A pricing model alternative to PRinceton’s fall reopening plan

by Tiger Gao

Economics is about trade-offs. But in a more nuanced sense, at least part of economics is about implementing certain policies to generate enough incentives to change individual behaviors. Taxes are the best examples, such as carbon taxes that punish pollution, corporate tax credits that incentivize employment, or “tax” burdens or credits on Princeton’s tuition and housing prices that may nudge students to make more appropriate choices that the University desires. 

On July 6th, Princeton announced its fall reopening plan – incoming freshman and rising junior students will return in the fall, while rising sophomores and seniors will return in the spring. This measure will ensure that only 50% of students are on campus at any given time.

It occurred to me: instead of such a blanket statement on who shall or shall not return, what if Princeton could construct a pricing model (or tax system) that incentivizes students to return or not return, so that the University may successfully control and predict the number of students actually returning to campus while still making the in-person experience entirely available to everyone? They could outline the pricing for room, board, and tuition according to different criteria (financial aid, physical health, home country location, etc.) and make clear that everyone who wants to return can return. However, because of the model specification, the school could confidently control that, say, only 50% of students will indeed choose to return at a given state of equilibrium. 

There are three points that I believe are important to clarify before I take you through my model:

1. In this article, I am not discussing whether it is justified from an epistemological standpoint that more or less than 50% of students should return on campus. I am taking the University’s current decision as a given, which is to have 50% of students back, and then providing an alternative to the way we may achieve this outcome. I am saying that everyone should be given the option to return; I do not believe that everyone should return.

2. Some of you may experience an initial discomfort as you see my model providing clear price tags on individual choices or classifying students in groups. Well, financial incentives are proven to be direct, effective, and programmable; they do not take away the necessity of other forms of influences like moral hazard. We cannot take money out of the consideration because it is what so many families have to base their decisions on. We also have to categorize people in some way in order to better accommodate their differentiating preferences – that is why we have different tax brackets, for instance. The existence of financial incentives and classification of people in my model is not to discriminate, but for the purpose of creating a more egalitarian outcome. I urge you to be patient and keep an open mind; this is more of an economics paper and far from a political statement.

3. Many of you may tell me that my model won’t work or will never be taken seriously. I would appreciate any input on how to improve the technical setup. And sure, this model will likely never become a reality, but there are so many policy proposals today that will not become a reality anytime soon – universal healthcare, the Green New Deal, wealth tax, etc. – but are nevertheless advocated by countless people. Why? Because they’re believed to be the right policies. We have to push the discourse forward and reach for the impossible – or else what are we doing here?

An overly-simplified model specification

According to the financial aid office, the estimated cost of attendance Princeton for 2020-21 is $75,210 and includes:

• Tuition: $53,890

• Room charge: $10,480

• Board rate: $7,340

• Estimated miscellaneous expenses: $3,500

We shall roughly divide the student body into three categories: 

1. Approximately 61 percent of undergraduates receive financial aid. We start with those who receive aid for more than 40% (an arbitrary estimate for now) of their tuition package up to full ride scholarship. Those students might have serious financial difficulties living at home, so they should be encouraged to come back on campus with expansions to their aid packages and with additional living subsidies if needed. In a word, we shall support them to the fullest extent possible. 

2. Then, as for those who are on financial aid but still have comparatively comfortable living and studying conditions at home (those who receive, say, less than 40% of tuition in aid), we will reward them for staying home by granting them a 10% tuition discount as the University already plans to do (~$7k) in addition to their existing aid package. If they do decide to come back on campus, however, they will still be able to keep their aid package intact and not pay any premium to their tuition. So, those who can still live relatively comfortably at home will likely be incentivized to do so for the ~$7k additional deduction in tuition that rewards for their wise choice. But if they truly need to come in for educational or emotional reasons, they will not be “punished” by having to pay a premium. 

