Income share agreements (ISAs) have attracted considerable attention in recent years as higher ed leaders and innovators seek a solution to the ever-growing student debt problem. Briefly, income share agreements are an arrangement between a college and a student in which the student pays no tuition up front. In exchange, when the student graduates and finds a job above a minimum income threshold, the student pays the institution back with a pre-determined percentage of his/her salary.

Depending on the structure of the ISA, students will pay a portion of their salary for a specific amount of time (e.g., eight years after graduation) or until they reach a certain repayment cap (e.g., $30,000 in total repayments).

The purported benefits of ISAs are many. The primary benefit is that, under ISA arrangements, students and their families don’t need to take out pricey private loans to finance a college education. We’ve all heard horror stories of students graduating with mountains of student loan debt only to barely be able to afford the interest payments (let alone pay down principal) while earning a modest income.

For colleges, additional benefits include greater motivation to retain and graduate students, prepare them for careers, and earn more tuition revenue in the long run.

Critics are quick to use “indentured servitude” to disparage ISA arrangements. Others are concerned that ISAs disincentivize colleges from taking a chance on students who have a higher risk of not completing college and/or earning a high starting salary. Still others say that ISAs motivate students to study professional programs at the expense of worthwhile, but less remunerative, programs in the arts and humanities.

However, the purpose of this article is not to repeat the conversations that others have had in the New York Times, The Atlantic, Forbes, and elsewhere. Rather, I offer a few reflections on ISAs as a concept, including their pros and cons, and consider a few ways that income share agreements – which, in many ways, are still “in beta” – will evolve.

Adjustments Based on Income and Cost-of-Living Disparities: As mentioned above, some ISAs predicate repayment based on a graduate’s salary. For instance, a school may say that only graduates with salaries exceeding $50,000 are required to make payments back to the college. However, one thing that’s lost in that approach – and largely ignored in higher education in general – is the significant variance in cost of living across the country. Put differently, a $50,000 salary means one thing in Omaha and an entirely different thing in San Francisco. A blanket approach like that will undoubtedly impact some graduates more than others.

1. Income Thresholds and Percentages Will Shift Like Actuarial Tables: Related to the point above, it’s likely that a lot will change in ISA structures in the next several years as colleges figure out what works and what doesn’t. What’s more, ISAs will continually change to keep pace with inflation. It is entirely likely that a sophomore and a senior could sit next to one another in class and have entirely different ISA agreements in terms of the percentage they will pay and/or the income threshold they need to meet for repayment to kick in.
2. 80/20 Rule: It is entirely possible that a small segment of graduates will pay an outsized share of total revenues flowing to colleges. Under most ISA agreements, the percentage that one pays is not adjusted based on one’s salary. So a graduate earning $55,000 and another earning $90,000 each pay the same percentage. Moreover, there will undoubtedly be students who don’t meet the minimum income threshold for many years. These graduates in lower-paying jobs will drive up the percentages that their higher-earning peers must pay. This imbalance may disincentivize some students who know they want to pursue high-earning fields like software development from pursuing ISAs.
3. Greater Focus on Student Services: One of the key differences between the current student loan model and income share agreements is that the college itself plays a greater role as creditor. The benefit of this, so the thinking goes, is that it motivates the school to retain students, graduate them in four years, and guide them toward employment (and high-paying employment, if possible). The college itself becomes more accountable for the success of its students, which in turn will lead to a renewed commitment to serving, advising, and guiding students throughout their college journey.
4. Accelerate the Notion of College as Career Training: One of the knocks against ISAs is that they might force students to choose fields of study that will lead directly to employment and generate high incomes. Students who may otherwise choose a program in the humanities may instead study business or STEM. I don’t doubt this is true. But isn’t that happening already? By encouraging students to think hard about their career prospects in terms of the ROI on their degree, ISAs aren’t doing anything new; they’re merely driving that conversation more overtly and, if anything, speeding it up.
5. Alumni Gifts Will Require More Time and TLC: In some cases, ISA repayments can be done in just a couple years; in others, there is a defined time period that could stretch the better part of a decade. Purdue University, for instance, offers an ISA with a pre-determined repayment period of 8 years after graduation. While every graduate’s situation will be different, it’s safe to assume that they may be loath to open their wallets (again) after spending years repaying their tuition. In the current model, colleges are in the clear because loans are managed by other entities. But under ISAs, the entity that requires mandatory repayment every month will be the same entity soliciting donations. Alumni Affairs and Advancement offices may need to take more time than they do today before reaching out to recent alumni.

