Note: this learning was actually published on Dec. 19, but I posted it as the day prior to fill in a blank.
I recently learned that Brigham Young University (BYU) charges extremely low tuition to students. Students attending BYU can expect to pay $12,992 per year to be enrolled in a 12-18 credit course load — that is, if they are not members of the Church of Latter Day Saints. Latter Day Saints can expect to pay just $6,496 per year (in tuition) making BYU one of the cheapest universities someone can attend by sticker price.
That, to me, sounds crazy. BYU has an acceptance rate of about 60%, which does not peg it as an incredibly competitive school. But to attend a private university of any kind and to only pay $13,000 regardless of income status is wild. Even University of Utah and Utah State University charge $24,000 and $21,000 per year respectively. That might explain why Utah and Utah State have acceptance rates in the mid 90s, I guess. However, average tuition including aid at both of those universities hovers around $13K, which makes them all competitive.
BYU's low tuition is funded by tithes, which is one-tenth of earnings that you give to the clergy as a Mormon. Everyone does it, including Mitt Romney. According to a Reddit post I saw, some bishops expect students to pay tithe on their student loans, It is supposed to help the church feed the hungry and clothe the naked, like the Bible instructs them to. It may do that, but one thing that it is documented as doing is helping subsidize BYU's tuition. The tuition subsidy is not without its critics. One Mormon blog I came across was mentioning that there may be reasons to cut the subsidy for non-members the Church. A good explanation of the religious Mormon argument can be found here. The LDS website does not go into tremendous depth about the financial outlays of the church, but here is the manual. Of course, one of the approved expenditures is on church buildings, including temples.
The low tuition of BYU is something I learned about a couple days ago, but I was discussing the tuition for Crescent Academy International, an Islamic school in Canton, MI, and remembered that the tuition there is $7,500. Crescent is a private school, and $7,500 is a lot of money, but is definitely a steal to get an education. For comparison, Discovery Middle School receives $12,299 per student in government funding. Crescent relies on outside funding, of course, like many Islamic institutions. Fundraising is critical to pay Crescent's bills. Even with that outside funding, Crescent, which enrolls approximately 400 students, has never been flush with cash. This isn't ideal, because being unable to pay teachers makes training and retention challenging and makes the school environment less productive for education as a result.
In the general sense, schools are usually not entirely funded by those who attend them. For example, in the United States, most of our schools are funded by tax money. This is much to the dismay of the school choice voucher fanatics. These state administrated schools distribute the taxes paid by those who don't have children in school to those who do. This is the same way, in theory, that state university funding is meant to work. In practice, it is less clear if state funding has kept the pace. Potentially the increase in costs has come from unnecessary bloat and administrative costs, but I have yet to be persuaded on that.
The power of the state, however, is not entirely necessary. Other religious schools have figured out how to make tuition work. For the Church of Latter Day Saints, the 10% of your income that is centrally collected is forced to go towards heavenly endeavors like subsidizing BYU. It could definitely be argued that this system set up by the Mormon Church has state-like characteristics, and to some extent it does. This does not help Muslims, who, along with adherents to many other faiths, do not have some method of centralized governance which can administer religious schools. Even faiths that do have some level of centralization do not have the powerful administrative capabilities of the Mormon Church. So how do these schools pay their bills while providing students a high-class experience?
In my business economics class, during our segment on price discrimination, we read this case from a New York Times Upshot article about how colleges figure out how much college you can afford. College applicants are instructed to fill out the FAFSA and the College Board's CSS Profile to qualify for aid, but the economics behind college tuition go a little deeper than that. They begin with an anecdote from Holy Cross College, a small, private, non-profit Catholic college that was financially struggling. Holy Cross has not yet shut down, six years later, but the point is later explained. Colleges, especially small, expensive, private colleges, design their fee structures to maximize the amount paid by attendees. Attendees with a lot of money and a high willingness to pay are hard to come by, but they do exist. Attendees with not so much money and not so much willingness to pay are a dime a dozen.
People exist all along that spectrum, but the number of them approaches zero as you go past some level of high willingness to pay. Universities know this, so they employ price discrimination to get the most money out of you. Price discrimination doesn't work in all markets. Apples are a commodity and aren't scarce — trying to price discriminate on them will convince no one. Airlines, on the other hand, have mastered the practice. They have economy, business, and first class. Nowadays they have gotten even more granular. Airlines have a lot more information on the market. Based on your buying habits, including just the time of day, they can guess what you are buying a ticket for, and price accordingly.
This is all in attempt to find what the willingness to pay of a customer is and to maximize the producer surplus by pricing along the demand curve, instead of charging all customers one price. Colleges want to do the same thing. They want to find exactly how much you will pay, and then charge you that much. They tell you this is the best thing for your financial aid package, but in reality they are trying to calculate, on aggregate, what is the best for the college.
A lot of places outside of small religious private colleges employ this strategy. Detroit Country Day, a private, co-ed, non-denominational private school has a program that almost entirely transparently does this. They call it Guided Tuition. All are allowed to apply, but it is ultimately need based. The sticker price of the tuition is very high, but not everyone pays sticker price! Frankel Jewish Academy, a private Jewish school located in Bloomfield Hills, charges $30,800 in tuition per student per year. They literally outline the price discrimination based on income on the website with their tuition. All students are able to elect a $10,000 Shorashim Grant (roughly "Roots Grant"). But you don't have to elect the full thing! From their site:
Not all families need the full amount of $10,000. Giving families the choice to select their grant is a way to help them find an annual tuition amount that feels most appropriate for each family.
Price discrimination is quite literally outlined on their site, word for word.
Crescent, and other Islamic schools, are much more new than established institutions like DCDS (est. 1914) and the predecessor to FJA, Hillel Day School (est. 1958). Hillel Day School also has a similar tuition schema to FJA. This nascency shields them from more developed tactics like taking advantage of economics to pay for schooling. The strategy does have downsides, like demonstrated in the impending failure of dozens of small private religious colleges. Those colleges are also suffering from the same problem plaguing second-tier state universities — less teenagers compared to the millennial generation means significantly less students to enroll and pay tuition.
To me, it seems like successful schools that are flush with cash find a way to get parents to expend their full willingness-to-pay on education. Parents with high incomes are able to pay significantly more for their child's education than they seem to be able to admit. A downside of price discrimination is sticker shock. Sticker shock may turn away parents who see the price and think, that could never be me. Sharing average aid packages, like FJA does, can definitely deter some of this sentiment. Asking them to donate money after the fact seems like a failed attempt to capture that willingness-to-pay. As MMYC registration director, I oversaw our implementation of a new fundraising strategy. Since MMYC did not have enough money to cover all of its bills, we had to crowdfund to pay for the event. I discovered that if I added a donate option to the registration form, generous parents were more inclined to pay MMYC extra money for donation while they paid for their own children. Discriminating tuition based on income and assets accomplishes the same goal.
There is no doubt that Shorashim Grants, which make a significant dent in the tuition at FJA, are made possible by very generous donors in the Jewish community, which is fantastic. But it is also undoubtable that the funding structure for FJA and other Jewish schools puts economics on the school's side. Changing the funding structures of schools like Crescent Academy and Huda School to automatically capture wealthier parents' higher willingness-to-pay will create a better learning environment at Islamic schools that will elevate the Muslim community as a whole. There are risks to any economic plan, as there are risks with any bold moves. Taking this step to believe in well-documented economic theories will benefit the Muslim community and make us stronger.
