Price, Cost and Subsidy in US Higher Education Craig W. Bowen, Ph.D., M.B.A. Postsecondary Institutional Studies Program National Center for Education Statistics 1990 K Street, NW Room 8134 Washington, DC This paper is intended to promote the exchange of ideas among researchers and policy makers. The views expressed in it are part of ongoing research and analysis and do not necessarily reflect the position of the U.S. Department of Education.

Surely one of the fundamental anomalies in the economics of higher education is the fact that US colleges and universities sell their primary product— education—at a price that is less than the average cost of its production. The subsidy that that gives to nearly every college student in the country is neither temporary nor small nor granted only by government institutions. (Winston and Yen, 1995)

Take Home Messages Capital instructional costs should be included when estimating college instructional costs. It is possible to use existing IPEDS data, and a methodology developed by Winston and Yen to estimate instructional costs that include capital.

Overview What is the methodology that Winston and Yen developed to estimate price, cost and subsidy in the 1990s? What are some of the results using their methodology based on the FY 1991 data? What are challenges and possible solutions for the methodology as a result of changes in IPEDS reporting? What are results when applying this methodology to more recent data?

Overview What is the methodology that Winston and Yen developed to estimate price, cost and subsidy in the 1990s?

Winston and Yen Components Based on Winston and Yen (1995). Costs, Prices, Subsidies, and Aid in U.S. Higher Education. Discussion Paper No. 32. Total Cost Educational & General Cost with Related Capital Instructional Cost with Related Capital Net Tuition and FeesTotal Subsidy Total Cost Including Total Capital Net Tuition and FeesGeneral SubsidyIndividual Subsidy

Winston and Yen Components Total Cost Educational & General Cost with Related Capital Instructional Cost with Related Capital Net Tuition and FeesTotal Subsidy Total Cost Including Total Capital Net Tuition and FeesGeneral SubsidyIndividual Subsidy Total Capital E & G Capital Instr. Cap.

Accounting for Instructional Costs Instructional Cost = Capital Cost + Direct Cost + Joint Cost

Accounting for Instructional Costs: Capital Cost Instructional Cost = Capital Cost + Direct Cost + Joint Cost

Accounting for Instructional Costs: Capital Cost Total Capital=Depreciation (Build. and Equip.) + Cost Opportunity Cost (Land, Build., and Equip.) = 40-year Depreciation rate (Replacement cost Build. and Equip.) + 30-year Treasury rate (Replacement cost Land, Build. and Equip.) = (Replacement cost Build. and Equip.) (Replacement cost Land, Build. and Equip.)

Accounting for Instructional Costs: Capital Cost Total Capital=0.025 (Replacement cost Build. And Equip.) + Cost (Replacement cost Land, Build. and Equip.) E & G Capital=E & G percent of Total Cost X (Total Capital Cost Cost) Instructional =Direct and Joint Instructional percent of Capital CostTotal E & G Cost X (Total E & G Capital Cost)

Accounting for Instructional Costs: Capital Cost Instructional Cost = Capital Cost + Direct Cost + Joint Cost IPEDS Variables, 1991 Land, book value Building, book value Building, replacement value Equipment, book value Equipment, replacement value

Winston and Yen Components Total Cost Educational & General Cost with Related Capital Instructional Cost with Related Capital Net Tuition and FeesTotal Subsidy Total Cost Including Total Capital Net Tuition and FeesGeneral SubsidyIndividual Subsidy Total Capital E & G Capital Instr. Cap.

Accounting for Instructional Costs: Direct Cost Instructional Cost = Capital Cost + Direct Cost + Joint Cost IPEDS Variables, 1991 Instruction total Student services total

Accounting for Instructional Costs: Joint Cost Instructional Cost= Capital Cost + Direct Cost + Joint Cost IPEDS Variables, 1991 Academic support total Institutional support total Operation and maintenance of plant Nonmandatory transfers total

Covering Instructional Costs Total Cost Educational & General Cost with Related Capital Instructional Cost with Related Capital Net Tuition and FeesTotal Subsidy Total Cost Including Total Capital Net Tuition and FeesGeneral SubsidyIndividual Subsidy Total Capital E & G Capital Instr. Cap.

