Universities bid for students

State universities with declining enrollment, such as Southern Illinois, are offering in-state tuition to out-of-state students and other discounts, reports USA Today.

Across the country, a bidding war of sorts has developed over prospective students seeking bargains in a bad economy. While some universities have long tried to lure students across state lines with lower tuitions, such incentives are gaining popularity as the nation’s financial meltdown has withered families’ college savings and home equity to help pay soaring education costs.

Why should Illinois taxpayers subsidize tuition for Missouri and Indiana residents?

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  1. Many state universities have done this sort of thing for years; it’s called a “reciprocity agreement.” In other words, our school will give your state’s kids in-state tuition if your school gives our state’s kids in-state tuition. It doesn’t happen everywhere (I was an Ohio kid at U of Michigan and I paid full freight (minus scholarships).) But a lot of the smaller schools have done it for a while.

  2. Why should Illinois taxpayers subsidize tuition for Missouri and Indiana residents? Well, I don’t think they should. But I understand the rationale for giving everyone in-state tuition. The rationale is simply that charging high out-state tuition is counterproductive.

    Most colleges need students. They need more students for the simple fact that the marginal cost of educating an additional student is less than the tuition that student pays. The key word here is “marginal”. All my life I have heard that tuition typically covers only a third of the cost of education. That is true in a sense, I presume, but not on the margin. A state may invest big bucks in setting up a school, big in comparison to tuition income. On that basis they may say that tuition only covers a part of the cost of each student’s education. That is true enough, but it is misleading. More students bring in more money.

    A parallel with car costs is a good illustration. If you add the total cost of operating a car for 200,000 miles you might come up with a figure of $.20 per mile. That would be $20,000 for the purchase of the car, and $20,000 for gas. (I’m figuring 20 miles per gallon and $2 per gallon.) However that is not the marginal cost. The marginal cost is only for the gas, which is ten cents per mile. If you think you will save twenty cents per mile by not driving, you are mistaken. You will only save ten cents per mile. You’ve already paid the purchase price of 200,000 miles, whether you ever use them or not.

    Illinois has already paid for setting up its university system. More students will bring in more money. From the simple fact that Southern Illinois University will offer in-state tuition to students from neighboring states this fall we may conclude that, as usual, the marginal cost of educating students there is less than the tuition brought in by those students. I presume it is true that Illinois subsidizes the education of every student, but that has nothing to do with geography.

    This idea of marginal costs (not to mention marginal revenue, margin tax rates, etc) is not rocket science. I have long thought it is worth teaching to students in eighth grade math. There’s nothing in the car cost example above that cannot be understood by normally competent eighth graders if they are given a good math curriculum. Of course to do so would take an investment in time. I think it would be worth it. By the logic I have presented it would follow that making out-state tuition higher than in-state tuition would be counterproductive for most institutions. I strongly suspect that is the case.

  3. The article mentions that in-state tuitions for out-of-state students isn’t a new phenomenon. The author claims it’s an expanding phenomenon due to the economic condition of the nation.

    The conclusion I draw from the article is that it’s beginning to look like a buyer’s market in higher education and the suppliers are scrambling to sweeten the deals they’re offering.

    There ought to be a parallel decline in marginal and non-contributing operations at the colleges like the various “studies” departments.

  4. Lightly Seasoned says:

    I don’t think this is news. Lots of state schools consider border state students in-state.

    Practically speaking, there’s a much denser population on the Missouri side of the river (St. Louis and suburbs) than in southern Illinois, which consists of East St. Louis and a lot of corn grown for ethanol. SIU has always needed to attract students from across the river.

  5. Andy Freeman says:

    > If you think you will save twenty cents per mile by not driving, you are mistaken. You will only save ten cents per mile. You’ve already paid the purchase price of 200,000 miles, whether you ever use them or not.

    So, if I have a choice between driving 200k miles a year or 20k miles a year, I should only consider the marginal cost…. I don’t know about the rest of you, but I think that there’s a huge cost difference between buying a new car every year and buying one every ten years.