3. As for the 39 percent of students that do not receive any financial aid, their choice between coming back to campus or not will likely be based on emotional and educational rather than financial reasons before the University’s new pricing options come into consideration. If they wish to return to campus, their tuition and room and board rate will go up, say by 20% (~$15k). If they choose not to return, however, their tuition will come down by 10% like the students on aid (~$7k). The ~$22k difference in total creates a clearly contrasting option, and it is very likely that most of those students will then be deterred to not come in anymore. 

I want to be up front that the numbers for tuition and financial aid thresholds are determined in an ad hoc fashion; I do not personally know the correct amount to incentivize people to come back to campus or not, so please do not take the ~$22k or 15% at face value. This is merely a model framework that can be further refined.

The idea of creating those three different categories is to make sure that everyone has roughly the equal incentive to choose between returning or staying home. Those who struggle financially should not have to worry about living cost on campus; those who live comfortably at home should be incentivized to continue doing so; those whose primary purpose of return is merely to socialize should be disincentivized to return on campus; and those who believe that the intrinsic value of on-campus education is worthy of the (possibly required) premium should be given the option to purchase such optionality.   

Of course, under my model, professors would not be any more endangered as those professors who would like to teach from home would be able to continue to do so. 

Will this model hurt disadvantaged students? 

No. As shown above, in fact, for those who are financially disadvantaged, it should actually mean lower living costs compared to staying at home. For instance, if you’re on full financial aid, you probably prefer to come back to campus because your room & board will be free and you will have better studying conditions. 

Another disadvantaged group is international students who live in different time zones. My proposal would be to fully support their decision to come back on campus (including paying for expensive flight tickets if necessary), so that they may be put in a place where they can succeed academically. The recent decision by DHS and ICE only shows how urgent it is to restore things to some degree of normalcy, so that vulnerable groups can continue their education. 

For those who simply want to come back because they want to hang out with friends, my prediction is that this group will likely not return anyways. Why would you attend Zoom classes in a dorm room when you can rent a beach house in Florida with your frat/sorority friends at a lower cost? Many of my own friends are already considering this option anyways, regardless of whether they’re given the option to return.

Does the model essentially give the rich students a way to “buy their way” back to campus? 

No. One possible criticism of my model is that a 20% hike in tuition might not be sufficient to convince most kids not on aid to not return. For most families in that income bracket, an extra ~$10-15k isn't that big of a deal. On the other hand, the ~$10-15k that we’re offering low income families may be too tempting for them to resist. So, my model may well achieve the exact opposite to what I want – richer students buying their way back to campus, while poor families take the cash rebates. 

First of all, students not on aid might all be very rich, but most of them have sensible parents. As mentioned, between the 20% hike in tuition (~$15k) and the 10% discount they would otherwise receive (~$7k), a student would essentially be paying ~$22k extra to be on campus. It is highly unlikely that they will be convinced by their children to pay ~$22k extra just so that they can hang out with friends on campus. Kids may be spoiled, but their parents aren’t. It will be an awkward dinner conversation to try to convince them to pay. 

Second, I think people are glorifying the on-campus lifestyle that will likely take place in the fall. So far, the proposed plan seems to show that many classes will still be taught online; office hours will not be fully in person; library services like the data & statistical labs will all remain to be online even after half of the student body returns on campus; no eating club parties will be allowed; and disciplinary action will be taken against any violation of social distancing rules. If you’re rich enough to be willing to pay an extra ~$22k to be on campus, you’re likely rich enough to simply go live in another vacation house your family owns. Again, why watch Zoom videos in your crappy dorm room when you can do it in Florida? 

One economic and psychological principle that we often fail to recognize is that students don’t make decisions based on whether their class year is returning to campus, but rather whether their 5-10 closest friends are. Under my model, students will discuss amongst friend groups and make decisions in a decentralized fashion. For the student group that is confronted with the choice to pay ~$22k extra to be on campus, most of those students’ parents would simply object; and if 3 out of 5 in a friend group choose not to return on campus, it will deter the other 2 from returning as well. Therefore, you really don’t have to convince every single rich student to not buy their way back – all you need to do is to convince a portion of them. So, why force students to not come back when they can decide amongst themselves that they might not want to return at all?

