Tuesday, October 4, 2016

Some further observations about revenues and costs with undergrad education at the U of I.

I'm not sure whether I connected all the dots in class today, so here are some things to consider and some puzzles that still need to be resolved.

The old model 

Back when I started at the U of I in 1980 and as recently as 10 years ago, there were comparatively few transfer students.  So there'd be fewer sophomores than there were freshman the previous year, because of some attrition, and there would be still fewer juniors than sophomores, etc.  On the other hand, expenditure per student (the cost of the instructor, the TAs, and any other personnel involved in teaching the course) was much lower for freshman, who took a lot of large lecture classes, than it was for seniors, who were in smaller classes.  So, in this sense the first year and possibly the first two years provided a subsidy (profit) to pay for junior and senior classes that were more expensive, since they had much smaller class size.

Why the old model stopped

Tuition, not just at the U of I but nationally, has grown in a hyperinflationary way since I started as an assistant professor.  (This means that the rate of increase in tuition has surpassed the normal inflation rate, so in real terms tuition has risen.)  Indeed, the in-state tuition now at the U of I is definitely higher in real terms than the tuition my parents paid for me to attend Cornell (a ritzy private university) back in the 1970s.   Tuition was not a big deal when I went to college.  It is a big deal now.

The politics of that, especially in the last decade when the U of I changed its approach and became quite aggressive about tuition, suggested there needed to be ways for people of modest means to be able to afford getting a degree from the University.  So an idea was developed, I believe originally in California which has several really great public universities, that affordability could be found if students first attend  community college, which has much lower tuition, and only after that transfer to the University.  This was the so called 2 + 2 model.  It was quite popular politically.  After embracing it, the U of I started to accept many more transfer students.


Those transfer students weren't taking nearly as many of those high enrollment courses that subsidized the rest of the operation.  So the question is whether their tuition is covering the marginal cost of their instruction or not.  (I don't know the answer to that.)  However,....

We went to the new model prior to the financial crisis.  

The new model might still make sense economically, even if the U of I loses on each transfer student, in the sense that expenditure on these students exceeds revenue generated from the tuition they pay, as long as the shortfall is made up elsewhere.  The obvious source of elsewhere is the State of Illinois, which gives tax revenue to the University.

But since the financial crisis, the state has been much stingier in what it contributes, not just to the U of I but to all public universities in the state.


An interesting outcome that I haven't seen discussed anywhere, and I do read about these issues a fair amount in the Chronicle of Higher Education, Insider Higher Ed, and more general news outlets is time to degree for transfer students.  Tuition, after all, is paid semester by semester.  It is not a fixed price per degree.  It is a burn rate per term.  A simple, though not particularly satisfying, solution to the issue of transfer students not providing enough of a subsidy to cover the cost of their education is that they take a longer time to degree and cover the cost that way.

This is the underlying issue behind whether advanced courses in a minor get staffed at a sufficient level to accommodate the demand.  The lack of staffing then might indirectly be the way to make the student spend another semester on campus.  In turn, that may be needed to cover the cost of the education.


Please note this is simply idle speculation by me and not anything I've learned from talking with administrators on campus.   But, for our course, the take away message is to ask - how does the organization at least break even?  If it can't do that it can't sustain operations indefinitely.  That the enrollments are rising suggest somebody thinks the answer might be found there.

I did mention Bernie Madoff in class today, so I'd wonder whether this is real or a Ponzi scheme.  I, for one, don't know the answer to that.

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