    At worst, the cost of a car is a sunk cost. However, if we’re going to keep a car, how long the current one lasts matters.

    Fixed costs aren’t actually unchangeable. They’re merely hard to change in the short term.

  6. Brian basically nails it with his post. Most of the costs of a university are fixed costs that – once a certain number of students enroll – do not change much if additional students enroll.

    A Western Civ class with 15 enrollees costs the same as a Western Civ. class with 20 enrollees – the prof is paid the same, the capital costs of the building are the same, the cost to heat and light the room is unchanged, there are no additional desks to be purchased, etc. So allowing in a certain number of out-of-state students increases revenues with little increase in cost to the university.

    (There is, of course, some cost in having additional students – they will need to have an advisor, a computer account, etc. But these expenses are generally small.

    This is, essentially, the reason that scholarships don’t cost as much is it seems that they would.

  7. Minnesota and Wisconsin have had such a reciprocity agreement for years. See: http://heab.state.wi.us/mnwiapp.html. This phenomenon has little to do with the current economic downturn. The stated purpose is to expand the educational opportunities and choices for students. That said, such a reciprocity agreement is somewhat different from an individual campus changing such a tuition policy unilaterally.

  8. Assuming Southern Illinois accepts federal money, don’t Missouri and Indiana residents (AND the rest of us) subsidize education for Illinois?

  9. Andy Freeman says:

    > Most colleges need students.

    If that’s a chronic problem, we have an oversupply of colleges….

  10. If the plaintiffs prevail in the case of Martinez v. Regents of the University of California, currently before the California Supreme Court, UC will be required to grant in-state tuition to all out-of-state students.

    The Martinez case challenges the legality of AB 540 (1991), which grants in-state tuition to illegal immigrant students who attended a California high school for three years, graduated here, and signed an affidavit saying they will apply for permanent residency as soon as they are eligible. (For the 2008-09 school year, out-of-state undergraduates pay about $28,600 to attend a UC school, compared with about $8,000 for students who qualify for in-state tuition.)

    Plaintiffs contend that the state law should be invalidated because it violates federal immigration law that prohibits states from providing college benefits to illegal immigrants based on residency unless all U.S. citizens are eligible for the same benefits. If the Supreme Court sides with the plaintiffs, the Legislature will either have to repeal AB 540 or provide in-state tuition for students from other states.

    Regarding Brian’s point, I understand the concept of marginal cost and marginal revenue. The in-state tuition charged by UC is less than the marginal cost, however. The difference is made up by state funding, which is provided as a block, not on a per-student basis. (The computation of UC’s marginal cost is exhaustively examined by the California Postsecondary Education Commission, Legislative Analyst, and Department of Finance annually.)

    Brian is correct that, if marginal cost were less than marginal revenue, UC could simply hire more professors and admit more students. Unfortunately it’s not — at least for in-state students. Because of insufficient state funding, UC just reduced the number of freshman applicants it will accept for 2009-10. Thus, a “slot” taken by an out-of-state student is one that isn’t available to an in-state student.

  11. Andy,

    I think you’re right; we DO have an oversupply of colleges. Though this global economic recession, especially if it lasts for years instead of months, may change this.

    Perhaps in the end all we’ll have left are the Harvards, Yales, Princetons, the 100 or so state-run colleges ( U. of [State] and [State] State U.) and the community colleges in the big cities.

    This makes me wonder, though… What’s your degree become worth in the job market if the college you went to one year simply ceases to exist?

  12. Andy Freeman says:

    > What’s your degree become worth in the job market if the college you went to one year simply ceases to exist?

    The worth of a degree does not depend on the continued existence of the institution that granted it. Maybe you can’t get a copy of your transcript, but I’ve never been asked for one.

    However, to the extent that that’s a problem, it doesn’t justify keeping an unneeded college open. Moreover, the problem of too many colleges is actually a too much college capacity problem, which can be addressed by shrinking colleges instead of closing them.

    AFAIK, few folks get degrees in one year, but I don’t see why that’s relevant.