It remains to be seen how disruptive income share agreements truly are, and we may not know for quite some time. But one thing is clear regarding ISAs and any other tuition restructuring: it would be a mistake for a college to think that an income share agreement will automatically increase enrollment. We know from years of research that students don’t make enrollment decisions on the basis of price alone, and certainly not for a pricing structure like an ISA. Rather, they make selections based on perceived value (quality for the cost). An income share agreement may enhance perceived value if the benefits are clear and consistent with institutional identity.

If you’re interested in learning more, explore our tuition pricing or brand perception research.

How much does it cost to deliver a course? Do costs vary between programs? What accounts for the difference? What decisions can we make with this information?

These are some of the questions explored in a recent paper published by the National Bureau of Economic Research titled, “Why is Math Cheaper than English? Understanding Cost Differences in Higher Education.”

The authors analyzed what it costs to deliver education in 20 academic fields ranging from fine arts to electrical engineering. They compiled data from a variety of public and private institutions and examined the costs to deliver each program.

If you or your colleagues are asking any of the questions listed above (and a lot of people are), take a moment to read the full study. But your time is precious and, at the end of the day, it’s still an academic paper so it’s not exactly a beach read. With that in mind, I’ve summarized the key findings of the paper, my observations from doing similar research myself, and implications to think about for your institution. If you’re interested in learning more about market research, explore our research solutions.

This blog post is a bit different from our other writings, but I hope you enjoy the takeaways I’ve distilled and consider their implications for your own situation.

Four key takeaways from the study:

1. Over the past 15 years, average instructional costs have stayed relatively flat. However, the overall picture obscures the variation between programs (see chart below).
2. Costs vary widely between fields. The average cost to deliver a program is $222 per credit hour, but electrical engineering topped the list at $475/credit hour and math was at the bottom at less than $175/credit hour.
3. Increases in class size and teaching loads explain declines in costs along with a general shift toward lower-cost faculty (adjunct appointments and teaching assistants as opposed to tenure-track professors).
4. Online instruction leads to a modest reduction in costs but only for undergraduate programs.

In addition to the key takeaways, there are several highlights from the findings worth reviewing:

• Economics, business, accounting, and political science generally have higher faculty salary costs, but these costs are offset by larger class sizes.
• Engineering and nursing are more expensive due to higher faculty salaries and lower teaching loads (fewer sections per term) without larger classes to offset the cost.
• The natural sciences—such as biology, chemistry, and physics—generally have higher non-personnel expenses for things like lab materials, but these higher costs are offset by high teaching loads (due to lab sections).

• Programs vary widely in the percentage of professors who are on the tenure track.
  • Nursing has the lowest share of tenure-track professors (due, in part, to the challenge of finding full-time nursing faculty).
  • STEM fields have the highest shares of professors on the tenure track.
• Class type—lower division undergraduate, upper division undergraduate, and graduate—also affects program costs, and class types vary between programs. Lower-division courses are less costly because they tend to have larger class sizes and because they are more likely to be taught by lower-cost faculty such as TAs and lecturers.
  • Biology, chemistry, and physics tend to offer a lot of lower-division courses.
  • Professional programs such as accounting, mechanical engineering, and nursing tend to have more upper-division undergraduate and graduate courses.
• Merely offering a few online courses does not lower a program’s costs, but a program that offers a substantial number of online courses will lower costs.
  • A fully online program is 29 percent less expensive to offer than an in-person program.
  • There is less evidence to suggest that this is true for graduate programs, which is noteworthy because so many graduate programs are available online.

