There are few instances more annoying than discovering that the person seated next to you on an airplane paid half the fare you did for the same ticket. Airlines allow us sophisticated programs that allow them to optimize ticket income. By doing so, they can fill the planes and extract optimum price from each passenger.
The pricing policy is affordable because every empty seat on an airliner is lost revenue. Therefore, airlines do the things they can to market every seat – even when tickets are priced disproportionately.
It is easy to see that a few of the same thinking about airline pricing has gone into President Obama\’s new plan for college tuition. He wants to fill classroom seats for the right reason – obama wants more students to achieve the benefit of a university education. His plan would increase funding for Perkins federal loans, but would take money from colleges that neglect to inhibit future price increases no matter their past history in controlling costs. The plan will also rightfully concentrate on outcomes, such as degree-completion time, and can try to force tuition prices to reduce levels. However, the program is based on a university pricing system that\’s more complex than that captured within the president\’s proposal.
Like airlines, colleges have high fixed costs. Just like airlines be forced to pay for planes, fuel and a myriad of employees, colleges must pay their faculty and staff, maintain facilities and add new buildings. And like airlines, colleges have various causes of income, including tuition, room and board, various fees, contributions, and – when it comes to state-owned or related institutions – direct taxpayer subsidies.
Unlike airlines, colleges attempt to allocate classroom seats not just on the basis of price, but instead on a student\’s academic proclivity and skill to pay. No airline would sell tickets with different family\’s income, but that\’s exactly what colleges do with tuition. Each year, families which are otherwise not able to pay for college qualify for state and federal student aid and make an application for financial aid in the college. In addition, private colleges offer aid that exceeds the total of state and federal aid combined. Last year, Pennsylvania\’s private colleges provided a lot more than $1.4 billion to students.
College aid differs for each student, with respect to the student\’s financial circumstances and academic ability. As a result, one student who receives the same curricular, co-curricular and extracurricular benefits of attending college may pay under another student who, due to their higher family income, doesn\’t get the same amount of aid.
All private colleges plus some public ones use gifts and endowments to help cover the cost of financial aid. However, except in the case of the very few select and well-endowed institutions, most of the financial aid that students receive originates from the reallocation of funds from families with greater financial resources to those with fewer. This places these colleges within an awkward position. They are, in essence, helping those in need by charging more to those who can pay more.
The cost of a college education certainly has risen faster compared to consumer price index, but much of the increase reflects the growing have to take some tuition revenue from those who can pay more and give it to people who cannot. This financial aid practice has been hard on private colleges in particular. Their tuition is higher because, unlike public universities, they receive little if any direct taxpayer subsidies. Furthermore, state-owned universities give students exactly the same subsidy regardless of their ability to pay. Consequently, taxpayer dollars may be used to subsidize wealthy families that may very well purchase a majority of, if not completely, of their children\’s tuition.
A main factor in driving college costs for families is the time it takes to graduate. Current financial aid systems give little or no incentive for colleges to graduate students on time. It\’s hard to believe, but under 40 percent from the incoming freshmen who matriculated to the nation\’s colleges last September will graduate in four years. Poor advising, inefficient class scheduling along with a lack of incentives to complete on time have elongated time it takes to graduate. This phenomenon continues to be most pronounced at large, state institutions. You would not continue to buy an air travel ticket that assures a less than 40 % chance of dealing with your destination on time, would you? The president\’s arrange for higher education does contain incentives for states and institutions that graduate more students on time – particularly those with lower family incomes.
President Obama\’s plans for advanced schooling address some, but not all, of these issues. Colleges, particularly private ones, are helping students who are unable to pay by granting them student aid which, essentially, discounts tuition. These work is somewhat stymied by policies that still distribute scarce dollars to families regardless of need and also to institutions that do not graduate students promptly. Until these issues are addressed, tuition continues to rise.
Funds that are offered for college ought to be given directly to students, to not colleges or universities, and be based on need. State and federal support, whether it\’s through direct grants or low-interest loans, ought to be partially in line with the on-time graduation rates of institutions. Only then will higher education be accessible and affordable for all.
Michael A. MacDowell is president of Misericordia University in Dallas, Pa., where he occasionally teaches economics.