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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 20006 Craig.Bowen@ed.gov .

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price cost and subsidy in us higher education

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 20006 Craig.Bowen@ed.gov

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.

slide2

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
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
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?
overview5
Overview
  • What is the methodology that Winston and Yen developed to estimate price, cost and subsidy in the 1990s?
winston and yen components

1

Total Cost

2

Total Cost Including Total Capital

3

Educational & General Cost with Related Capital

4

Instructional Cost with Related Capital

Net Tuition and Fees

Total Subsidy

5

6

Net Tuition and Fees

General Subsidy

Individual Subsidy

Winston and Yen Components

Based on Winston and Yen (1995). Costs, Prices, Subsidies, and Aid in U.S. Higher Education. Discussion Paper No. 32.

winston and yen components7

1

Total Cost

2

Total Cost Including Total Capital

Total Capital

3

Educational & General Cost with Related Capital

4

Instructional Cost with Related Capital

Net Tuition and Fees

Total Subsidy

5

6

Net Tuition and Fees

General Subsidy

Individual Subsidy

Winston and Yen Components

E & G Capital

Instr. Cap.

accounting for instructional costs
Accounting for Instructional Costs

Instructional Cost = Capital Cost +

Direct Cost +

Joint Cost

accounting for instructional costs capital cost
Accounting for Instructional Costs: Capital Cost

Instructional Cost = Capital Cost +

Direct Cost +

Joint Cost

accounting for instructional costs capital cost10
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.)

= 0.025 (Replacement cost Build. and Equip.) +

0.0855 (Replacement cost Land, Build. and Equip.)

accounting for instructional costs capital cost11
Accounting for Instructional Costs: Capital Cost

Total Capital = 0.025 (Replacement cost Build. And Equip.) +

Cost 0.0855 (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 Cost Total E & G Cost X (Total E & G Capital Cost)

accounting for instructional costs capital cost12
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 components13

1

Total Cost

2

Total Cost Including Total Capital

Total Capital

3

Educational & General Cost with Related Capital

4

Instructional Cost with Related Capital

Net Tuition and Fees

Total Subsidy

5

6

Net Tuition and Fees

General Subsidy

Individual Subsidy

Winston and Yen Components

E & G Capital

Instr. Cap.

accounting for instructional costs direct cost
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
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

1

Total Cost

2

Total Cost Including Total Capital

Total Capital

3

Educational & General Cost with Related Capital

4

Instructional Cost with Related Capital

Net Tuition and Fees

Total Subsidy

5

6

Net Tuition and Fees

General Subsidy

Individual Subsidy

Covering Instructional Costs

E & G Capital

Instr. Cap.

covering instructional costs17
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 costs18
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 costs19
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
overview20
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
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

applying the methodology to fy 1991 data22
Applying the Methodology to FY 1991 Data

Note: Results inflated to 2009 dollars.

applying the methodology to fy 1991 data23
Applying the Methodology to FY 1991 Data

Note: Results inflated to 2009 dollars.

applying the methodology to fy 1991 data24
Applying the Methodology to FY 1991 Data

Note: Results inflated to 2009 dollars.

overview25
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?
overview29
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
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

applying the methodology to fy 2007 data31
Applying the Methodology to FY 2007 Data

Note: Results inflated to 2009 dollars.

applying the methodology to fy 2007 data32
Applying the Methodology to FY 2007 Data

Note: Results inflated to 2009 dollars.

applying the methodology to fy 2007 data33
Applying the Methodology to FY 2007 Data

Note: Results inflated to 2009 dollars.

comparing methodology results from fy 1991 and 2007
Comparing Methodology Results from FY 1991 and 2007

Note: Results inflated to 2009 dollars.

comparing methodology results from fy 1991 and 200735
Comparing Methodology Results from FY 1991 and 2007

Note: Results inflated to 2009 dollars.

take home messages36
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 education37

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 20006 Craig.Bowen@ed.gov

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.