Two key implications of these findings:

1. Differential pricing for academic programs: Differential pricing has become more prevalent in recent years as colleges (logically) charge higher tuition for higher-cost and higher-earning fields. When colleges offer differential pricing, students in programs such as nursing, engineering, and business pay higher tuition than their peers in the humanities or social sciences. This analysis would seem to support differential pricing for programs that cost more for institutions to deliver. However, in my view, the stronger argument for colleges is to focus on value and return on investment. Programs that produce graduates who are in high demand with high average salaries can justifiably charge more because the value for the student is greater.
2. Potential effects of lowering costs: The research is clear: Colleges can reduce the cost of delivering academic programs by increasing class sizes, requiring professors to teach more sections, using non-tenure-track faculty, and limiting non-personnel expenses such as lab equipment. Granted, many within the higher education community will find these “solutions” cringeworthy. It is therefore critical for colleges to be aware of what impact these measures have on the quality of the academic experience (and subsequently, how that influences the college’s reputation). No cost-saving attempt exists in isolation. Because universities operate within a dynamic system, every decision carries multiple ramifications. Colleges concerned about cost should take a holistic view of expense management and consider the effects on academic quality.

One final thought: The researchers do an excellent job of analyzing the costs of delivering academic programs, but no consideration is given to the revenue side of the equation. (In all fairness, revenue was outside the scope of the research). It is important to consider both because, just like costs, revenues can vary between academic programs. Consider two examples we’ve seen in our work:

The first is a university that awards scholarships to student-athletes. Therefore, the net tuition revenue for student athletes is, on average, lower than for other students. We’ve seen in the past that student-athletes tend to enroll in majors related to athletics such as sports management or exercise science. If that’s the case, then the net revenue for these programs is going to be lower than for other fields.

The second is an institution that offers a finance program. Students who enroll in finance programs often have parents who work in the financial sector (for some reason, this field seems to be “hereditary”). Since finance is often a lucrative field, the children of those who work in finance are less likely to receive need-based financial aid. Therefore, the net tuition revenue from students who enroll in finance programs may be higher than the average net tuition revenue for students in other programs.

Both scenarios illustrate why tuition revenue should be considered in any financial analysis of academic programs. Furthermore, a program’s revenue can come from other sources such as research grants or licensed products.

Clearly, there are a lot of things to take into account when analyzing the “profitability” of academic programs. And more colleges are likely to conduct this analysis as institutions continue to grapple with the economics of higher education. For those considering the types of questions listed at the beginning of this article, this research is an excellent resource for understanding program costs.

One takeaway is clear: It’s not only important to have the right data, it’s crucial to understand the potential implications of acting on that data. Increase your institution’s revenue and reduce overhead with research.

Learn more about Stamats’ Customized Research Services.

Communicating cost information effectively is a primary challenge for higher ed marketers and enrollment managers. On one hand, discussions of cost often become discussions of value (i.e., the quality of the education, the promise of positive outcomes in employment or graduate school, pristine facilities, etc.). On the other hand, discussions of cost are often less about abstract concepts of value and more about out-of-pocket expenses and the difference that often exists between what a student expected to pay (published price) and what was actually paid (net cost).

I recently read an article that focused on the latter concern—how to frame pricing in a way that shifts the value calculation. The article[1], “Reframing the Discount as a Comparison Against the Sale Price: Does It Make the Discount More Attractive?” was published in the Journal of Marketing Research. It explores how reframing a discount can affect perceptions of value and, ultimately, affect the likelihood of purchase. The authors present the following example as an illustration of the reframing concept:

Imagine that the price for a product is $10. The store offers the product at a sale price of $8. In most cases, the promotional language will state that the price is now 20% lower than before ($2/$10 = 20%).

