Cost and Financing in Open Schooling/Student Fees/Determining Fee Levels

Determining Fee Levels
Deciding what is an ‘appropriate’ amount for students to pay is essentially a value judgement. However, there are three main approaches to thinking about this problem: Each of these is discussed separately below.
 * Setting fees based on what other providers are charging for similar services in the market
 * Using fees to recover costs incurred in providing the service
 * Linking fee increases to the rate of inflation in the economy as a whole.

Market-Related Fees
Commercial concerns often survey the market and determine the prices they will charge not only on the basis of production costs, but also on what the market will bear. Although many ODL institutions have public service mandates, it is important to consider the fees charged by other educational institutions, both public and private, when determining charges for their courses. A survey of the market for alternatives to the courses offered by an open school might include some or all of the following: If the fees for studying at an open school are higher than those for comparable courses offered by private education institutions or in conventional schools or colleges, then learners may feel that they are being overcharged. Furthermore, enrolments are likely to decrease as potential students opt for cheaper alternatives.
 * State-run secondary schools
 * private colleges
 * university feeder or bridging courses
 * other ODL institutions (local or foreign).

Any comparison between an ODL institution and State-run secondary schools should account for the other costs of taking part in full-time education. In addition to fees, students in conventional education may be required to pay for some or all of the following: In many cases, those studying through the ODL mode are not obliged to pay such charges or at least do not pay as much as full-time students. As a result, the total costs of studying at a distance are often lower than those incurred for attending a conventional school, college of university.
 * textbooks,
 * uniforms,
 * stationery,
 * laboratory fees for science subjects,
 * daily transportation to and from school, or
 * hostel fees,
 * other ‘voluntary’ contributions to school funds.

Cost Recovery Models
Commercial entities must recover the full costs of producing their goods or services, plus a minimum level of surplus, if they are to remain profitable. However, in the case of public service delivery, governments often provide subsidies to ensure that those citizens who cannot afford the full cost may still avail of the services on offer. In many cases, attempts are made to recover at least some of the cost of providing the service. Setting fees to recover either a proportion (percentage) of costs or to recoup specific cost elements are two alternative models for determining what is an appropriate level for students to pay.

Percentage Cost Recovery
With this model, fees are set at a level intended to recover a proportion or fixed percentage of the actual costs of providing the service. In some cases, the percentage chosen may be set by government as part of a sector-wide policy; in others, it may be a decision taken by the board or management of the ODL institution. Where information on the practice in other countries is available, this may be useful in guiding the development of policy on this issue, but international comparisons must be treated with caution because of the specific circumstances prevailing in each country. At the end of the day, however, the actual percentage used to calculate fee levels is arbitrary, though it does reflect value judgements about what is fair, reasonable and ‘appropriate’.

However, in order to implement a cost recovery approach, it is necessary to analyse the institution’s expenditure and calculate the unit costs of providing different courses. As discussed in Unit 5, crude methods such as Backflush Costing (which yields only the average cost per student for the institution as a whole) can mask considerable variations in unit costs for courses at different levels. Special requirements for certain subjects (such as audio tapes/CDs for language courses) can also add a considerable amount to the unit cost of delivery. Another factor affecting unit costs is the number of students enrolling for a particular subject or course. All other things being equal, more popular subjects will always be cheaper per learner to provide than courses with few enrolments because it is possible to achieve economies of scale. Among other things, the cost of developing new study materials can be spread among a larger pool of learners in subjects where enrolments are high, thus lowering unit costs. For all these reasons, it may be necessary to carry out a more detailed analysis of costs by programme, by course or by subject/module. These correspond to Levels 2, 3 and 4 in the hierarchical taxonomy of cost objects.

Recovering Specific Cost Elements
As an alternative to percentage cost recovery, fees can be set at a level intended to recover specific elements or categories of cost. Table 11a illustrates a series of options proposed by Rumble (2006, pages 107-108) which are graded from the lowest to highest level of cost recovery.

Where government or donor funding is specifically ear-marked for certain categories of expenditure (for example, course development costs or institutional overheads), then this approach facilitates calculations of the level of student fees required to make up the difference.

Option A represents the marginal cost of providing services for each additional student. Rumble suggests that this is the ideal for ODL institutions which are funded partly by student fees and partly by government grants. If fees are set at a level that recovers all student-related variable costs, then additional students may be accommodated (within the manageable range) without incurring any extra costs for staff (controllable committed costs) or overheads (indirect common costs and business-sustaining expenses). <br

Of the five options listed in the table above, the last (Option E) is essentially the same as the percentage cost recovery model, with fees set to achieve 100% repayment of the expenses incurred in providing the service.

Index-Linked Fees
The final basis for determining what is an appropriate amount for students to pay is to start with the current level of fees and adjust these in line with inflation. The rationale for this approach is both straightforward and fair. The operating costs of the ODL institution tend to rise at roughly the same rate as inflation in the economy as a whole. Like any other business, it can be argued that the open school, college or university needs to raise its fees to cover these additional costs.

The calculation of annual fee increases can be based on either of two figures. The central bank in each country normally publishes a Consumer Price Index (CPI). The CPI records the rate of price inflation over the preceding twelve-month period, and this provides an actual basis for adjusting fees. Alternatively, it may be possible to obtain a projection of the rate of inflation over the coming year from the ministry of finance, though economic projections should always be treated with some caution. This figure for the projected rate of inflation can then be used to calculate fee increases in the coming year.