Market Rate Tuition July 24, 2012 Cohen Hardin Pan & Tschirhart Applied Economic Research Group AER A Determination and Analysis for Florida State University

President Barron’s Requested Analysis Compute the market rate tuition Undergraduate, in-state Florida State University academic year Compute the net cost of tuition and fees Before and after tuition change Bright Futures, Prepaid

Determination & Analysis Market Rate Cost to Students Advised Increases

Background Drastic cuts Lost revenue FSU $65 million No raises for 5 years Capped growth rate Current tuition $5,826

What is a market rate? Price Quantity D1D1 S1S1 S2S2 P1P1 P2P2 P1P1 Q1dQ1d Q2dQ2d

House Bill 7129 Preeminence Bill High quality research universities Removes tuition cap Improve value of degree and quality of education

Determination & Analysis Market Rate Cost to Students Advised Increases

How do we estimate tuition? Select relevant market

Aggregated Research Activity Index Per-capita Research Activity Index Very High Research (N=108) High Research (N=98) Research University (N=88) General Selection Process FSU UCF USF UF UM FAU FAMU FIU UWF Source: Carnegie Foundation

General Market General Selection Process Very High Research (N=108) Public (N=73) Private (N=35) Public (N=73) Solutions Preeminence Bill Carnegie Classification

How do we estimate tuition? Select relevant market Select standards for comparison Public Carnegie Classification Preeminence Bill

Carnegie Classification Preeminence Bill

Preeminence Selection Carnegie Classification Preeminence Bill

Carnegie Classification Preeminence Bill

How do we estimate tuition? Select relevant market Select standards for comparison Average the tuition Public11 or more Carnegie Classification Preeminence Bill

Preeminence Bill Estimates Preeminence Bill Carnegie Classification

Carnegie Foundation Classifies higher education institutions Characteristics Public, Private Undergraduate population Used to control for institutional differences Preeminence Bill Carnegie Classification

How do we estimate tuition? Select relevant market Select standards for comparison Public Preeminence Bill Carnegie Classification

Carnegie Selection Preeminence Bill Carnegie Classification

How do we estimate tuition? Select relevant market Select standards for comparison Average the tuition Preeminence Bill Public High Undergrad Balanced Arts & Sciences Full-Time, Selective Carnegie Classification

Carnegie Estimates Carnegie Classification Preeminence Bill

Susceptible to outliers Characteristics differ Small sample sizes Concerns with Averages Preeminence Bill Carnegie Classification

Preeminence Bill Carnegie Selection Hedonic Regression Solutions

Hedonic Regression Vector of attributes for a good Contributions to price Typically used to price housing Bedrooms Square footage Lot Size Carnegie Classification Preeminence Bill Hedonic Regression

How do we estimate tuition? Select relevant market Carnegie Classification Preeminence Bill Hedonic Regression

Regression Selection Carnegie Classification Preeminence Bill Very High Research Public Private Hedonic Regression

How do we estimate tuition? Select relevant market Select variables for regression Very High Research Public Carnegie Classification Preeminence Bill Private Hedonic Regression

Close Teacher-Student Relationship Price Quantity D1D1 S1S1 D2D2 S2S2 Q1dQ1d P1P1 P2P2 Carnegie Classification Preeminence Bill Q2dQ2d Hedonic Regression

Academic Reputation Price Quantity D1D1 S1S1 D2D2 S2S2 Q1dQ1d P1P1 P2P2 Carnegie Classification Preeminence Bill Q2dQ2d Hedonic Regression

What Affects Tuition? Carnegie Classification Preeminence Bill Hedonic Regression

Available Proxies for Attributes Carnegie Classification Preeminence Bill Hedonic Regression

How do we estimate tuition? Select relevant market Select variables for regression Run the regression Carnegie Classification Preeminence Bill Very High Research Student Faculty Ratio Room and Board External Funding Rank Student Services Degree Offerings PublicPrivate Hedonic Regression

Regression Selection Carnegie Classification Preeminence Bill Very High Research Public Private Hedonic Regression

Regression Model External Sum of all external revenues Rank 1-29, 30-59, 60-89, etc. Undergraduate degrees Balanced arts & sciences Balanced professional + arts & sciences

VariableParameter EstimatesStandard Errors stufac **( ) lnstuserv0.246***(0.0689) lnrb0.185(0.193) lnexternal-0.180**(0.0789) rank (0.169) rank *(0.133) rank *(0.122) rank (0.118) rank (0.125) rank (0.125) as high grad (0.123) asp high grad-0.018(0.0696) pas some grad (0.194) pas high grad (0.0622) Constant7.781***(2.081) *** p<0.01, ** p<0.05, * p<0.1 Public R2R2 Adj R (N=70) F-ValueProb> F

Student-Faculty Drives Tuition Carnegie Classification Preeminence Bill NegativePositive Hedonic Regression

Regression Selection Carnegie Classification Preeminence Bill Very High Research Public Private Hedonic Regression

VariableParameter EstimatesStandard Errors stufac **( ) lnstuserv0.120***(0.0407) lnrb0.307**(0.134) lnexternal-0.122***(0.042) rank *(0.123) rank **(0.105) rank *(0.105) rank (0.102) rank (0.105) rank (0.108) as some grad (0.168) as high grad (0.0631) asp some grad-0.249(0.168) asp high grad (0.0449) pas some grad0.0316(0.169) pas high grad (0.0511) public-1.108***(0.0681) Constant8.046***(1.378) *** p<0.01, ** p<0.05, * p<0.1 Public and Private R2R2 Adj R (N=104) F-ValueProb> F

Public and Student-Faculty Drive Tuition Carnegie Classification Preeminence Bill NegativePositive Hedonic Regression

Estimated Tuition Carnegie Classification Preeminence Bill Hedonic Regression

Determination & Analysis Market Rate Cost to Students Advised Increases

Declining Tuition Coverage

Bright Futures Prepaid Bright Futures & Prepaid Interaction 4 Year Univ. FAS FMS GSV 4 Year College 2 Year %

Students with Bright Futures & Prepaid

Bright Futures Breakdown

Costs Remain Zero for 34%

Costs Increase by Less Than $2,000

Determination & Analysis Market Rate Cost to Students Advised Increases

Prepaid Plan Prices Double

Forecasted Recommendations

$0 - $5,501 15% to Market Rate 6.5% $7,781 Determination & Analysis Market Rate Cost to Students Advised Increases

Cohen Hardin Pan & Tschirhart Applied Economic Research Group AER