The first phase of this project assessing the viability of the normative financing framework involved an attempt to estimate the cost of producing degrees at a sample private and public HEI.
Costs were broken down into 3 major categories: direct personnel expenses, departmental MOOE and indirect costs. Inasmuch as different universities accounted for costs in different ways, the researchers had to exert a considerable amount of effort to reconcile accounts and arrive at consistent ways of calculating figures.
The full spreadsheet accounts with all relevant cost figures were then derived. To simplify analysis, we computed costs for 2 sample degrees per university, using the formula described in the methodology.
The figures reveal significant differences between tuition fees charged and the cost figures computed. The cost figures are more reliable as they work on the premise that the university has internalized all relevant expenses.
Our findings confirm the intuition that scale effects from the number of students enrolled work to drive down both personnel and MOOE costs. It is this sort of logic that has caused universities to enact internal controls on program expansion, class sizes, and other means to ensure efficiency.
We have also uncovered the use of cross-subsidies from “high-volume” colleges (business, liberal arts) to “expensive/low-volume” colleges (sciences). If one compares expense figures to tuition rates, one will discover that universities transfer funds from high-revenue colleges to low-revenue ones in order to maintain relatively similar matriculation costs.
We are careful to point out, however, that the data obtained from this method are essentially static – that is to say, they do not incorporate programmed increases in quality provision (which itself is costly), as well as very significant market distortions (such as “irrational” student preferences).
As this is the first phase, we expect that as additional universities and HEIs are surveyed, we will be able to use the accumulated data to construct a cost function and compute the marginal cost of producing a graduate in a course from an HEI of a given quality level.
