Academic journal article International Journal of Management

The Management of Scholarship Programs at Universities: A Cost-Benefit Analysis

Academic journal article International Journal of Management

The Management of Scholarship Programs at Universities: A Cost-Benefit Analysis

Article excerpt

Scholarship programs are types of subsidies that would increase consumption of education. The aim of this paper is to use a technique to estimate the costs and benefits of scholarship programs accurately so that such programs can be managed more efficiently. Institutional data from West Liberty University, a state university located in West Virginia, USA, was utilized. Net marginal costs were calculated by deducting implicit values from gross marginal costs. The findings show that while housing waivers are the most cost-effective scholarship programs, tuition waivers are the least ones. However, including implicit values is found to decrease marginal cost of each scholarship program significantly. Total annual cost of scholarship programs at the selective university could be reduced by 89% once implicit values are acknowledged by the university administration. Therefore, more subsidies should be provided by the university administration to internalize this positive externality more efficiently.

Introduction

The most recent economic recession continues to influence statewide expenditure patterns in education throughout the US. Funding for higher education has been hit severely since 2007. Three most common sources of funding for state universities are state appropriations, endowments and tuition revenues. Considering that state universities in the US receive a significant portion of their funding through state appropriations, decreasing state funding would be the ultimate challenge any university administrator faces. According to SHEO's report (20 1 0), national higher education state appropriation average per enrollment for 2010 was lower than 2009 and 2005 by 7% and 3% respectively. Additionally, the five year change in average net tuition revenue per enrollment was 14.9%. This negative relationship between state appropriations and tuition is consistent with the findings of Koshal and Koshal (2000) and Rizzo (2005).

Lower state funding of education -despite increasing net tuition revenues- has made state university administrators pay close attention to institution specific expenditures. Even though public universities are non-profit organizations, one of their main objectives is to minimize cost. Determining the optimal scholarship policy becomes extremely critical since a significant portion of total revenue returns to students as direct scholarship payments or foregone revenue.

Private and public universities offer scholarship opportunities to their prospective and current students. Undergraduate tuition and housing waivers, athletic grants and academic grants have been the types of awards historically granted. While the institution awards are any type of waivers and grants funded by university foundations, fee awards such as athletic and academic grants are those funded by operating budget of each institution.

Because the university administration has little to no direct effect on the amount of money donated to their foundation each year, only the tuition waivers, housing waivers and athletic and academic grants that are funded by the university's operating budget are analyzed in this study. The data is provided by West Liberty University, a state university located in Northwestern part of West Virginia.

The underlying economic theory behind scholarship programs is the existence of positive externality associated with education. Positive externality exists when consumption or production of education benefits not only consumers and producers but also third parties. Because education creates benefits for the entire society, it is considered to impose marginal external benefits on bystanders. The objective of this paper is to show that net marginal cost of an average scholarship subsidy is less than what administrators and policy makers estimate. Therefore, more scholarship funding should be offered in order to truly realize the benefits of this positive externality. The findings will help university administrators re-evaluate their scholarship policies from a cost-effectiveness perspective. …

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