May 10, 2003

"Funny Money": Graduate School Tuition Waivers

In the comments to "'Eggshead Unite': Against the Union-Busters at Penn," reader JT says what I was trying to say, but says it much better than I could:

"[The] 'tuition waivers' are most certainly 'funny money,' if you mean by that a price that could not be supported (successfully charged) if exposed to the free market. An entity like a university can conduct all sorts of internal shennanigans with its budgets which have nothing to do with economic realities. To claim that an extended 7-year (or whatever) program which leads a promising young student to experience ever lower economic expectations, as non-science PhD programs do, is worth something like $20-30k per year is ludicrous on its face. (We are just talking about economic considerations here.)"

Quite right. It's one thing to take out huge loans for law school or medical school, quite another to take out such huge loans for graduate school. I can't imagine many people would be willing to do so. And I can't believe there would be many financial institutions willing to participate in this kind of lending: You want $20-30k per year to do an English degree, and your prospects for employment are what...?! -- This has "loan default" written all over it. In other words, the tuition waiver that is often defined as a huge benefit (you don't need more money to live on: look at that 25,000 dollar we just gave you) is meaningless outside of this closed system. Eliminate the waivers and you would no longer be able to attract candidates to these graduate programmes.

JT also says, "if you think the university is too corporatized, you ain't seen nothing yet." Unfortunately, I suspect this will probably prove an accurate prediction.

Posted by Invisible Adjunct at May 10, 2003 11:38 AM

I agree that the degrees wouldn't be worth that price on the open market and fear JT is right on corporatization. Still, there was quite a large percentage of people in my polisci grad program at Alabama who weren't on assistantships. Maybe that's less true of more expensive/prestigious programs. In any event, one could argue that in pure economic terms they aren't worth seven years, even if on a "free ride", since one can get a law degree in three years and be virtually guaranteed a job making at least assistant prof pay.

Posted by: James Joyner at May 10, 2003 12:55 PM

"if you mean by that a price that could not be supported (successfully charged) if exposed to the free market"

Huh? As far as I can tell, we would fill our seats if we doubled tuition. We admit less than 15% of our applicants at the graduate level, of whom less than a quarter are supported by a teaching or research assistanceship. That indicates to me two things: first, that the decision to attend graduate school is not predicated on the idea that tuition paid (as well at opportunity costs, etc.) will ever be returned monetarily. Second, that if we decided not to give TAships, and had adjuncts handle their teaching load, we could both fill the "free" TA seats with paying "customers," and that by doing so we would "earn" a lot more for our time spent.

It's not funny money, it's a loss leader. By attracting (and paying for) the best students, we hope to increase our reputation and the quality of the work done in our department. I won't deny the aim is selfish, it's just not designed to be exploitative. (Well, at least not of the Ph.D. students. Everyone knows that a Ph.D. program is a money-loser, paid for by the undergraduates, and in some cases masters students.)

School is not work. If you want a job, get a job. If you want to go to school, more power to you. If you go to school and then complain that it doesn't pay like a job, that is, in my always humble opinion, really dumb.

Posted by: Alex Halavais at May 10, 2003 05:14 PM

"As far as I can tell, we would fill our seats if we doubled tuition. We admit less than 15% of our applicants at the graduate level, of whom less than a quarter are supported by a teaching or research assistanceship."

I don't get the logic here. Let's say you have a product that you sell for 10 dollars, and it's so popular that you can only meet the demand of 15 percent of those who want your product. Does this mean that demand would remain constant if you raised the price to 20 dollars? Maybe it would. But maybe it wouldn't. Maybe some people would lose interest at 12 dollars, some at 15 dollars, and so on. Perhaps only a handful would be left who would be willing to pay 20, even though so many wanted the product when it cost 10 dollars.

Posted by: Invisible Adjunct at May 10, 2003 06:15 PM

I guess my assumption, which may have been hidden, is that tuition pricing is fairly inelastic. I don't know how else to explain some of the extreme prices paid for education at the Ivies and other private schools, many of which lack a reputation for excellence. I would be very surprised if our demand shifted much if our tuition was doubled--I'm sure it would change, but I doubt it would change much--and we are a second-tier (ahem!) state institution.

But yes, looking at the degree to which demand outstrips supply, I think it is safe to assume that tuition is priced below market--at least in (sort of) tax-subsidized public institutions.

Now, if you want to ask whether a Ph.D. is worth $20K-$120K, that is, whether it "pays off," I think the obvious answer is no. But then, that's also true of Ferraris, and they still sell out before they are built. (Specious argument there, I know, since reselling your diploma is a bit harder than reselling your Ferrari. But I got caught up in the moment.)

