To the casual observer, the University of Connecticut at Storrs and the University of North Carolina at Chapel Hill look a lot alike.
Both are public flagship institutions, research universities that enroll about the same number of undergraduates (around 18,000), and both have popular and successful basketball teams for men and women.
Notably, they get roughly the same amount of money from their respective state legislatures, according to the most recent federal data—about $486-million each in the 2011-12 academic year.
There are, of course, plenty of differences between the two campuses, but one that stands out is the price. The average in-state, full-time student at UConn paid about $5,000 more per year in the 2012 academic year than a similar student paid at Chapel Hill, according to federal figures.
That difference turns out to be difficult for college administrators to explain.
“There’s not one answer, as far as I can tell you,” said Lysa D. Teal, associate vice president for budget and finance at Connecticut, about why the university’s average price per student was different from others in its peer group, including the University of North Carolina.
James W. Dean Jr., executive vice chancellor and provost at the Chapel Hill campus, said, “I’m not sure I have a great answer for that.”
The difficulty is due, in part, to the complexity and number of variables that go into determining how much students will pay at a given college.
But another reason it’s difficult to explain differences in price is that colleges are not good at measuring how much it actually costs to deliver a higher education.
William F. Massey, a professor emeritus of higher-education administration at Stanford University, said most universities “don’t really know” why their costs and prices are different from those of other institutions.
“They can’t make the comparisons with other institutions,” because they don’t have enough detailed information about what it costs to educate students, said Mr. Massey, who is a consultant on higher education for the Pilbara Group. And if they don’t understand those costs, he said, it is hard to control prices without sacrificing quality.
Maria R. Anguiano, vice chancellor for planning and budget at the University of California at Riverside, said colleges understand the costs of running academic departments compared with their peers. But they don’t have a good handle on how much it costs to deliver a single course, per student, she said. (She is also the author of a report from the Bill & Melinda Gates Foundation that argues for a system of accounting to better determine the costs and effectiveness of instructional activities.)
Instead, the price per student is based largely on what colleges think they can charge in their markets, as well as the amounts they want to put into financial aid, Ms. Anguiano said. “There doesn’t necessarily have to be a correlation with the cost of running the university.”
Tuition Redux
That idea might come as a surprise to students, parents, and policy makers, who worry about tuition increases and the fast-rising amounts of student loans being used to finance college educations. The public’s concern is often in response to the increases in the published sticker price—the full cost of attendance, which only a small fraction of students typically pay.
Public higher-education officials usually argue that cuts in state appropriations are to blame for rising tuition. But that answer masks a much more complex story about how institutions set their prices and what tuition really pays for.
A more reliable number to consider when looking at the price of college is the average net price—the mean price that resident students pay after all discounts and financial aid have been applied to the full cost of attendance—as reported by the U.S. Department of Education.
In the 2011-12 academic year, the average net price at Chapel Hill was $11,092, and at the University of Connecticut $16,357.
The decision about tuition pricing does not usually begin with a discussion about how much the university should charge individual students, said George Pernsteiner, president of the State Higher Education Executive Officers and a former chancellor of the Oregon University System. The No. 1 question, he said, is how much overall revenue the institution needs to generate from tuition. For a public college, it’s the amount of revenue needed after considering state appropriations, philanthropy, and other sources of income that it can use to pay for education and related expenses.
Second, a public college has to decide how much of that money will come from in-state students, Mr. Pernsteiner said, and how much from nonresidents, who typically pay something closer to full price and essentially subsidize the cost for in-state and low-income students.
At that point, colleges begin the intricate process of choosing an incoming class that meets the institution’s financial needs as well as its academic requirements, and adds to the socioeconomic diversity on campus.
“It’s part art and part science,” said Wayne Locust, vice president for enrollment planning and management at the University of Connecticut.
About 20 percent of students at both Connecticut and North Carolina came from low-income families and were eligible to receive Pell Grants in the 2011-12 academic year.
At the upper end of the income scale, nearly 16 percent of incoming in-state students at UConn who used federal aid (and were tracked on that basis by the Education Department) came from families that earned more than $110,000 in 2011-12. Those students paid an average net price of nearly $23,000, 10 percent less than the full listed cost that year, according to federal data.
At North Carolina, fewer than 9 percent of the freshman class was in that highest income category. Those students paid an average of about $20,000, 5 percent less than the sticker price.
The process is also heavily influenced, or even controlled, by state politics. In North Carolina, for example, the state restricts the number of nonresident students at its universities.
Just 18 percent of the students at Chapel Hill are from outside the state, said Mr. Dean, the provost.
Although that limits the amount of overall revenue the university can generate from tuition, it also creates fierce competition among nonresidents to get into the university, Mr. Dean said. And the high academic level of those nonresident students, in turn, attracts high-achieving students from within the state.
What Price?
Even in times of financial distress, though, students aren’t just paying for a college’s current operations. While colleges express their commitment to controlling costs and maintaining affordability, students are often helping to meet the institution’s aspirations for the future.
For example, a four-year plan to raise tuition at Connecticut is meant to help pay for hiring more faculty members and thus significantly lowering the university’s student-to-faculty ratio.
The university also needs new and refurbished classrooms and laboratories, said Sally M. Reis, vice provost for academic affairs.
“Nobody wants to come to a university where facilities are coming apart. Without those things, we would be pedaling backwards,” she said.
Several other factors also have an effect on how much students pay at UConn and Chapel Hill. One in particular is the endowment, which is more than $2-billion at Chapel Hill and a little more than $300-million at UConn. Assuming that each university uses about 5 percent of its endowment annually, the Chapel Hill campus could spend $111-million for financial aid, compared with about $15-million at UConn.
At the same time, Chapel Hill spent far more on instruction and research, according to federal data. It is also more selective, accepting fewer than 30 percent of applicants compared with Connecticut’s rate of more than half. Both of those factors would typically indicate that the University of North Carolina is more expensive.
But changes in Connecticut’s state pension rules will heap costs on the public university for the next 20 years, said Ms. Teal, the budget official. Last year the university used more than $30-million from a reserve to cover its increased responsibility for employee pensions. And administration officials have been quoted as saying that tuition revenue will have to be considered to fill that hole in the future.
All of those conditions certainly have some effect on the price that students pay.
But without better accounting methods, colleges cannot really hope to understand and manage their costs, said Mr. Pernsteiner, of the association of state higher-education executives.
Current accounting models, he said, hide the costs of instruction by lumping together a lot of things not directly related to delivering education, such as facilities and maintenance, some research costs, fund raising, even athletics.
Ms. Anguiano, at the University of California, said that for colleges to maintain quality and remain cost-effective in the long run, they need a more detailed understanding of specific educational costs.
“There is almost a complete lack of visibility on how much it actually costs to deliver postsecondary education, and how those costs compare with the outcomes achieved,” Ms. Anguiano wrote in her December 2013 report for the Gates foundation.
As a result, colleges may not make the best choices when it’s necessary to cut the budget as a result of a decline in state revenue or a drop in enrollment.
“Nonstrategic cuts,” she wrote, generally achieve only marginal savings and can often lead to higher total costs and poorer delivery of services.”