Covering Instructional Costs Instructional Cost = Revenue for Instruction Revenue for Instruction =Net Tuition and Fees + Individual Subsidy + General Subsidy IPEDS Variables, 1991 Tuition and fees: total Total federal Pell grants Total institutional scholarships and fellowships

Covering Instructional Costs Instructional Cost = Revenue for Instruction Revenue for Instruction =Net Tuition and Fees + Individual Subsidy + General Subsidy IPEDS Variables, 1991 Total federal Pell grants Total institutional scholarships and fellowships

Covering Instructional Costs Instructional Cost = Revenue for Instruction Revenue for Instruction =Net Tuition and Fees + Individual Subsidy + General Subsidy IPEDS Variables, 1991 Same variables as for instructional cost and net tuition and fees because General Subsidy is the difference between Instructional Cost and the sum of Net Tuition and Fees and Individual Subsidy

Overview What is the methodology that Winston and Yen developed to estimate price, cost and subsidy in the 1990s? What are some of the results using their methodology based on the FY 1991 data?

Applying the Methodology to FY 1991 Data N = 2,665 postsecondary education institutions had complete finance and enrollment data Excluded institutions that: 1) Had less than 20 % undergraduates of total student FTE 2) Had less than 100 undergraduate student FTE 3) Were for-profit 4) Were Below the Associates Degree level Control LevelPublicPrivateTotal Baccalaureate or higher5641,0521,616 Below the Baccalaureate ,049 Total1,4841,1812,665

Applying the Methodology to FY 1991 Data Note: Results inflated to 2009 dollars.

Applying the Methodology to FY 1991 Data Note: Results inflated to 2009 dollars.

Applying the Methodology to FY 1991 Data Note: Results inflated to 2009 dollars.

Overview What is the methodology that Winston and Yen developed to estimate price, cost and subsidy in the 1990s? What are some of the results using their methodology based on the FY 1991 data? What are challenges and possible solutions for the methodology as a result of changes in IPEDS reporting?

IPEDS Data Elements, 1991 and 2007: Capital Instructional Costs

IPEDS Data Elements, 1991 and 2007: Sources for Instructional Costs

Overview What is the methodology that Winston and Yen developed to estimate price, cost and subsidy in the 1990s? What are some of the results using their methodology based on the FY 1991 data? What are challenges and possible solutions for the methodology as a result in changes in IPEDS reporting? What are results when applying this methodology to more recent data?

Applying the Methodology to FY 2007 Data N = 2,461 postsecondary education institutions had complete finance and enrollment data of the original 2,665 in the 1991 panel Control LevelPublicPrivateTotal Baccalaureate or higher ,504 Below the Baccalaureate Total1,3951,0662,461

Applying the Methodology to FY 2007 Data Note: Results inflated to 2009 dollars.

Applying the Methodology to FY 2007 Data Note: Results inflated to 2009 dollars.

Applying the Methodology to FY 2007 Data Note: Results inflated to 2009 dollars.

Comparing Methodology Results from FY 1991 and 2007 Note: Results inflated to 2009 dollars.

Comparing Methodology Results from FY 1991 and 2007 Note: Results inflated to 2009 dollars.

Take Home Messages Capital instructional costs should be included when estimating college instructional costs. It is possible to use existing IPEDS data, and a methodology developed by Winston and Yen to estimate instructional costs that include capital.

Price, Cost and Subsidy in US Higher Education Craig W. Bowen, Ph.D., M.B.A. Postsecondary Institutional Studies Program National Center for Education Statistics 1990 K Street, NW Room 8134 Washington, DC This paper is intended to promote the exchange of ideas among researchers and policy makers. The views expressed in it are part of ongoing research and analysis and do not necessarily reflect the position of the U.S. Department of Education.