Now, imagine an alternate scenario in which the store frames the discount as a comparison against the sale price. Rather than saying that the sale price is 20% lower than what it had been, the store advertises that the product was originally 25% higher than it is today ($2/$8 = 25%). Let’s call this the “reframed method.”

Does this reframing affect purchase likelihood? And if so, are the results equal across all buyer groups? The study provides us with some fascinating answers! For example, researchers found that:

• When a product was advertised using the reframed method, sales increased.
• Under the reframed method, the size of the discount was perceived as greater, thereby increasing purchase intentions.
• The effects of the reframed approach are not equal for all buyers. Those who are more quantitatively minded and can “see through” the reframing are less affected by the advertisement.
• The effects of the reframed method are lower when the discount is small.

The results have clear implications for product promotion across a variety of industries. But are they applicable to higher education? I believe so, but perhaps on a micro level. It’s not practical to use the reframing method on a website or publication for fear of magnifying just how expensive the original price can be. Also, average net costs of attendance are just that: averages. Many students (and their families) will be expected to pay more.

However, timing can make a big difference in the effectiveness of reframing. When speaking with students or families on an individual basis (particularly in mid- or late spring when financial aid packages have been finalized), there could be practical value in reframing the net cost of attendance in relation to the original price.

Remember, conveying value effectively is often a matter of presentation. In this case, the study found that reframing the discounted price in relation to its original price was highly effective in shifting customers’ thinking and increasing purchase intentions. Similar approaches could recast the way prospective students and their families think about the value of your institution.

Stamats conducts several tuition- and value-related studies for our clients every year. For more research on value, pricing expectations, and financial aid, download our e-book, Tuition Intelligence for Smarter Recruitment.

[1]Abhijit Guha, Abhijit Biswas, Dhruv Grewal, Swati Verma, Somak Banerjee, and Jens Nordfält (2018). Reframing the Discount as a Comparison Against the Sale Price: Does It Make the Discount More Attractive? Journal of Marketing Research: June 2018, Vol. 55, No. 3, pp. 339-351.

In the past 15 years, the Net Promoter Score (NPS) has become a standard (perhaps the standard) measure of customer loyalty and satisfaction. Created by a partner at Bain & Co., the NPS was designed to help company executives establish a simple understanding of how their customers felt about the company. The NPS asks one question with a 0–10 response scale: How likely is it that you would recommend [Company Name] to a friend or colleague? Customers are sorted into one of three categories based on their response, and a total Net Promoter Score can be calculated with an accompanying formula.

The Net Promoter Score has two key advantages. Firstly, it is simple. The NPS asks a straightforward question that nearly everyone (including management) understands. Secondly, by most measures, it works. NPS scores are highly correlated with repurchase decisions and referrals.

Although the NPS has its drawbacks (simplicity can be a double-edged sword), it is generally considered to be a useful tool for indicating customer satisfaction, repurchase probability, and likelihood to “evangelize.”

However, the same tool that is effective in one industry may be inappropriate in another. My work in higher education has led me to believe that the Net Promoter Score is ill-suited for assessing satisfaction and attitudes in higher education for three primary reasons:

