The Ethics of Rising Tuition

Last year, Pine Manor College, a small liberal arts college in Chestnut Hill, took an unusual step in reforming higher education in the United States. It decided to reduce its tuition by 34%. For a college with less than $22 million in total endowment, it was an extraordinary move.
After years of colleges increasing tuition by more than double the rate of inflation, Pine Manor clearly stood out. However, the top universities have failed to follow suit so far. This year, Harvard announced that tuition, fees, and other expenses would total $31,132, making it the third most expensive within its self-defined peer group (i.e., the 8 Ivy League school plus MIT and Stanford). Other top schools weren’t far behind – Columbia topped the list with $32,706, while Stanford was the “cheapest” at $31,110. Anybody studying collusive pricing need not look far beyond the walls of academia.
What is particularly troubling about this trend is the unprecedented levels of income and wealth achieved by the top schools. Harvard’s endowment is an astonishing $20 billion, Yale has $10 billion, Princeton $8 billion, and MIT has $5 billion. With large investments in private equity funds, university endowments saw their portfolios increase significantly over the last 5 years.
Many schools claim that the cost of educating its students is much higher than tuition itself, and they are, in fact, subsidizing our education. What they fail to mention, however, is how much impact they can have by simply allocating a small portion of endowment to reducing tuition.
Let’s consider the case of Harvard. For FY1999, Harvard generated $460 million from tuition, and $410 million by drawing down on its endowment, or little over 2% of its endowment. If Harvard were to draw as little as 0.5% more from its endowment, that would mean additional $100 million available to offset tuition – representing more than 20% decline in tuition!
It is interesting, however, that despite the positive impact the bull market has had on its endowment, Harvard has continued to charge top dollar. So why have the top schools continued to raise tuition? It is because they can. The simple application of lessons from first year Marketing and C&S tells us that firms should charge as much as students are willing to pay. With its prestige and name value, Harvard could probably still attract students even if decided to double its fees.
Besides the most obvious benefit of making higher education more affordable, reducing tuition has much greater social implications. As nonprofit institutions, universities can truly subscribe to the mission of public service. By reducing tuition, they can also attract a much greater pool of talent throughout the world. Imagine the quality of applicants and students Harvard would generate if it decided to eliminate tuition.
Ask any international student about the costs of higher education in his/her own country. Many top universities outside the US take on education as a social responsibility, rather than a means of profit maximization.
Certainly Harvard and other schools have used their wealth to enrich our educational experiences. Close to home, the Spangler Center, as well as other capital improvements stand as testament to the administration’s effort to improve the quality of education. Now, I hope that they will consider allocating that wealth to help education more accessible.

February 5, 2001