تنزیل شهریه: نظریه و شواهد

It is frequently assumed that rising enrollment improves an institution's financial condition. In fact, enrollment growth can have an adverse impact on the institution's financial condition, even in the presence of excess capacity. The reason for this surprising conclusion is that the size of the subsidy required to attract additional students may cause the net financial impact to be negative. In the past two decades, private institutions have been very aggressive in their competition for gifted students. Administrators and their governing boards should carefully review their tuition discounting policies, since conventional wisdom may be misleading. This paper contains a theoretical discussion of tuition discounting policies and it explores how the marginal benefit, net of the marginal cost of increased enrollment, varies across public/private institutions and across institutions with different missions.

Despite growing national enrollments, some higher education institutions experience difficulty filling their freshman class each year. Private institutions encounter this problem most frequently, although it is not unheard of among some public institutions. The resulting competition for gifted students has created what McPherson and Schapiro (1999) call a “free-for-all in financial aid”. Among liberal arts colleges, it is not unusual to find institutions whose average tuition discount1 exceeds 40%. Some anecdotal evidence2 suggests that individual institutions discount their tuition in ways that seriously weaken their institutions. In this paper, I consider the economics of tuition discounting. I explore the conditions under which aggressive tuition discounting weakens the institution's financial condition. The appropriate definition of capacity plays an important role in identifying the correct marginal cost and the complications created by price discrimination are considered in the identification of marginal revenue. These principles are applied in an empirical section where I estimate marginal revenue and marginal cost for different higher education sectors. The marginal impact of enrollment on colleges and universities is an empirical question. There are important structural differences between private and public institutions, particularly with regard to how they garner subsidies. There is little reason to believe that all types of institutions — public, private, research universities, and doctoral institutions — are equally impacted by fluctuations in enrollment. This information is useful for public policy and it is useful for administrators who struggle to formulate their institution's scholarship policies.

This paper considers the financial impact of tuition discounting and enrollment growth on private colleges, private/public research universities, and other 4-year private/public colleges and universities. A simultaneous equation model is estimated for each of the aforementioned higher education sectors. Since tuition and fees are predetermined variables, the model clears on the basis of the number of students who enroll. There are three equations in the recursive system. The first equation is the enrollment demand equation. Higher education supply is modeled by separate equations for total revenue and total cost, each of which is driven by enrollment. The separate revenue and cost equations reflect the institution's objective, which is to maximize human capital output subject to a soft, or slack, break-even constraint. One of the more attractive features of this model is that it yields direct measures of marginal revenue and marginal cost from which we can assess the impact of increasing enrollment on higher education institutions by type. The empirical estimates of marginal revenue and marginal cost measure the impact of an additional full-pay (non-scholarship) student. Quality-constant enrollment growth is evaluated by assuming that the marginal student enrolled receives the same subsidy (scholarship) as the average student. If student quality is positively correlated with the size of the scholarship, then enrollment growth through the addition of more full-pay students represents quality-reducing enrollment growth. Hence, quality-enhancing enrollment growth occurs when the marginal students enrolled have scholarships greater than the average student. The primary implication is that higher education institutions require increases in the average scholarship in order to both improve quality and increase enrollment at the same time. The model results are consistent with the theory in each sector. The demand curves are well-behaved with respect to tuition/fees and with respect to scholarships. The sector demand curves are inelastic. The revenue and cost equations yield positive and significant marginal revenues and marginal costs in every instance. The analysis of student marginal financial contributions reveals that full-pay students improve the financial condition of institutions in each sector. Quality-constant enrollment growth weakens the financial condition of Carnegie I and II colleges. Quality constant enrollment growth in “other” private/public institutions yields a small financial contribution. The size of this financial margin would suggest that these institutions are not well positioned for a significant increase in enrollment. The largest quality constant financial margin is found in the private research I/II universities, where it is greater than $12 thousand per student. The private research I/II universities contain the most prestigious institutions in the country. The forgoing results have important implications for enrollment and scholarship policies, particularly among private institutions. First, the relevant marginal cost depends on whether the institution has excess capacity, where capacity is measured in terms of physical plant, instruction, and subsidy. Second, if the institution's structural budget is balanced, administrators desiring to increase enrollment and student quality at the same time should raise the additional subsidy required before tuition discounting is used to attract more and better students. The same would hold for any institution that wishes to hold enrollment constant and attract better students. If the structural budget is in surplus, some enrollment growth and quality enhancement can be financed with existing resources. Third, if the institution's structural budget is in deficit and the institution does not have excess capacity, it is very likely that enrollment growth through tuition discounting will make the problem worse. Any institution with a structural deficit at full capacity has an expense control problem. Finally, the empirical evidence from the Carnegie I institutions suggests that a rule of thumb for approximating the optimal discounting rate is to choose discounts up to the point where the marginal revenue less the average discount is equal to marginal cost.