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Wednesday, July 17, 2013

WSJ: Should Colleges Charge Engineering Students More?

The Wall Street Journal recently put out an article reviewing a study hypothesizing that college majors with higher earning potentials should be charged more than others.
The study proposes that because industries like nursing, engineering, and and business have the potential to earn more money over their career, they could afford to pay more upfront in tuition costs.

I don't disagree with a strategy that ties market demand/costs into tiered pricing, but this is the completely wrong approach and if schools are smart about their long-term growth, they will never implement the tiered pricing as suggested.

Here are a few reasons this makes no sense at all and schools should consider doing the opposite of what was studied:

1. We need more, not fewer, STEM graduates

Paul Kedrosky recently posted this graph on his twitter account:

Not only are we falling behind in test scores, but the number of STEM graduates we are producing is plummeting. To stay competitive in the international market, we need to produce more well-educated workers.
Obviously, as the study found, the schools that implemented such a pricing structure saw drops in enrollment for those programs (except for nursing). In fact, counter to the study's proposal, colleges should consider the opposite and charge LESS for high potential degrees to encourage more students to pursue careers in STEM industries.

However, simple market needs will not drive a college's policy, they need financial incentive to change their ways.

2. Supply what the market demands

Already, demand is high to fill nursing and engineering positions. As Baby Boomers age, this problem will continue to grow. A school known for supplying well-prepared students to fill these positions will clearly give a school an edge over its competition when potential students are deciding where to go.

Additionally, more directly tied to a college's bottom line....

3. High Earners can donate more

A good way to breed resentment among students and ensure they will not give back as alumni?: Charge them more
A primary focus of many colleges is to increase their endowment, primarily through fundraising/donations by alumni. If a school is charging me more for my degree than someone else, why would I want to give back? Wouldn't I feel that I am just subsidizing that other student's degree?

A more intelligent strategy would be to foster a connection to high earning potential students to encourage giving back to the school, which in turn would grow the schools standing and create greater value for the graduate's degree.
Further, as these students will earn more, they will have the ability to donate more.

Again, in this case, if not keeping tuition the same, it makes more sense to charge these students less.

Clearly, the study was a hypothetical for following the decisions of a few schools. Hopefully these schools have learned from this short-sighted and ill-conceived attempt to illicit more upfront profit from potential high earners. However, the fact that this structure is already in place shows how out of touch academia is with the real world and even basic economic principles.
Unfortunately, as public universities (those in the study), any deficit they run will be paid for by taxpayers; thus they may not have incentive to modify their policies to optimize long-term strategies. Instead, they will act to mollify the public complaining of high tuition costs by discouraging students from the industries we need the most.

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