts is an extreme case, but the basic idea is widespread.  Price, cost, and fees are neither consistent nor transparent across the industry, and people often use the same words to mean different things.  That leads to no end of confusion.  So, here’s a first shot at some working definitions.

Sticker Price: The sum of published tuition and published general fees.  For private universities in the US, this can easily hit $50,000/year.  

Similar to the difference in pay between hourly (wage) and yearly (salary), some places will post prices assuming full-time status for a year, while others will post a per-credit rate.  To convert, multiply the per-credit rate by 30. Ignore the fact that the feds consider 12 credits full-time, because at that rate, it would take 5 semesters to complete a 2 year degree (12 x 5 = 60).

Net Price: This is what students are actually charged.  The difference is usually comprised of scholarships and grants.  At most community colleges, a maximum value Pell grant covers the total of tuition and general fees for a year.  That doesn’t make it entirely free, of course; the student is still on the hook for books, lab fees, housing, room and board, and the rest of her living expenses, as well as the opportunity cost of reduced wages while in school.  Many private colleges offer “presidential scholarships,” which are discounts on tuition, in order to recruit students who couldn’t afford (or just wouldn’t pay) sticker price.  So a college with a sticker price of 50k might offer a discount of 20k, leaving the student to come up with the other 30.  Since the Great Recession, it has become commonplace to see private colleges with discount rates of 50 percent or higher.

General Fees: These are charged either per credit or per year, regardless of what the student takes.  They often function as tuition by another name.  (For a cynical take, see here.)

Course Fees: These are added to specific classes and not to others.  The idea is to cover the extra costs of classes that are more expensive than most others to provide, whether because of expensive equipment, mandated low teacher/student ratios, and/or consumables.  That typically means lab sciences, studio arts, and allied health clinicals, among others.  (At Brookdale, for instance, automotive technology and culinary arts have their own fees.)  Course fees only apply to students who take specific courses.  Most students will pay at least a few, if only for the gen ed requirements for a lab science.  Some students will pay many.  Course-specific fees are intended to lighten the burden on students in, say, history classes to pay for students in culinary.

Program Fees: Sometimes colleges will decide that it’s easier to charge program fees than individual course fees to cover some of the added costs of certain programs.  Anecdotally, it’s common in Nursing.

Cost: Although usages vary, in policy discussions, “cost” refers to the cost to provide.  Public colleges below cost in order to maintain accessibility, with the difference made up through public subsidies and ancillary income.  For-profit colleges charged above cost, with the difference constituting profits.  That means that for for-profits, growth more than pays for itself, and shrinkage is especially painful.  That, alone, explains much of the last fifteen years.

“Tuition freezes” address sticker price, but they don’t address net price or cost.  (Sometimes, they don’t even address fees.)  That’s why many colleges respond to them by raising fees.  If you limit the sticker price but do nothing to address cost of provision, which was already running at a loss, then you don’t leave institutions much choice.  That can be interpreted cynically, but it’s true.  A recent study by the Delta Cost Project showed that the austerity measures the community college sector has embraced hasn’t resulted in “administrative bloat,” as some would have it; the low-hanging fruit has long since been picked.  

“Free community college” addresses both sticker price and net price, but doesn’t address cost.  For the idea to be sustainable -- and I’m a fan -- it needs a dedicated, sustainable, significant funding source that will keep pace with the cost of the service sector.  

If we want to get a handle on student debt, we need to know what we’re dealing with.  Tuition freezes are blunt instruments that do nothing to address cost or net price, and that inadvertently encourage the growth and proliferation of fees.  In some sectors, cost is a tough nut to crack, given how low the costs already are.  (That’s not universally true, of course; some private colleges have made questionable choices.)  The early promise of MOOCs has largely fallen flat, as completion rates have proved stubbornly low.  Competency-based approaches, such as College for America, show promise, but they’re not for everybody.  If we’re serious, we need to acknowledge and fill the gap between net price and cost.  Solutions that don’t address that are just jabberwocky.