Market Rate Tuition

July 27, 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• 2011-2012 academic year

• Compute the net cost of tuition and fees• Before and after tuition change• Bright Futures, Prepaid

Background

• Drastic cuts• FSU $65 million• No raises for 5 years

• Capped growth rate• Preeminence Bill removes cap

• Current tuition• $5,826

What is a market rate?

Price

Quantity

D1

S1

PCURRENT

PMARKET

QDQS

Determination & Analysis

Estimation Methods

Solutions

Carnegie Classification

Hedonic Regression

• Average similar universities• Regression

How do we estimate tuition?

• Select relevant market

Carnegie Classification

Hedonic Regression

General SelectionProcess

Carnegie Classification

Hedonic Regression

General MarketGeneral SelectionProcess

Carnegie Classification

Hedonic Regression

Carnegie Foundation

• Classifies higher education institutions• Characteristics• Public, Private• Undergraduate population

• Used to control for institutional differences

Hedonic Regression

Carnegie Classification

How do we estimate tuition?

• Select relevant market• Select standards for comparison

Hedonic Regression

Carnegie Classification

Carnegie Selection

Hedonic Regression

Carnegie Classification

How do we estimate tuition?

• Select relevant market• Select standards for comparison• Average the tuition

Hedonic Regression

Carnegie Classification

Carnegie Estimates

Hedonic Regression

Carnegie Classification

• Susceptible to outliers• Characteristics differ• Small sample sizes

Concerns with Averaging

Carnegie Classification

Hedonic Regression

Hedonic Regression

• Vector of attributes for a good• Contributions to price

• Used to price housing• Bedrooms• Square footage• Lot Size

Carnegie Classification

Hedonic Regression

How do we estimate tuition?

• Select relevant market• Select variables for regression

Carnegie Classification

Hedonic Regression

Student-Teacher InteractionPrice

Quantity

D1

S1

D2

S2

Q1d

P1

P2

Q2d

Carnegie Classification

Hedonic Regression

Student-Faculty Ratio

Carnegie Classification

Hedonic Regression

Academic ReputationPrice

Quantity

D1

S1

D2

S2

Q1d

P1

P2

Q2d

Carnegie Classification

Hedonic Regression

U.S. News Rankings

Carnegie Classification

Hedonic Regression

What Affects Tuition?

Carnegie Classification

Hedonic Regression

How do we estimate tuition?

• Select relevant market• Select variables for regression• Run the regression

Carnegie Classification

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

Carnegie Classification

Hedonic Regression

Variable Parameter Estimates T-Statisticstufac -0.0191** -2.44

lnstuserv 0.246*** 3.57

lnrb 0.185 0.96

lnexternal -0.180** -2.28

rank 1-29 0.213 1.26

rank 30-59 0.258* 1.93

rank 60-89 0.210* 1.73

rank 90-119 0.0536 0.45

rank 120-159 0.0277 0.22

rank 160-194 -0.107 -0.86

as high grad 0.00251 0.02

asp high grad -0.018 -0.26

pas some grad 0.00191 0.01

pas high grad -0.0689 -1.11

Constant 7.781*** 3.74

*** p<0.01, ** p<0.05, * p<0.1

70 Public Universities

R2

0.644

Student-Faculty Drives Tuition

Negative Positive

Carnegie Classification

Hedonic Regression

Estimated Tuition

Carnegie Classification

Hedonic Regression

Determination & Analysis

Declining Tuition Coverage

Bright Futures

Prepaid

Bright Futures & Prepaid Interaction

4 Year Univ.

FAS

FMSGSV

4 Year College 2 Year

2+2

10%

Students with Bright Futures & Prepaid

Costs Remain Zero for 34%

Costs Increase by Less Than $2,000

Determination & Analysis

Forecasted Recommendations

$0 - $5,501 One-time Increase$7,781

Determination & Analysis

Cohen Hardin Pan &Tschirhart

Cohen Hardin Pan &Tschirhart

Applied Economic Research GroupApplied Economic Research Group

AER AER