Posted by: Alex Halavais at May 10, 2003 10:53 PM

IA -- Thanks for the compliment.

Alex -- you bring up an interesting point. I don't think either of us has really concrete evidence on demand elasticity but, in my personal experience, grad students were unusually impervious to material and financial matters and pursue the degree in the face of such difficulties, so on that score you have a point. I have a few more observations:

Let me take a step back and say that educational institutions are an unusual and complicated kind of economic entity. McDonald's will sell a burger to any customer who will pay; an educational institution needs money from its customers but it also needs commitment and some level of achievement from those same customers to maintain its long-term reputation. So a school interested in maintaining its reputation cannot in practice accept all potential customers. The 15% acceptance figure therefore can't straightforwardly be taken as indicating the market status of a particular tuition charge.

I find it suspicious that the tuition charged by my humanities PhD program was very close to both the undergrad tuition and the tuition (same school) charged in the MBA program I eventually enrolled in. The similarity in tuition, between three degrees with very different economic results, suggests that the university administrations don’t have a very clear idea of what the different degrees are worth either but proceed by looking at their competition and to an extent by what the students are willing to pay. Basically, gauging the economic value of an intangible, long-lasting good like an educational degree is both very uncertain and highly idiosyncratic.

A personal observation: I once was asked to advise a young woman on whether to pursue an advanced degree in the humanities. It turned out that 1) she was learning disabled; 2) had already been accepted at full tuition by a third-tier educational institution. That, and some other experiences with my own Ivy-league humanities PhD department, suggests that graduate programs are pretty much willing to accept anyone who is willing to pay the full tuition. The low % admissions rate in my dept always applied to fellowship grants (is that true of the 15% rate you cited?). I even had lunch with an applicant who one of my professors unguardedly described as a “bit dim.” The applicant was denied a fellowship but then showed a willingness to pay the full tuition. Lo and behold, he completed his Master’s on his own dime.

This isn’t a finished argument, just a collection of thoughts, so fire away.

Posted by: JT at May 13, 2003 03:02 PM

Just a quick reply for now.

"...grad students were unusually impervious to material and financial matters and pursue the degree in the face of such difficulties,..."

Guilty as charged! However, this only goes so far. I did not pay tuition for my history PhD programme. Instead, I received a tuition waiver, in the amount of roughly $23,000 per year. There is no way that I would have been able or willing to pay that kind of money.

Posted by: Invisible Adjunct at May 13, 2003 08:00 PM

Or the universities could have started with really naïve 'what does it cost us to produce' pricing... do professors of profitable degrees get paid more than professors of the most unprofitable humanities? If not, maybe it all looks like the same sausage to them.

Doesn't seem likely though. Still, what benefit does the high fake price bring them? Maybe they think it improves the standard of study in the humanities by weeding out all but the most dedicated students. Maybe they want to punish you for doing something you love.

Posted by: clew at May 15, 2003 12:48 AM

Perhaps the high 'funny money' rates justify the tuition charged to undergraduates. If universities had all of their humanities/social science Ph.D. students paying their own way, the graduate tuition would have to come way down, with perhaps a few exceptions (Alex's program, whereever that it).

Graduate students in those fields might be impervious to some financial suffering, but they generally don't take out huge tuition loans. Where I went to school (University of Michigan), graduate out-of-state tuition was ~$10K/semester. That means that the majority of grad students would be taking out $20K/year, plus living expenses. Probably pushing $30K/year, total.

After 5 years, this would be $150K; after 7, $210K. Not counting undergraduate loans. That's at or beyond elite medical school levels[1]. Now, I believe that there will be some students who'd pay that, but I don't believe that there'd be many. It'd probably come down to 10 schoools charging that much, with all other such graduate programs turning into master's degree programs for teachers. Which would make a Ph.D. from one of those 10 schools a much better prospect.

I was in a biostatistics PH.D. program, and I recall precisely *one* person who was paying his own way - he turned down an assistantship, because he wanted the time to pass his first set of exams (the ones taken after the first year). He did that for two years, went through $50K in savings (with his wife working full-time), and really regretted it. After that, he went on assistantship.

And biostatistics is a *very* employable field - masters people in the private sector started at $40-45K, in the mid-1990's; Ph.D's started at around $55K. And that means almost everybody, not just a lucky few.


[1] For in-state graduate students, the tuition was ~$5K/semester. With $10K/year subsistence, that comes to $20K/year total, $100K after five years, $140K after seven years. Still at medical school levels.

Posted by: Barry at May 15, 2003 12:18 PM