For an increasing number of colleges and universities, these are desperate times, and price competition, heretofore very limited, is becoming more prevalent. On September 24 I discussed how tuition reductions were one way to attract student attention. But there are other approaches as well, such as offering something like a “money back guarantee,” or, even more commonplace, letting industrious students take more classes at no extra cost.

Money Back Guarantees and Test Drives: Universities with “Skin in the Game”

It is very difficult to get into American medical schools—a typical school accepts fewer than 10 % of applicants. Dozens of medical schools have cropped up outside the U.S., especially in the Caribbean, offering admission to students rejected from U.S. universities. Some of these medical schools, such as St. George’s University in Grenada, have managed to place a large number of physicians in the U.S, partly by paying American hospitals to take students as residents.

Now St. George’s is offering something that is not quite a money back guarantee, but comes close. It is offering students who enter its medical school at the beginning of 2019 a good deal: if you then, a few months later in 2019, are admitted to a U.S. medical school and decide to enter it in the fall, you will have your St. George’s tuition repaid to you. You can enter St. George’s without sacrificing the possibility of getting into a U.S. school. For St. George’s, this increases applications for winter admission, and when students are accepted at the U.S. schools, it probably increases a bit the prestige and reputation of the Caribbean school (albeit at a sizable cost). The students are “test driving” St. George’s, while the school in a sense is betting resources on itself—hoping some students accepted at U.S. schools will be happy enough with their first semester at St. George’s that they will want to stay there.

Several other efforts in this direction are already underway. Some schools (Adrian College in Michigan is one example), are starting to offer to reimburse students at least part of their tuition payments if they fail to get a decent job upon graduation. Obviously the students must demonstrate that they have actively sought employment. The State University of New York at Buffalo guarantees that a student meeting certain conditions will graduate in four years—or receive free tuition for courses taken in a fifth (or sixth) year. And a few schools, most notably Purdue University, are literally investing in some of their students through Income Share Agreements (ISAs), paying the student’s tuition in return for a share of post-graduate earnings.

Unlimited Hours Tuition Models

Another approach has been long used by some schools, allowing industrious students to graduate early, saving not only tuition fees and living expenses but also allowing them to obtain high paying employment earlier than otherwise. Many schools have traditionally charged by the credit hour—a student with an 18-hour load pays 50 % more than one with a 12-hour load, for example. Most schools limit the number of hours a full-time student may take at the published tuition fee, but that tuition fee is fixed over a a band of hours (e.g., 12 to 16 hours). Sometimes the upper limit is 15 hours, other times more (e.g., 20 hours), and, occasionally, an unlimited number of hours.

Does the fee structure make a difference? David Holman, Samuel Kissinger and Robert Hammer (HKH) in a study last year for the Center for College Affordability and Productivity of 70 universities with 1.1 million students showed that how fees are structured does matter. HKH show by simple numerical examples as well as statistical analysis that schools using the traditional model of charging by the number of credit hours taken have statistically significantly lower four-year graduation rates, largely because students avoid, for financial reasons, taking large class loads. If a typical school would have 35% of full-time students graduate in four years where students at no cost can take more than a minimal full—time load, the likely graduation rate at schools with the traditional model (charging by the hours taken) would likely be 29%, controlling for other factors (school reputation, endowment resources, etc.) impacting graduation rates.

Plato nailed it in the Republic over two thousand years ago: necessity is the mother of invention.