Post on 01-Apr-2015
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