Good Example Of Essay On Raise Or Lower Tuition

Introduction

The cost of university and college education has increased significantly. For the past several years in the United States, the increase in tuition has exceeded more than the inflation rate by two to three percent annually. As observed, college tuition fees have increased at an average of 7% annually, which is more than double the average annual inflation rate of 3.22%. When compared with other commodities and services, tuition fee has increased more than 500 percent in the past 28 years as compared to 286 percent increase in medical costs and a 121 percent increase of the consumer price index. The almost incessant increase of tuition fee has raised concern among stakeholders. Because of the rising cost of tuition fees, college education becomes increasingly restrictive. Surely, families who do not earn much would be facing a dilemma of whether to send their child to college in the face of the impending financial hardships. In America, the poverty line, according to the 2011 U.S. Census Bureau is a family of four whose income is less than $23,021. On the other hand, the average cost of the annual tuition in college is around $20,000. Comparing these two figures, it is clear that children who come from low income families are automatically marginalized from pursuing college education if based on their family income. It should be noted though that a significant portion of college students come from this marginalized sector. These students, on the other hand, are sensitive to tuition fee increases as it could determine their continued engagement and enrollment. On the other hand, middle to higher income families has increasingly felt the burden because of the decline in college affordability. As an advisor for Nobody State University (NSU), it is important that every angle must be considered before decisions for increasing tuition fees are made. For the same reason, the purpose of this paper is to determine whether it is advisable for NSU to increase its tuition and to suggest possible solution in order to increase the university’s revenue.

Assess A Raise in Tuition and If It Will Necessarily Result In More Revenue

Although increasing the tuition fee may be seen as an immediate solution to increasing the NSU’s revenue, its long term effects should also be considered. Increasing the tuition fee does not necessarily mean an increase in revenue since it would raise several issues that may affect the enrollment of students as well as their retention. For the same reason, the major consideration in increasing tuition fees is on how the increase would affect the number of enrollees as well as how it would affect the retention of students. At the rate of how majority of American families are earning, it is only logical to think that a family that earns a median income would not be able to send their children to college unless they are recipients of grants from the government, tuition fee discounts or work their way through college. As a result, few Americans proceed to college and fewer still can make their way through it. Accordingly, students that come from lower income families are seven times more likely to drop out of college. Although it does not necessarily indicate that tuition fee increase is the reason why some poor students drop out of college, still it is tempting to assume that there must be a relationship between retention and tuition fee changes. Aside from the economic impact of increasing the tuition fee, it is also desirable to know how the tuition fee increase would affect perception of the student towards the institution and its effect on demand for studying in NSU. Is the tuition fee increase justified by the quality of education that the institution provides? What are the chances of students transferring to a cheaper school or transferring to a more reputable school that may not pose a significant cost difference because of the tuition fee increase? While earlier it is assumed that there is a significant impact to the enrolment and retention of students because of economic considerations, a tuition fee increase must somehow be related with the decision of students to pursue college education in a particular university by comparing costs and quality.

Describe the Conditions Under Which Revenue Will (A) Rise, (B) Fall, Or (C) Remain the Same

Tuition fee increase can be analyzed through the price elasticity of demand, which is given by the equation below;
Price Elasticity = %ΔQuantityDemanded%ΔPrice

This equation can also be written as;

