Often known as benefit-cost analysis, cost-benefit analysis is defined as “the systematic approach to the estimation of pros and cons of alternatives meant to satisfy transactions, activities, or functional requirements for a business” (Furlong, Kraft, 2015). Generally speaking, the two purposes of cost-benefit analysis are to justify if an investment of financial decision is sound and to compare the total expected fee of each option against the total expected benefits to ascertain if and how much the given benefits outweigh the various costs. An example mentioned in the text asks the question of if the federal government had known the severity of the destruction that Hurricane Katrina caused on New Orleans and its surrounding area they would have saved money and countless lives (benefits) if they had invested in providing superior protection for the city through “stronger flood levees”, “improving the city’s emergency preparedness capacity”, etc (Furlong, Kraft, 2015). In this particular case, the application of cost-benefit analysis with respect to the subsidization of college tuition and textbooks will be analyzed.
According to the text on Economic Approaches, conducting cost-benefit analysis is completed through four sequential steps including the “identification of all important costs and benefits, measurement of said costs and benefits that can be expressed in dollar terms and either estimate or acknowledge those that cannot be measured easily, adjust the measurements for changes in value over time, and sum up and compare all the costs and benefits and conclude whether the costs outweigh the benefits or vice versa” (Furlong, Kraft, 2015). With regards to subsidization of college tuition and textbooks, the most important costs and benefits are already identified; in this case they are the free tuition and learning materials. The immediate benefits are quite obvious; including the elimination of loans as a future issue for students after graduation, tax breaks, removing the barrier for more high school alumni to receive higher education and advance in society, etc. the cost is statistically low for a government funded initiative. According to the College Board, the average cost of tuition and various other fees for the most recent academic year in public universities totaled to $9,410 for in-state residents and $23,893 for out-of-state residents (CollegeData, 2016).
Between the two, the grand average totals to $7,241. For the measurement of costs and benefits, an average of the tuition/other fees cost multiplied by the average student body at each university will be calculated. With a statistical average of some 10,000 students attending each of these universities, the subsidization cost of tuition and other fees amounts anywhere between $94,000 to $240,000 per year for the student body (CollegeData, 2016). To adjust measurements for changes in value over time, inflation rate for the last 30 years can present a strong statistical hypothesis on the valuation of the dollar in the next 10 years. This inflation will then be applied to the averaged college fees that are to be subsidized. According to the Bureau of Labor Statistics, inflation rate for the past 30 years averages to 2.5% (McMahon, 2015). This means that something that cost “$100 in January of 1990 would cost $186.20 in December of 2014” (a price whose cost has almost doubled in only 20 years) (McMahon, 2015).
Applying this analogy to the original tabulated averages and summing up to compare all costs and benefits, the new average cost for subsidization per public university would amount anywhere between $188,000 and $480,000 per year for the student body. To succeed in the goal of subsidization, the government would need to provide funding anywhere between the two calculated averages to all public universities (both 2 and 4 year institutions in America–a total of 1,699) (CollegeData, 2016). The grand total to meet subsidization needs for the country estimates between approximately $319 million on the low end and $777 million on the high end.
- CollegeData (2016). What’s the Price Tag for a College Tuition? Retrieved April 8, 2016 from http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064
- CollegeData (2016). College Size: Small, Medium, or Large? Retrieved April 8, 2016 from http://www.collegedata.com/cs/content/content_choosearticle_tmpl.jhtml?articleId=1000 6
- Furlong, S. R., Kraft, M. E. (2015). Public Policy: Policies, Analysis, and Alternatives. Thousand Oaks, CA: SAGE Publications.
- McMahon, T. (18 June 2015). Average Annual Inflation Rates By Decade. Retrieved April 8, 2016 from http://inflationdata.com/Inflation/Inflation/DecadeInflation.asp
- National Center for Education Statistics (2006). Number of U.S. Colleges and Universities, 2005. Retrieved April 8, 2016 from http://www.infoplease.com/ipa/A0908742.html