Yahoo Finance Why colleges should consider varying tuition by major
College is one of the costliest investments out there, spurring much debate about whether its returns justify tuition costs that have skyrocketed more than 1600% in four decades.
But even though everybody’s tuition is going up, universities end up spending significantly more money to educate certain majors than others. In a new working paper from the National Bureau of Economic Research (NBER), Yale economics professor Joseph Altonji and UChicago Booth School of Business professor Seth Zimmerman break down the costs of and net returns by college major.
By analyzing data from four-year public universities in Florida, the co-authors identify how the majority of students’ tuitions subsidize expensive majors like engineering and health because the professors in those fields reap higher salaries and the facilities and resources are costlier.
“We find that the cost of producing graduates in the highest cost major (engineering) is roughly double that of producing graduates in low-cost majors,” write Altonji and Zimmerman.
This is a fairly unsurprising finding, but the report aims to understand why “the costs of producing graduates or credit hours varies substantially by field.”
Engineering majors are the most expensive by far, with median costs of $62,297 per year. This compares to $36,369 across all majors and a cost of $31,482 for business, the second cheapest major, according to the paper. The assumption is, of course, that STEM fields — science, technology, engineering and math — are high-cost but offer higher net returns for students once they’re in the workforce. These students can also be a boon for their alma maters both in terms of reputation and possible alumni donations.
But not all STEM majors are created equal when it comes to post-graduation job returns. Though engineering tech, computer science and health science are among the highest-paying majors, other STEM majors like biology, math and physical sciences offer lower returns. It would be faulty to say that anyone majoring in STEM fields should pay a premium to their tuition.
The paper points out that though health and engineering majors have large earnings returns on a per graduate basis, their per-dollar returns are actually similar to those observed in education, math, philosophy, and language degrees, where earnings are much lower.
Business and computer science majors are high-earning and relatively cheap, and have per-dollar earnings returns that are 60% to 80% higher than in education degrees. The least lucrative degrees are architecture, art, and physical sciences, which are fairly expensive and have relatively low earnings (these majors have per-dollar earnings returns that are 20% to 30% below that for education).
Because of the wide disparity in the actual cost of college based on major, the authors suggest “possible levers for equalizing marginal returns across degree programs are changes in tuition, or shifts in supply large enough to change skill prices.”
This raises the question: Should tuition vary by major? Several institutions have already made the decision to charge more for certain majors. According to the Cornell Higher Education Research Institute’s 2012 survey, 143 public colleges or universities had differential tuition policies.
For example, the University of Wisconsin enforces additional tuition for engineering and business students. UW-Madison charges about $35,000 for a year’s tuition for an out-of-state student and $10,490 for a Wisconsin resident. Both residents and non-residents must pay an additional $1,400 for the engineering program and $1,000 for the business program. This extra cost stays within the departments to “directly benefit students’ education experience.”
The purpose of this report isn’t simply to suggest colleges start charging engineering students more tuition, though. The authors say they want to provide valuable insights and research to policymakers who can make spending at institutions more efficient. The information may also help colleges decide which majors to expand.
“Some majors may lead to high earnings but be costly to produce, offering lower net returns per graduate or per invested dollar than lower-earning but less costly majors. An understanding of net private returns (private returns net of instructional costs) may be valuable for policymakers seeking to maximize the efficacy of higher education spending,” the report noted.
Though President Trump has not been clear about his plans in overhauling higher education, he has explicitly stated that he will force colleges to cut tuition rates. Perhaps that plan will come at the expense of those who choose to take on more expensive majors.
Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Read more from Melody here & follow her on Twitter @melodyhahm.
