In 2012, a Florida state task force on education recommended adjusting tuition by major. Science, technology, engineering and math (STEM) majors would cost less, while some majors, such as psychology and the performing arts, would cost more. This recommendation has not been implemented, but here is the basic idea.
“Tuition would be lower for students pursuing degrees most needed for Florida’s job market, including ones in science, technology, engineering and math, collectively known as the STEM fields…. The purpose would not be to exterminate programs or keep students from pursuing them. There will always be a need for them … but you better really want to do it, because you may have to pay more.”
Kevin Stange, a professor of public policy at the University of Michigan, studies the outcomes of differential tuition and has found that higher prices tend to dissuade students from pursuing a particular major. The generally accepted consensus is that a $1,000 change in costs is associated with a 5 percentage point difference in enrollment rates. A study from Hanover Research found that for every $100 increase in tuition, enrollment decreased by 0.5% to 1%.
Sounds reasonable, no? It is good to consider the value of an education and treat it like an investment, because that is partly what it is–an investment in one’s future earnings potential. But people also have to live with their choice of employment and can’t just choose a path for its simple economic return. Unfortunately, pricing tuition by major is a centralized government solution that, like most government solutions, probably will not work out as expected. This is because the actual cost of providing educational services may be more or less than the artificially determined price and because any time that bureaucrats are allowed to determine the cost or benefit of a product without any market input, they typically fail miserably.
Instead of increasing tuition across the board, many universities now charge more for majors with courses that are more costly to provide. Degrees in biology and engineering, for example, typically involve smaller class sizes, higher faculty salaries and cutting-edge labs with expensive equipment, so they charge more. Today, 45% of large public research universities differentiate their pricing this way. At the University of Texas at Austin, which started charging different tuition rates in 2004, engineering students pay $5,107 each semester, while liberal-arts majors pay $4,673. This is a market-based solution that makes sense. Sure, a technical education may be worth more in earnings power, but it can also cost more to provide.
If the cost of a technical education is artificially lowered, while liberal arts majors are artificially raised, people will object to their representatives to stop the policy. But even more importantly, students will vote with their dollars. They will simply attend schools in other states where the tuition is lower. Besides, do we really trust the government to decide what majors are best? When has the government ever made good economic decisions for us? It will be highly subjective to adjust the cost of different majors based on their perceived value to each state government. Determining the market value of a course of study is something best done by the market, not by the government. This means allowing the market to finance an education based on cost, risk, and expected return. Thinking about the value of an education is a concept that is going in the right direction, but I think it would be better to treat educational expenses like the investments they are.
How about financing educational expenses based on the expected return on investment over the first 10 years or so or their working life? For instance, if a degree is projected to net one student an average salary of $70K per year, while another student is projected to net only $35K per year, the first student might be offered up to double the amount of money in tuition loans or scholarships over the same payback period. Furthermore, it is likely that the risk the loan would not be repaid can be correlated with high school grades and college assessment scores (e.g. SAT or ACT scores). If banks were to make investment decisions on a per student basis, this would directly link the value and cost of the education and thereby influence the educational decisions that students make without any need for government interference.
If I have stellar grades and SAT scores and choose to pursue a high-paying major, I would have the opportunity to borrow more and/or to borrow it at a lower rate of interest because my risk and return factors lower the investment risk. Maybe I could then afford a higher-cost technical bachelor’s degree plus a masters degree on top. On the other hand, if I have low grades and SAT scores and choose to pursue a low-paying major, I would have great difficulty borrowing enough to cover my costs for just a bachelor’s degree or would have to pay a higher rate of interest. Like mortgage applicants with low scores, I might have to pay 20-30% of the tuition costs out of pocket first (or use grant or scholarship money) before I receive any financing. An education that results in lower financial returns might be more expensive, but it might not. If I have great qualifications (e.g. grades and scores), I might be able to finance it over a longer term at an affordable rate.
Lower-paying majors should not necessarily cost more than higher-paying ones. Maybe they actually cost less to provide. But, in the end, somebody has to bear the financing risk. It makes sense that students should bear most, or at least a significant amount, of this risk, but I think we still want to enable people to pursue an education for reasons other than pure financial return. This is America and we want people to have the freedom to pursue happiness, but not at the expense of everyone else. I think we benefit as a society from a broadly educated and diverse population. So, maybe we need a better balance between publicly-funded and privately-funded education costs.
Adding more responsibility to the financing of an education would limit public exposure to bad investments by lowering losses on student loans that don’t pay off for investors. Considering that the government is often the investor, this will result in a better value for the taxpayers and for the nation as a whole. But why do all degrees have to cost so much? Student debt is at all-time highs, even for those who choose majors that will not generate enough income to pay off their huge loans. Maybe some education programs could be structured for completion in less time–say three years instead of four. Some schools seem to be trying to extend degree programs to five years rather than shorten them, which might be the opposite of what we really need. Does an art major need as much time as a physics major to achieve competency?
Why should everyone need the same amount of time to achieve proficiency in completely different courses of study? All doctors need to attend medical school, but does a brain surgeon require the same amount of study and preparation as a gynecologist? I actually don’t know the answer, but I suspect that the amount of preparation time is not equal and we should not expect it to be. I certainly would not want anyone messing with my brain if he didn’t spend a lot of time practicing and preparing, and I don’t mean playing the game Operation.
I have no problem with people who want to pursue lower-paying careers, or even pursuing education for the hell of it. Stay in school forever if you want. Just don’t expect me to pay for it. I just want students to be primarily responsible for evaluating the cost and value of an education and to be able to make an appropriate decision.