Question

Some universities charge tuition by the credit hour, while others charge tuition by the semester, allowing students to take as many classes as they desire. How do these tuition structures affect the incentives students face when deciding how many classes to take? Provide an example of a beneficial effect and an example of a potentially harmful effect resulting from the incentives created with each system. How does marginal analysis affect the incentives with each system

Answer 1

If there is credit hour billing, the student will receive upcharges if he/she wishes to take past a stated amount of hours. On the other hand, if the tuition is billed per term, there is no limit on credit hours. This enables students to finish their schooling faster, which will financially benefit them in the long run, as they will not have as many terms to be billed for. However, this puts the college in a damper with regards to their financials; there is not as much stability and control with the long term budget, because students will have easier access to graduate early.

Although less financial stress sounds fantastic to the typical college student, the tuition-by-term payment method could present the student with an unbearable level of mental stress. The credit hour tuition would not only be a partial-control factor for the college in that of the student’s stress level but also bring stability to the college’s financial budget. Billing each student by credit hour will enable the college to take an “average tuition income rate” per student (regarding the total tuition per student paying per credit hour ) and work that into their financial budgets. It gives the college a sense of a controlling factor in the stability of the students’ stress level, as well as the college’s budgets and rates (to keep students on-campus/taking courses and increase income).

The marginal analysis would benefit both the student and the college. The student must find an equilibrium between stress and financial stability. With this, the college must set the price of tuition to attract students, but also positively impact their financial budget.