Campus Economics: How Economic Thinking Can Help Improve College and University Decisions

Each month, readers of both the popular press and higher education trade publications are bombarded with alarming headlines. From the rising cost of college, to an assortment of tough decisions facing university actors and constituent groups, to opinion articles on the declining value of a postsecondary education and rebuttals arguing that this is merely a misconception, there is no shortage of challenges to consider. While disputes that arise from shared governance are familiar to higher education, the education news cycle increasingly includes stories of student activism efforts and university responses, along with salacious details of controversies playing out between administrators, trustees, and faculty. While the specific details may differ, many of the concerns raised in these articles can be reduced to a common debate over the mission of higher education institutions and how universities should balance mission and financial stability.

In their 2023 book Campus Economics: How Economic Thinking Can Help Improve College and University Decisions, Sandy Baum and Michael McPherson offer an insightful and practical primer on higher education finance. Highly accessible, this volume provides a broad overview of how colleges function and the competing interests that administrators and trustees must balance as they carry out their duties to ensure that both day-to-day needs and long-term fiduciary goals are met. Baum and McPherson argue that to better address the challenges facing institutions, constituent groups—administrators, trustees, faculty, policy makers, and students—should work to develop a common vocabulary and a more robust understanding of the mechanics of college finance. They note that many disputes arise because finding consensus is difficult when resources are finite and because campuses are composed of people who “care passionately about their work and their communities” (2). However, despite a shared belief in the educational mission, productive discussions between constituent groups are often stymied by an inability or unwillingness to view the issue through others’ lenses. Campus Economics seeks to “strengthen and broaden understanding of concepts that can help all participants analyze the pros, cons, and trade-offs of difficult decisions and provide the basics of a common language for discussing and debating the many challenges institutions face” (7).

In this volume, Baum and McPherson dispute the notion that centering an institution’s educational mission and paying attention to the bottom line must be in direct conflict. Rather, they seek to provide a path forward that reduces the “emotional reactions to terminology that sounds like it’s about dollars and cents and not about education” (67) and allows members from each campus constituent group to engage in nuanced conversations about complex challenges as informed participants. This comprehensive yet concise introduction to the terminology of college finance gives readers an opportunity to expand their understanding of the mechanics and ponder them in the context of common dilemmas facing institutions across the higher education ecosystem—whether in public or private, two- or four-year nonprofit institutions. While the for-profit sector of higher education is mentioned briefly, the nonprofit sector is the primary focus of this volume.

Baum and McPherson open the volume by articulating their vision for how to create spaces more conducive to productive campus conversations about the realities of trade-offs involved in decision-making. In chapter 1 they provide an overview of the higher education landscape in the United States, including information on the range of institution types present and the degrees granted, along with data on the populations served and underserved, the price of college over time, financial aid structures, and American family incomes. They note that practitioners knowing their institution’s place within this ecosystem is fundamental to understanding how to best learn from and adapt other institutions’ models and how to contextualize their own campus’s challenges, demands, and concerns. In chapter 2 the authors define common economic terms that are relevant when considering the campus issues, such as opportunity cost, net price, and price discrimination. For each term they provide a brief formal definition and examples of how the term applies in university contexts and everyday life. In chapter 3 they offer a similar introduction to concepts of college finance, such as discount rates, net versus gross tuition revenues, and the large line-item expenditures in university budgets.

In the book’s remaining chapters, Baum and McPherson highlight five key questions that face college decision-makers and elicit impassioned debate among constituent groups: Is a college a business? (chapter 4); How should we think about the compensation budget? (chapter 5); Do we really have to cut the budget? (chapter 6); Can pricing and financial aid budgets be more transparent? (chapter 7); and What is the role of college endowments? (chapter 8). These chapters do not seek to provide answers but, rather, operationalize the terms presented in chapters 2 and 3, present various perspectives on the arguments made in response to each of the questions, and pose questions that members of the university community should ask to develop an understanding of the issue at their institution, to diagnose problems, and to determine possible solutions.

This approach is refreshing because the authors model how community members with different perspectives can engage in productive conversation to stop the cycle of talking past each other or simply dismissing each other’s concerns or ideas. At the start of each chapter, they offer a hypothetical scenario for readers to consider—for example, whether to offer tenure to a star faculty member in a waning archeology department or shift the tenure slot to a more popular program, whether salary differentials should be employed, whether the balance of merit and need-based aid should be reevaluated. These cases put readers in administrators’ shoes and illustrate the multidimensional nature of their decision-making.

Baum and McPherson masterfully distill the economic considerations around adjunct hiring, tenure, need-based versus non-need-based or “merit” aid, and endowment draws, among other issues, while also acknowledging the ethical and social dilemmas at stake. As a result, for higher education practitioners-in-training, Campus Economics should be required reading. While much of the content may be familiar to university administrators and those who have spent time working in higher education, the volume is nonetheless compelling as a guide to fostering more nuanced deliberations that validate the voices of constituents across campus, which in turn has the potential to boost consensus building. For readers with a general interest in higher education issues, this book provides an accessible introduction to the considerations behind colleges’ decision-making processes that will allow them to be more informed and discriminating readers of the pontificating that occurs in the popular press. Student activists may also find that the book provides useful context and grounding to better navigate debates to advance their efforts with administrators.

In the current climate, university constituent groups must work together to better address student needs and ensure the success of students, the faculty and staff, and the institutions themselves. Campus Economics provides a fresh entry point for this engagement.

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