Mispricing Tuition

That the humanities are in crisis will surprise exactly no one. Since the Great Recession of 2008, but especially after 2012, the share of majors in the humanities has continued to decrease precipitously among American college-goers. If we include popular majors like communications, the share of humanities majors was just under 10 percent in 2020. However, if we adopt a more restrictive definition of the humanities, only 4 percent of college graduates in 2020 majored in traditional humanistic fields, including English, history, philosophy and foreign languages and literature.

What’s behind this decline? Theories abound, from the proliferation of turgid, incomprehensible prose in the humanities to the lack of job opportunities for recently minted humanists. Likewise, among the most common alleged culprits are the neoliberal university and its emphasis on “practical” majors as well as the politicization of the humanities. The most convincing perspective I have seen so far was put forward by historian Benjamin Schmidt, who suggested that “the plunge seems not to reflect a sudden decline of interest in the humanities, or any sharp drop in the actual career prospects of humanities majors. Instead, in the wake of the 2008 financial crisis, students seem to have shifted their view of what they should be studying—in a largely misguided effort to enhance their chances on the job market.”

Surely, many of the available explanations have varying degrees of validity. No complex problem has a monocausal explanation. What is surprising, however, is the fact that commentators have missed an essential part of the picture, namely the structure of tuition fees in most American universities. By this I don’t simply mean the astronomical costs of tuition—although this is also clearly a problem—but the fact that universities don’t routinely price tuition for different majors in relation to what it actually costs to educate a student in any given discipline. Instead, American universities have adopted the expedient, but ultimately harmful, practice of keeping tuition fees for all liberal arts degrees essentially equal.

This practice, I would argue, amounts to a form of tuition mispricing both in the humanities and in other, well-remunerated fields. This is not a mere theoretical or ethical point, for tuition mispricing may well be affecting student choices to students’ own detriment and that of the humanities. In the interest of transparency, I should confess that I would prefer a fully funded, free public system of higher education. But, given that we are unlikely to distort the market for public education, we should go all the way in marketizing it. Allow me to explain.

I shall begin with a question. Why do economics professors earn much more money than their counterparts in the humanities (see, for example, the chart below showing the salary differential between English and economics professors)? The answer, as economists themselves would be quick to point out, is not a mystery. It is simply a matter of supply and demand. In other words, there is more demand for economists, both in the academy and in the extra-academic labor market, than for humanists. At some point, demand outpaces the supply of economists on the job market, which naturally leads to wage growth.

2021–22 Median Salaries for Tenure-Track Faculty

Source: CUPA-HR 2021-22 Survey of Faculty in Higher Education

Surely, this is how a free labor market is supposed to work. Be that as it may, if academic salaries aren’t tethered to a rigid, across-the-board salary schedule, why aren’t tuition prices for different disciplines also free-floating? Why does it cost almost the same to get a B.A. in economics as it does in humanities fields in most American universities?

Given that economics degrees command higher salaries and that it costs almost exactly the same to obtain a degree in any liberal arts field, it is no mystery why students are opting for degrees in disciplines like economics. If tuition is going to be equally high no matter what, you might as well go for the field with the highest income potential, even if it means abandoning a discipline for which you have a comparative advantage and perhaps even a strong attraction. This is inefficient and leads to deleterious economic and social outcomes. Would we really be better off were we all to become mediocre economists, computer scientists, data scientists, etc. …?

What if we thought about pricing tuition more carefully? In other words, if labor costs for economics are a lot higher for universities, why don’t we charge economics students higher tuition fees? If tuition fees were to become free-floating among the disciplines, market signals would be improved. Higher tuition fees in economics would mean that only those who would derive more utility from economics would take on the costs. And given that they would stand to earn more money, higher levels of student debt would not necessarily be disastrous. Something of the sort already happens in law, medical and business schools.

