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Faculty Corner What about Post-paid Tuition Option for Professional Programs? By PAT WONG 10.03.03 12:16AM CST I don't know about you, but these days my world is filled with discussions of university tuition policy. One just has to read last week's Chronicle of Higher Education to know it's a hot topic. Public universities across the country are struggling with the balance between tuition and state appropriations as revenue sources. Here in Texas, Chancellor Mark Yudolf is riding high on his initiative to deregulate university tuition. President Larry Faulkner has appointed a commission on tuition. And right here at the LBJ School, last week Dean Dorn asked Professor Bob Auerbach to head up a committee to study tuition issues as well. With Mark, Larry, and Bob thinking about immediate tuition strategies at this venerable institution, I can rest at ease and daydream about the most outrageous way possible of paying for postgraduate professional education in the future…. Good daydreams usually start with current reality. Debates about university tuition have revolved around the tradeoff between affordability for students and revenue generation for universities. Thirty years ago the tradeoff was not on the radar screen of public universities because state appropriations were generous enough to render it moot. We live in a different world today. Public universities are looking at the unmistakable prospects of continuing scaling back of tax dollar support. What do we currently have in the "tuition strategy" tool-box? Beyond the plain old-fashioned practice of raising tuition at the margin every year, three strategies have become fashionable at one point or another over the last twenty years. The one leaning towards the affordability end of the tradeoff is pre-payment plans. The government would set up an account for regular parental contributions when Junior is still growing up, in exchange for a tuition-paid-for college experience when Junior is ready. Pre-payment plans may be a good deal for families with the foresight and sufficient surplus in income for the set-aside, but they are not very useful to the yet-to-be-discovered Little Einstein living in poverty. The second approach, driven mostly by recent revenue concerns, is price differentiation. Universities are figuring out ways left and right to raise the tuition of folks who can afford to pay more, so that the rest of the folks can pay less. Price differentiation may be by income or by other proxies of wealth, but the strategy has not exactly been popular with voters. Recent use of the strategy has shifted from a purely revenue-generating objective to a broader efficiency-enhancing objective. For example, tuition prices may be lowered for classes offered at ungodly hours such as seven in the morning or during Monday Night Football, just to encourage students to fill those classes. The third approach, in frequent use for some time, is to raise tuition across-the-board and then recycle part of the revenue increase as scholarships for students from lower-income background. This middle-of-road approach is a less specific form of price differentiation, and because individual scholarship allocations are masked from public view, there is less political opposition. Therefore this recipe has been the traditional favorite of universities in their acrobatic balance between affordability and revenue. That works well for undergraduates, but gearing scholarships towards family background is not meaningful when dealing with a 25-year-old postgraduate applicant. It is easy to argue that the ability-to-pay of an 18-year-old is tied to parental income, because in this society the overwhelming majority of 18-year-olds are not "financially emancipated." It is not clear that a 25-year-old from a lawyerly family who has a starter job and his own perhaps-meager apartment is in more financial needs than his friend who is still living with her parents in a household with higher earnings just because all household members work at low-wage jobs. Don't take me wrong. I would love to make tuition more affordable to both 25-year-olds. All I am saying is that, with the scarcity of scholarship resources, it is not sound policy to make allocation decisions on the basis of "background" when some people have more flexibility than others in defining their background away. Therefore, at least for graduate and professional degree programs, we really have not developed an effective strategy for dealing with the tuition dilemma in the current tool- box. In fact, the three existing strategies all share a fundamental paradigm about what higher education is. Higher education is consumption, so we expect the consumer to pay a fee. The differences across strategies merely have to do with how to structure the fee to make the consumption pattern more equitable or efficient. But is graduate and professional education a consumption item? Don't we talk about investing in our students by giving them specific skills? What if we take seriously the idea that graduate and professional education is an investment? First, let's be very careful here, because there is investment, and then there is investment. We have a normative assumption that public school and even undergraduate liberal arts education are by and large social investments in citizenship, where much of the return to investment is in the form of non-pecuniary social benefits. That's one kind of investment. For professional education such as law, business, and public policy, on the other hand, there is a much clearer career emphasis and, along with it, private monetary returns. I will leave alone the investment in citizenship. The question I wish to pose is therefore specific to professional education: could we think about "tuition" differently if we treat professional education as an investment venture? Instead of charging tuition for the education service, professional programs would think of themselves as undertaking an investment in human capital with an expectation of future payments. To foster the development of this human asset, schools might even want to make sure that the students are financially worry-free enough to focus on studying by giving them living expenses. If there is a genuine relationship between professional training and future returns, the programs will make sure that the teaching of requisite skills and knowledge is serious. Why would it be in the economic interest of professional programs to act that way? Because in a world where education is literally an investment, the educational institution is one of the investors. The rewards for the program, both financially and non-financially, are not in current fee payments but in future returns. The "tuition" scheme might be in the form of a futures contract such that the student would pay, say, one or two percent of annual personal earnings or income throughout his or her career-one can work with lawyers or propose legislation to make that amount tax-deductible. Or the return rate could vary depending on the income amount, in case the program wishes to make it more progressive for the student. True, some students may decide to stay at home, or otherwise choose life paths that lead to little or no income. Other students may become very prosperous. The program is at risk. That's what investment means. Why would a student want a post-payment plan? Answer: affordability and access to higher education. A pay-after-you-learn scheme would make sense for students with low or no current ability-to-pay but who wish to pursue professional education. Here is the thing. The same way that many developing countries have untapped assets among their low-income population because these assets do not fit into the dominant legal-economic framework for capitalization, there is a tremendous amount of human talents in our lower-income population being wasted because they have no access within the educational system defined by our current mode of thinking. As a practical matter, it is clear that we as a country are not ready to provide free higher education to make access universal. Why not think outside the box for an approach to make capitalization possible for this vast hidden human asset? Plus, if you are concerned that a post-payment contract might be a form of indentured labor, don't worry. We already have that problem-if you want to think about it as a problem-in the form of our student loan system. In fact, if we take a strong version of investing in our students, we would go so far as to provide living expenses, not just "free tuition," during the period of education. Such a step would obliterate the need for student loan. In fact, even as our current student loan system helps with access, it also distorts career choices because repayment is a fixed monthly amount regardless of income. The replacement of fixed monthly payments by returns proportional to income means better economic efficiency because students would now be able to make their career choices with less interference from such financial considerations. Naturally, a lot of work is needed to project the return necessary for the university to break even or, for that matter, increase revenue. But if post-payment is offered as an option in addition to the current fixed tuition, the demand for it is unlikely to be too overwhelming. There is of course the administrative problem of how to come up with the start-up resources if the program does not recuperate its revenues till some time in the future. Here programs with existing endowment for scholarships will have an advantage. It may be a tedious bureaucratic process, but conceptually it is a matter of converting the scholarship endowments into "investment funds." And who knows…. Maybe if this thinking caught on, public universities would have more incentives to think about teaching more seriously, and in the process become more accountable to their educational mission. That's my daydream. What do you think? |
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