IU’s Banded Tuition: a Bad Idea

Effective Fall 2016, Indiana University is set to begin a policy for charging tuition referred to as Banded Tuition.  Interested readers can find the details here.  In a nutshell, part-time students taking 11 or fewer credits per semester will continue to pay on a per-credit basis as before, but full-time students taking anywhere between 12 and 18 credits will all be charged the same price at the rate currently charged for 15 credits. In the case of a student taking 3-credit courses in a given semester, this means that the price of the first 3 courses remains the same, the price of the 4^th course is doubled, while the price of the 5^th and 6^th courses falls to zero.

This strategy, known as price discrimination, is common-practice in business.  For example, instead of selling loaves of bread for $1 each, a grocery store might double the price to $2 and offer a “buy one, get one free” deal.  This might be profitable to the seller, because it could allow the store to sell more bread and increase its revenue if consumers continue shopping there.  Consumers who would have bought two loaves anyway are unaffected and might even think they are getting a bargain if they did not pay close attention to the price increase.  Yet, consumers who would have bought only one loaf will now get two since the second one is free for the taking. However, there is a down-side: waste. Presumably, the consumers who would have bought a single loaf had good reason for doing so: maybe they have a small family or do not eat a lot of bread. The second loaf might grow moldy and stale and end up in the trash. Tampering with prices has consequences:  it distorts the signal people get about the value of things. The second loaf might be free to the consumer who brings it home even if he is unlikely to eat it.  It was not, however, produced freely: it cost real flour and real labor.

The same wasteful consequence is to be expected from IU’s banded tuition scheme. Once students have paid for the first three courses, the deal is: buy one get two free.  Naturally, those students who would have taken four courses will be tempted to register for two more even if they do not have the time or inclination to complete them successfully.  Many students have good reasons to want to register for fewer credits.  Many have spouses, children or elderly parents to care for, some are even single parents, and have non-optional, time-consuming family responsibilities; some may be ill of have personal problems; many also need to work, sometimes even full-time, in addition to trying to juggle a full-time course load. Some students might also feel that their best chance of getting decent grades is to focus on a smaller number of courses rather than scatter their efforts over a larger course load.  Currently, withdrawing from a course midway through the semester is a costly mistake for a student: he or she paid the tuition and ends up with nothing to show for it.  Since it is costly, students try to avoid it.  But with banded tuition, the 5^th and 6^th courses each semester are free.  Just like for the consumer who sees no downside to bringing home, just in case, a free loaf even if it is likely to get thrown out, it is no longer a costly mistake to register for a course that one does not anticipate having time to complete successfully and then withdrawing part-way through the semester. But registering for additional courses that are not completed has a cost:  It might take a seat in a classroom away from another student who remained waitlisted and unable to take a course he or she really wanted; Instructors may have needed to be hired to teach additional sections that ended up half-empty after the mid-terms.  By making a common-practice the registration into additional courses that one has no firm commitment to complete, banded tuition also erodes the work ethic expected from students who attend university.  If everyone registers for courses fully expecting that they might withdraw from some later, then withdrawal is no longer an admission of failure.  If everyone does it, it is the new normal.

It is obvious that the primary reason IU’s trustees went along with the Indiana Commission for Higher Education’s recommendation to implement banded tuition is to artificially boost sagging enrollment and revenue. The students who would have otherwise taken four courses per semester will either enroll in at least one more or be forced to pay for it anyway.  More revenue and better-looking enrollment numbers? Great! The waste of taxpayers’ dollars and the extra cost to students?  Not IU’s problem.  It should also be obvious that this is an unfair way of raising additional revenue.  Price-discrimination, as the name implies, means treating different people differently.  A uniform increase in tuition rate hits everyone equally, at least, in proportion to the number of courses they take.  Banded tuition hits only the students who would have otherwise taken less than 15 credits.  The care-free single student with no family or work responsibilities who takes advantage of banded tuition to register for 18 credits at the cost of 15 gets a sweet deal. The student who is burdened with family and work responsibilities and who is struggling to keep up her GPA and make ends meet while paying for 12 credits will now be forced to pay for 15.  It will increase the cost and ultimately the debt of the very students who can least afford it.  This cannot be justified on fairness grounds.

I urge IU’s trustees to reconsider their decision to impose banded tuition.  It is a bad idea that will have wasteful and unfair consequences.