An ongoing debate about the economics of higher education is the degree to which students value their education as an investment (a way to get a better job and generate higher income) and to which they view it as a consumer good (four years of parties and good times). The question is of more than academic interest because it gets to the heart of affordability and access. Acting on the conviction that students value the non-academic side of the college experience, higher ed institutions invest in athletic programs, swanky student unions, and other amenities to aid in student recruitment. But these programs and amenities have costs, which are reflected in higher tuition, fees, and charges for room and board — which discourage recruitment.
A new study, based on the preferences of University of Arizona students, has put some numbers on college students’ Willingness to Pay (WTP) for college-related activities before and after the COVID-19 epidemic. The authors found students willing to pay only a small premium — about 4.2% of average net costs — for in-person instruction as opposed to a remote format. Students place a bigger premium on on-campus social activities — about 8.1% of the average annual net cost of attendance.
“The WTP for in-person instruction appears relatively small, which suggests that many students perceive remote classes as a reasonably good substitute for in-person classes,” write the authors of “Estimating Students’ Valuation for College Experiences.”
That finding should send a frisson of fear down the spines of every college president in Virginia (except perhaps Liberty University and Old Dominion University, which have established major distance-learning programs). As much as faculty members believe that in-person learning is a tremendous educational value-add, their customers — students — view it as a marginal benefit. With every public university in Virginia shifting most classes online during the COVID epidemic, distance learning has acquired far greater legitimacy as a learning option than it had pre-COVID.
What, then, is the competitive advantage of traditional college campuses? It is the ability of students to interact not with their professors but with one another. First and foremost, colleges are mating markets. Secondly, they offer amenities geared to their interests, be they football and basketball games, intramural sports, art flicks, political speakers, student clubs, parties, wilder parties, and opportunities for drunken hookups. Those same amenities are available in any major metropolitan area, but they are not as readily at hand, hence students are willing to pay an 8% premium on average.
I foresee two dilemmas for college presidents and governing bodies. The first is than an 8% premium is not much of a premium. Two or three years of jacking up tuition, fees, room, and board can gobble up that premium in an institutional blink of the eye. Their cost structure is much higher than that of online programs, but traditional colleges can price their degree programs only marginally higher.
The second problem is that different students have different willingness to pay. Lower-income students place significantly less value on college as a consumer good. One reason, theorize the authors, is that lower-income students tend to work more hours. The more they work, the less leisure time they have; the less leisure time they have, the less opportunity they have to enjoy the amenities they are paying for. There may be cultural factors at work as well. A student whose parents belonged to fraternities or sororities is more likely, for example, to value the presence of Greek organizations on campus than a first-generation student.
Students at universities with elite brands — the University of Virginia, the College of William & Mary, possibly Virginia Tech — may have different preference profiles than the University of Arizona. But less prestigious institutions likely have similar preferences. Their governing bodies would be well advised to take a look at their value proposition in the post-COVID era.