1. We do not recommend colleges the same way we recommend other products or services. One of the limitations of the NPS is that the question focuses on the likelihood of recommending the company/organization to someone else. This is useful for products or services that everyone uses and things that people use in the same way. For instance, I have no reservations recommending my florist to a friend because he or she is going to use that florist for the same thing I did: to buy flowers. The same is not true for colleges and universities. The experience I had at my alma mater may not be a good fit for someone else. My recommendation depends on the particular interests, needs, goals, and concerns of the person I’m recommending the college to. Thus, it’s unfair to ask someone if they would indiscriminately recommend a college to a friend or colleague when that recommendation can (and should) depend on the person I’m going to make a recommendation to.
2. We personalize college choices more than we personalize other goods or services. It is not unfair to say that we internalize our college decisions more than we internalize any other purchase. After all, I don’t know of anyone who walks around in a sweatshirt emblazoned with the name of the place where they buy their groceries and I don’t see many bumper stickers advertising the place where people get their oil changed. Heck, we don’t even advertise where we work or what we do for a living, which is a significant part of our identities. But we broadcast to the world where we went to school and where our kids go to school. The college you attend becomes part of you and it’s a reflection of who you are. With that in mind, is it fair to expect college “customers” (students, alumni, parents) to accurately and objectively rate how likely they are to recommend the school to someone else? No, it’s much more likely that college NPS scores are inflated by responses that reflect more about what the respondent wants others to think than about how the respondent views his or her own experience.
3. NPS responses are rarely segmented even though college experiences vary. Rarely are NPS scores segmented by respondent characteristics. NPS scores are more commonly reported in aggregate. This approach is fine for companies with goods or services that are uniform and standardized. My experience at a drugstore is probably very similar to the customer who came in after me. However, college experiences vary significantly and, as a result, one’s likelihood to recommend the college can vary widely. College experiences are impacted by a host of factors, not the least of which are what you studied, where you lived (at home or on campus), how academically prepared you were, and how quickly you found employment after graduation. Considering how different a college experience can be, and how many factors are beyond a college’s control, colleges and universities are limited in the actions they can take based on a Net Promoter Score.

The Net Promoter Score can be useful in many scenarios and it can be quite effective as a simple indicator of brand loyalty. But there are elements of a college experience that significantly limit how effectively the NPS can assess customer satisfaction and brand loyalty in higher education. There are alternatives that colleges and universities should explore to better understand brand perceptions or the extent to which students and alumni are brand ambassadors.

Stamats conducts dozens of internal and external audience surveys each year to understand perceptions of an institution’s brand and how effectively its brand identity is communicated to the outside world.

One of the major trends we are seeing is a transition from an institution-centric orientation (what a college wants to say…and do) to an audience-centric orientation (what a student needs and expects).

While this is an important perspective for students of all ages and types, it is especially true for adult and graduate students.

Perhaps the best illustration of this shift is how adult and graduate students define academic quality. In a recent Stamats study we asked adult students to identify what “academic quality” means to them.

How Adult Students Define Academic Quality

Here is what adult students tell us about academic quality:

• Flexibility/scheduling: “On my schedule, not just when they want to teach.”
• Convenience: “In-and-out parking; one-stop shop.”
• Credit for life experience: “Acknowledge what I have already learned through my professional experience.”
• Accelerated completion: “Time is money.”
• Valid and focused learning experience: “I’m not here for the social life.”
• Multiple learning alternatives: “I’m very interested in online options.”
• Course availability: “The courses need to be taught on a schedule so I can get done.”
• Outcomes: “I want a job after graduation.”

Compare What Students Say With What Colleges Say

Compare these results to the narrower and more internally focused components that most colleges use to describe academic quality:

• Quality of faculty
• Quality of the curriculum
• Quality of facilities
• Academic ability of students

The difference in perspective is readily apparent. One can see the problem that occurs when schools force an institution-centric definition of academic quality or student life on students who insist on a voice, and a role, in their educational experience.

Recognize Orientation to Communicate Smarter

Imagine recruiting adult or graduate students and insisting on using an institution-centric definition of academic quality.

• How would these students respond to your messaging?
• What would your communication tell them about how much you understand their needs and expectations?
• What would it tell them about the experience they will likely have at your institution?

The transition to audience-centricity has huge implications for what is taught, how it is taught, and when it is taught. Ramifications extend to co- and extracurricular activities as well as student retention.

Smart colleges recognize the difference between being institution-centric and audience-centric. Even smarter colleges act on it.

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