Price Elasticity=(Q2-Q1)(Q2+Q1)(P2-P1)(P2+P1)
Normally, the demand has a negative value to indicate the reciprocal relationship between the two variables wherein an increase in price would decrease the demand while the decrease in price would increase the demand. According to this theory, demand may either be considered as elastic, inelastic or unitary . As defined by the equation above, an elastic demand is a demand that drastically changes relative to the change in price. An inelastic demand is a demand that does not change significantly despite a significant increase in price. On the other hand, the demand is termed as unitary when changes demand is proportional to the change in price. It should be noted though that college education, as a commodity, if very different from ordinary goods and supplies. According to Li, “The wheat market does not care who ends up buying the wheat, but universities care a great deal about the students who attend their university”. Li observed that universities charge only the effective price, which is the price offered by universities to those who are admitted and not to those who are willing to pay. This college price, on the other hand, is kept low unlike prices of commodities that are very elastic in relation to demand. In the case of tuition fee increase, studies have shown that the quantity demanded by consumers does not drastically change when pricing is increased. Establishing the relationship between tuition fee increase and its impact on demand for higher education is quite difficult to determine given the fact that not all universities and colleges are similar in size, quality and mission and their student’s sensitivity to price increase can also vary. Despite these challenges, several studies that were conducted in the past revealed similar results. In a study conducted by Jackson and Weathersby, for example, it was found that the decrease in enrollment ratio per $100 increase in tuition only accounts to 0.05% to 1.46% decrease in enrollment. Some studies indicate a decrease between 0.6 to 0.8 percent while others are at 0.5 to 1.0 percent. Hemelt and Marcotte also concluded that the decrease in enrollment is less than 0.25%, which coincides with previous findings. And since demand does not change much in response to the changes in price, these findings imply that tuition fee increase follows the inelastic demand at a certain degree although it may vary between types of institutions and communities slightly.
Explain the process of revenue at NSU, focusing on the relationship between the increased revenue from students enrolling at NSU despite the higher tuition and the lost revenue from possible lower enrollment.
While tuition fee is the most debated cost in the context of higher education, tuition fee is not the only way on how an academic institution generates revenue. It should be noted that it is not the tuition fee that accounts for the huge bulk of college fees; rather, it is the overall spending of students that enable colleges to thrive. The example below is how typical college fees are broken down with their corresponding average yearly increases in Virginia State supported colleges and universities:
Figure 1.
When pitted against the overall cost, college tuition only amounts to 35% of the total costs while the biggest bulk of college fees are comprised of the miscellaneous costs. If tuition is increased for say 10%, only 3.5% increase in total college fee is realized. This increase is barely recognizable in an individual level. However, in a university level, the 10% increase in tuition would significantly amount to a huge sum when multiplied to the number of students enrolled, which can cover the expenses such as facilities and maintenance cost, wages of faculty and staff and other cost. Also, an increase in tuition fee does not often translate to revenue as some of its proceeds are being directed towards financial aids such as tuition discounting. Tuition discounting is a practice wherein the academic institution provides a disparity between tuition fees of poor and well-off students. By increasing tuition fees, well-off students, in a way, absorbs the additional costs for lower income families. According to Kantrowitz, “the practice of tuition discounting, in which a college awards financial aid from its own funds, is responsible for 27% to 32% of the increase in college tuition” but it is done so that lower income families can better afford college education. Aside from tuition fees, academic institutions are recipients of national and local grants and gifts both from public and private benefactors. Sales, services and other auxiliary sources of income are also revenue generators for academic institutions. Examples of which are revenue from dormitories, books and supplies, scientific and literary publications and many others.
If the true price elasticity were (-1.2), discuss what you would suggest the university do to expand revenue.
Since there is no significant decrease in enrollment when tuition fee is increased, it is only reasonable to increase tuition fee in connection with the increase of inflation rate. This will allow the institution to maintain a certain level of operational sustainability. However, tuition fee increases should be kept at minimum not because of its impact on enrollment but because of social impact that could affect the image of the institution. And since the huge bulk of student spending is spent on miscellaneous items, these presents an opportunity for NSU to increase its revenue through auxiliary means. Student services such as cafeterias and libraries can be opened for public use in order to generate more income. NSU can also use advertisement and marketing methods to encourage potential students to enroll in the university in order to increase the institution’s population and consequently its revenue potential. Another revenue generating activities that NSU should pursue is cost-reduction. Some institutions blame the reduced quality of education to budget cuts and their instant solution is to spend more when there are still other ways to increase efficiency through cost-cutting
Using what you have learned in this course, explain how you would resolve this problem if you were the President of NSU.
In an economic perspective, as based on numerous studies, tuition fee increase in colleges and universities follows the inelastic demand curve of the price elasticity of demand. It is therefore quite safe to assume that increasing tuition fee does not significantly decrease demand for enrollment. Even so, the social and ethical implication of frequent tuition fee increases might affect the reputation of NSU, which is a recommendation for further studies. Considering all the factors, it is quite obvious that tuition fee could not be lowered because of the effect of inflation yet it could not be increased indiscriminately as well. And so, in order to increase the university’s revenue and thereby maintain and perhaps improve the quality of education it provides, tuition fee increase must be modest and in line with the acceptable inflation rate. On the other hand, it is recommended that the University should focus on auxiliary income generation techniques so that it will not be heavily dependent to tuition fee as its only source of revenue.

References

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Daly, M., & Bengali, L. (2014, May). Is It Still Worth Going to College? . Retrieved February 2015, from http://www.frbsf.org/: http://www.frbsf.org/economic-research/publications/economic-letter/2014/may/is-college-worth-it-education-tuition-wages/el2014-13.pdf
Ehrenberg, R. (n.d.). Tuition Rising: Why College Tuition Cost so Much. Retrieved February 2015, from https://net.educause.edu
Hemelt, S., & Marcotte, D. (2008, November). Rising Tuition and Enrollment in Public Higher Education. Retrieved February 2015, from https://www.deutsche-digitale-bibliothek.de/binary/TIRXK542OLZAUV6BWCOWMWRRVTRUPK4G/full/1.pdf
Hofstrand, D. (2007, July). Elasticity of Demand. Retrieved February 2015, from http://www.extension.iastate.edu/: http://www.extension.iastate.edu/agdm/wholefarm/pdf/c5-207.pdf
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Kantrowitz, M. (2002). Causes of faster-than-inflation increases in college tuition . Retrieved February 2015, from http://www.finaid.org/calculators/tuitionanalysis.pdf
Li, H. (2013, May). The Rising Cost of Higher Education: A Supply & Demand Analysis. Retrieved February 2015, from http://www.stern.nyu.edu/: http://www.stern.nyu.edu/sites/default/files/assets/documents/con_042986.pdf
Odland, S. (2012, March). College Costs Out Of Control. Retrieved February 2015, from http://www.forbes.com/: http://www.forbes.com/sites/steveodland/2012/03/24/college-costs-are-soaring/