Fee models

Ross Woods, 2019, rev. 2022

This brief paper will examine several different models for charging college tuition fees. Its significance is that if affects institutional business models. Consequently, a highly innovative fee structure matched with a highly innovative business model could create competitive advantage.

Fee per semester hour

In the US, a fee per semester hour is perhaps the most common approach. The tuition fee for a semester varies according to how many units (courses) the student takes that semester. In a short quarter, student can take fewer courses and pay fees proportionately. A research student who does not finish a set of units in a semester gets a Continuing grade, and must pay for those units again next semester.

Subsidised fees

This kind of education works well for governments, and for organizations that pay for the education of their employees. In wealthy institutions, fees for worthy students are paid from an invested fund. In some ways, subsidised fees are not much different from fees that are paid by loans. To some extent, it is slight of hand. Somebody pays those fees, be it the taxpayer, employer, or donors; it is just that it is not the student.

From an institutional viewpoint, the risk is that the subsidiser might not continue. The dropout rate can be higher; students who do not commit to paying tuition have nothing to lose if they drop out.

This has created some interesting innovations:

• A conglomerate subsidised its institution of higher education so that it could cherry-pick the best graduates to become employees. This enabled it to observe prospective employees closely for a long period, give them practicums, and perhaps gain some access to assessment results. The low fees gave the institution a competitive advantage to attract talented students, regardless of their wealth. Moreover students gained access to an education that they otherwise could not have afforded.
• Another institution provided education for no fee at all, but charged a fee to corporations for its graduate placement services.
• One institution required students to conduct improvement and innovation projects in the employer's organization, which gave them a good return on their training investment.

Free tuition for some parts but not others

Some MOOCs have a smaller, free, open-access version of a course, and another larger version as a fee-paying course for degree students.

Free tuition, fees for assessment

Some institutions provide tuition for free but charge a fee for the assessment of each unit. Some MOOCs use this approach, as does University of the People (UoP).

As a business model, it depends on being able to provide services for negligible cost. This is possible in an automated MOOC if it accepts advertising, such as W3schools, or uses volunteer tutors, such as UoP. It is probably unrealistic for many delivery models.

Tuition fees and ancillary fees

One college charged the main tuition fee but added many relatively small administration fees. In some cases, this can be unethical if those extras were not fully disclosed beforehand.

Flat fees

Another approach is the flat fee per semester or per year, or per whole quantification, starting from acceptance of application and continuing to conferral of the degree. This has several variations:

• One institution is paid for the whole program in one fee.
• Some countries have higher education systems that prescribe courses in whole years. To progress to the following year or to graduate from the final year, students must pass each year, such as a percentage of all subjects taken.
• In other cases, the advantage to students is that they can minimize fees and graduate in the minimum time by carrying a maximum study load. For those students, the risk of dropout is reduced. However, students who can cope with only with a small load might feel under increased pressure to drop out.

Flat fees per semester offer potential advantages to the institution. Fees are easier to calculate so payment is easier to automate and students are less likely to complain about fee miscalculations. The institution is under less financial pressure if dropout rates are reduced; students continue paying for the duration of their studies and the cost of marketing per new applicant is lowered. Even if students drop only individual units, they continue paying the full amount for the semester, thus stabilizing the institution’s income for the whole semester.