Furthermore, those who have a talent for, say, history and English literature would not be inefficiently compelled to major in economics simply because of high tuition costs. Sure, history and English majors will still stand to earn less money once they graduate—but many would, nonetheless, choose their preferred field of study because their student debt will be commensurate with their earning potential. As a result, majoring in the humanities would become a less risky proposition.

The payoff of this way of pricing tuition is twofold. First, it will incentivize students to major in the disciplines for which they have a comparative advantage and which they enjoy. This should augment student happiness and satisfaction. Second, it will allocate talent more efficiently, as better price signals will solve the talent misalignment issue that we are likely confronting. It is surprising to me that economists have not proposed what I am suggesting here, at least not in a concerted way. Perhaps their unconscious desire to highlight the importance of their discipline has vitiated the so-called homo economicus ideal that is so central to modern economics.

Undoubtedly, what I am proposing here poses significant logistical challenges. For starters, liberal arts degrees require a certain amount of general education courses across multiple disciplines, usually during the first two years of undergraduate study. How, then, do you price tuition for general education courses across disciplines during this initial period of a liberal arts education?

I see two main ways to tackle this issue. First, colleges could adopt a flat fee for general education courses, so that for the first two years or so every student pays more or less the same tuition. Once students declare a major and begin to take upper-level courses, then they would be responsible for different tuition amounts depending on the costs associated with their majors. Alternatively, colleges could simply charge a different per-credit amount for each discipline, so that the price of each course corresponds with the overhead costs that any given discipline entails. There may be better ways to do this, but the point is that we should price each discipline correctly so that we end up with a more efficient and favorable allocation of talent.

Let me pause here for a moment to anticipate potential critiques. Some, I am sure, will be quick to retort that this proposal rests on shaky foundations, for many natural and social scientists fund their own salaries with large grants from the National Science Foundation or other federal research agencies. But this potential critique is unsound for at least three reasons. First, whether the money to pay faculty salaries comes from student tuition or federal research dollars, it is still coming from us, the taxpayers. Second, faculty members who are awarded these prestigious grants often receive either complete or partial teaching relief. And finally, only a small sliver of American academics, usually those at research universities, receives significant federal grant dollars.

In short, even though it is true that some natural and social science faculty members fund their own salaries with NSF grants, this does not take away from the fact that, because of salary differentials, it costs more to educate students in some fields than others. Tuition prices should reflect these differences so as to allocate talent more effectively and, in the process, restore the place of the humanities in the landscape of higher education.

In anticipation of further critiques from fellow humanists, it is also worth considering whether cheaper tuition prices would ineluctably devalue or desacralize humanistic disciplines. This, I am convinced, will not be the case. Price, as any economist would tell you, is a matter of supply and demand, not worth or inherent value. Water, for instance, is the most valuable of fluids for our survival. And yet it is incredibly cheap. Again, the cheapness of water, as it were, is a function of its abundance, not its worth. Water, unlike a bottle of Moët, is not in short supply, for the moment at least.

My hope is that by pegging tuition fees to what it actually costs to educate students in the humanities we may recover the share of the student body that is naturally inclined to humanistic inquiry. Be that as it may, I would still prefer for us to have a fully funded, free public system of higher education for one important reason: although pricing majors correctly might help in allocating talent more effectively while also helping the humanities acquire their rightful place in college education, it could also create perverse incentives. Cheaper tuition in the humanities could induce poor or working-class students to major in the humanities even when they have an aptitude for STEM fields. This could potentially have the effect of further entrenching wealth and opportunity gaps.

In contrast, free tuition at public colleges and universities would give poor and working-class students the opportunity to major in the fields for which they have an aptitude without having to worry about whether they could afford tuition. Considering, however, that free public college is probably unrealizable in the United States, we should at least fully marketize tuition along the lines of what I described above. By fully marketizing tuition we would at least help partially mitigate the misallocation of talent problem that we are likely confronting, together with the decline of the humanities. Thus, let us stop mispricing tuition to the detriment of college students who are naturally inclined to humanistic inquiry.