Should Engineers and Business Majors Pay Higher Tuition?

November 12th, 2011 by 

Last time I angered all of you by asking if certain majors should pay higher rates for their student loans. Now I ask you a subtly different question: Should some majors pay higher tuition due to higher expected lifetime earnings?

The difference in my two questions is important: while Art and Psychology Majors (the two categories with the lowest earnings potential from Georgetown’s What’s it Worth?  The Economic Value of College Majors report) will have the least funds available to pay back student loans, some of the more lucrative fields of study come with a higher cost to educate per student.

For everything from guest speakers to books, professor salaries to lab costs, the majors with the highest salaries also tend to be the ones that cost the most.  This is a topic I've touched on briefly before, but let's dive into the deep end.

STEM Has a Higher Cost to Educate

Should engineers pay higher tuition? A picture of a computer and various receiver boards.

Should This Student Pay Higher Tuition Than an Artist? (Jean-Etienne Minh-Duy Poirrier)

I waved my hands past a huge number of issues in the introduction, but let's back up and go over a few facts.  For Engineering and Business and other High-Salary Majors (let's call them HSMs, and their lower salaried counterparts LSMs), professors are an expensive prospect.  They have to be - for a school to obtain high-value, high-authority professors, they need to offer competitive salaries to people in a field where salaries are already higher than average.  In order to attract talent to the school, Colleges have to be willing to spend to get it.

HSMs, especially STEM Majors (that acronym stands for Science, Technology, Engineering and Math) have increased costs in the form of a heavy laboratory aspect to their major.  Whether it's oscilloscopes and processors, models and wind tunnels, or cadavers and dead animals, the costs of labs are pretty exorbitant.  Even with cheap help in the form of Teacher's Assistants, the costs of educating in a major which requires hands on lab work is steep.

A Brief Note on Shared Costs for College Majors

Even if the cost of college was more inline with costs to educate, the gap between majors might not be that much.  Sure, colleges have endowments, but it costs a fair amount to run athletic centers & pools, water gardens, clean buildings, and provide other resources which are open to all students.  Remember that some costs should be shared by all students - but perhaps a better question is, "how many of these resources should schools provide?".  I can't think of many schools that try to compete by offering less resources for a cheaper price - but if you know of any, please mention them in the comments section.

Supply and Demand in the Job Market

One argument against the scenario I am proposing is that it will lower the number of HSM graduates in America, exacerbating things like the so-called Engineer Shortage.  Whether you believe in it or not, note that:

  • The elasticity of higher education is a funny topic.  Higher tuition doesn't affect enrollment much - and even news that people are graduating with more loan debt (because not everyone pays the same amount for college) hasn't stemmed the flow of college freshmen.  See bullet three.
  • Most of the 'Engineer Shortage' (and other HSM shortages, like the Doctor Shortage), if it exists, is attributable to the fact that these majors are difficult academically.  In engineering, the number of engineers that graduate is 40% less than those who matriculate.  If you toss Pre-Meds into the mix, it's as high as a 60% drop.
  • Even though there isn't a good pricing model for college, we should assume that there will be some reduction in engineers due to any price increases.  This article in the Wall Street Journal states that families did spend less on education in the 2010-2011 year.

Genius?  Disturbing?  Unfair?  Disgusting?  Misguided?  There are many words that can apply to a new concept in higher education: increasing tuition based upon the expected career earnings of an industry.  Yes, Engineers can now expect to pay more than English majors at some colleges.  57 Percent of the 162 Public Research Institutes now charge different tuitions based on majors, including 18 institutions which have adopted the practice in just the last 3 years.

Capitalism: Some Majors Paying Higher Tuition!?

There are obviously two ways to look at this sort of an increase.

The first is to assume that college for the majors without the tuition increases is fairly priced, so the increased costs of delivering a competitive Engineering Degree makes sense - people who want to become Engineers should be okay with paying more since they expect to make more when they graduate.  The tuition isn't a direct pass-through of costs, although some of it may be.  Tuition increases are on top of any lab fees and engineering fees already levied... which already cost a non-trivial amount when I was getting my degree.  Since Engineers and other Scientific fields will make more money in the course of an average career, the Permanent Income Hypothesis means Engineers should be willing to pay a bit more for their education.

Another, more sinister way to look at it is that these colleges need to increase their revenue across the board.  Since Engineers can pay more, the colleges are moving to a progressive tuition system (sort of like the progressive tax code) in order to make up their revenue gap.  Alternatively, you could say that the revenue raised by Engineers is subsidizing other majors which may not be willing (or able) to pay as much based on future earnings.

 A Note on the "Engineer Shortage"

Information on the so-called 'Engineer Shortage' is conflicting.  CEOs for big tech companies generally are on record as supporting increased science and mathematics efforts by colleges, as well as increased in H1B caps in order to hire skilled foreigners.  In fact, the H1B cap hits the maximum number pretty much annually, and in many years does it as quickly as a week after the window to hire H1B workers opens up.  If there really is a dearth of Engineers and Scientists being produced from the American system, more widespread tuition increases will discourage potential engineers at the margins, possibly causing an American Engineer shortage (if there is not one now) or exacerbating the current Engineer shortage (if a shortage currently exists).

Reality Check on Degree Choice: Should Some Majors Pay Higher Tuition?

Some background on your favorite columnist: I graduated with a degree in Computer Engineering and Computer Science from the University of Southern California (Fight On!).  CECS is best compared to a dual major in Electrical Engineering and Computer Science.  Since then, I have worked in Silicon Valley as a Software Engineer.

The truth is, it already costs more to be a STEM major.  Between lab books, lab fees, books which are revised every year (technology changes quickly!), and the opportunity cost of math problem sets, programming assignments, homework, and studying - it's enough to make many engineers long for the Liberal Arts school.  On the other side of the coin, individual departments tend to give out scholarships of their own separate from the main admissions department.  It's also not completely even between the STEM majors - sure, Math majors need computing resources and software licenses, but a Biology Major is going to cost more to educate than a Math Major.

So, Should HSMs Pay Higher Tuition?  It's a question for normative economics, but let me field it: no.  Yes, I get it, the ultimate lever to create more American HSMs is for companies to increase the salaries paid even further.  High salaries awaiting graduates would lure more students into the HSMs from the LSMs, and hopefully come with enough incentive for students to stay the course.  That could be balanced out some by changing (or eliminating) H1B caps to allow more foreign born HSMs, for example.

So didn't I just basically argue that companies should pay HSMs with declared 'shortages' more, but colleges should also charge more?  Not exactly - price isn't the only factor in this equation.  The difficulty of the Majors in question is also a huge problem.  If tuition was increased, students on the margin of believing they can make it as a HSM would drop - why pay higher tuition rates for a year if you're going to switch anyway? I made a similar argument in describing that athletes are not overpaid. So, you see, my "no" is really just an opinion until a true pricing model for higher education is developed that factors in the difficulty of the subject matter.  So here's my highly biased guess:

The elasticity of difficulty of major is greater than the elasticity of price of major.

Also, college endowments are a major piece of the puzzle. Colleges could be benefited greater by the increase in future endowment revenue streams from higher income graduates than from the increase in current tuition prices. This relationship is unclear... but while I was at USC the Engineering School received a number of high value donations.

Anyway, since this article doesn't actually show anything except an Engineer thinks Engineers shouldn't pay higher tuition, I welcome any comments you have!  What do you think?



PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK lives in New Hampshire with his wife, kids, and dog.

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