Rafi Mohammed

Why Shouldn't Universities Set Prices Based On the Value of Their Degrees?

Posted on August 8th, 2007 (0 Comments)

Last week Jonathan D. Glater wrote an interesting front page article in the New York Times titled “Certain Degrees Now Cost More at Universities.” Jonathan’s article posits a fascinating question, should universities charge more for some degrees than others?

It’s standard practice for professional graduate schools at the same university to charge different prices. At for Harvard, for example, annual tuition is as follows: Business (MBA -$41,900), Medical (MD – $40,279), Law (JD - $39,325), Public Policy (MPP - $34,807), and Undergraduate (BA - $31,456). Several of the universities I checked had similar tuition patterns, with MBA (business) tuition generally being the most expensive. I did find some interesting tuition anomalies. For example, UVA’s business school (ranked #15 by BusinessWeek) charges more than Harvard Business School.

So if professional schools charge different prices, why shouldn’t undergraduate tuition be based on value? After all, the monetary value of an undergraduate major differs widely. A 2007 survey of the National Association of Colleges and Employers found the average starting salary of psychology majors is $31,631 while chemical engineers make $59,361. Two kids start on the same day at a university, pay the same amount of tuition, and graduate four years later, but one makes almost double what the other makes. Hmmm, why not charge more? Of course, some scholars are not fans of basing tuition on expected salaries. Richard Lariviere, provost and executive vice chancellor of the University of Kansas, opined in the New York Times piece: “Where we have gone astray culturally is that we have focused almost exclusively on starting salary as an indicator of life earnings and also of the value of the particular major.” Interestingly, given his comment, Mr. Lariviere’s university charges different tuition prices based on major!

As it turns out, some universities do charge different undergraduate tuition based on major. The University of Wisconsin charges business majors $1,000 more annually in tuition. Similarly, junior & senior year engineering majors at Iowa State pay a $1,000 annual premium. What’s interesting is that state universities seem to be the only colleges experimenting with value based pricing. For example, undergraduate business majors at the University of Pennsylvania’s renown Wharton School of Business (which claims Donald Trump as a graduate) pay the same tuition as those concentrating on the humanities.

Of course, universities that charge different undergraduate tuition claim they do so because of costs. And this is probably true – business professors command higher salaries than professors in other disciplines. But don’t forget, students won’t pay these premiums if they don’t think they are getting better value.

It should come as no shock that I believe universities should set prices based on value. Then, use any extra revenue to promote less popular disciplines and help the many students (and their families) that can’t afford a $160,000+ four year degree.

I’m curious…what do you think?

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