On the other hand, I don’t think we should demonize those who want to pay the premium to return on campus. Some may see the intrinsic value of being on campus and having access to whatever limited amount of resources and facilities that may be available. There should not be any moral hazard for those who are willing to pay an extra premium for this access, which, as explained above, does not really give anyone a “leg-up” in their educational experience if everything will be taught in an online format anyways. The idea of the premium is merely to weed out those who do not have genuine educational reasons to be back on campus, and as explained above, I believe it will achieve the effect of preventing any frivolous acts of “buying their way back to campus.” 

As one can see, the model is not about giving the more privileged students a way to buy their way back to campus, but rather making it easier for disadvantaged students and those with genuine needs to succeed in their education. It is in fact precisely from an egalitarian standpoint that we should vouch for this version of a campus reopening. The fact that the model may need to be more complicated and appeal to people's more specific needs does not detract from the purpose of designing such a model. 

Taxation is better than regulation

As shown above, the important step is to separate out those who have essential needs and support them even further. By simply saying that all the sophomores and seniors come back later and freshman and juniors earlier, Princeton has not actually identified people’s needs. What if there are seniors who really have to come back on campus? Or juniors who prefer to stay at home? 

By allowing individuals to make choices, Princeton also frees itself from liabilities. It would be reasonable for Princeton to say that though students are discouraged from returning to campus, those who intend to must follow certain social distancing guidelines (no partying or mass congregation, etc.), and if they become infected while being on campus, it's not Princeton's liability under this contract co-signed by the students and their guardians. This may sound irresponsible, but it’s simply establishing the right expectations beforehand. Under such a framework, a large number of students will simply choose not to return because their parents don’t feel comfortable letting them do so. This is more preferable than dictating that all students should return at a specific time based on their class year.

It is somewhat well acknowledged in the economics community that to promote better environments, taxation is often more effective and less intrusive than regulation (for more on this, I encourage you to read about Prof. Robert Frank’s work; we will soon have him on the show to discuss his newest book Under the Influence). Princeton is not accomplishing much (neither in terms of social cohesion nor academic success) by making a blanket statement on who can and cannot enter campus in the fall. A better approach is to institute incentives that can help individuals recognize their own preferences and allow people to make their own choices. 

Young people getting infected on average don't experience severe consequences, so the cost of getting COVID-19 is not as high as the average population. But since, young people are usually more social than older people, the cost for them to stay at home is way higher. Therefore, it would actually require more convincing for the younger people if you want them to happily stay home for the next year or so. Would giving them the right incentives help alleviate the discontent? Maybe, maybe not. But what is for sure is that this is a better alternative to tell people point blank that they must stay home. 

The hidden social costs of not letting students return

One also has to realize that our decisions have hidden “opportunity costs.” For instance, by not taxing the rich properly, we’re imposing more tax burdens on the poor. In this case, by not properly incentivizing students to return on campus, Princeton has essentially transferred the burden to take care of them on to the greater society.

What may end up happening is that those students will resent the school, dedicate less efforts in classes, travel to other places to infect others, burden their family members who might already be juggling between different responsibilities, and incur other social costs that Princeton somehow fails to see. I have friends who told me that their parents would happily pay the premium just to get them to go back on campus. Depsite all the “silver lining” stories we’ve heard about how quarantine brings families closer, the reality is that the mental health of the entire family deteriorates when you put a few teenagers and parents all in the same house for months. Any teenager who still hasn’t gotten into multiple fights (if not major disputes then at least minor frictions) with their family during quarantine is either a liar or a liar.

To put in the words of a friend’s parent after knowing the decision: “I’m more sad about this decision than my kid. I don’t want to get into fights with my children while I still have to cook for them anymore…” 

Challenges and caveats

There are a few technical challenges to my arguments that I’d like to acknowledge, and I certainly continue to welcome criticisms that may help us refine the model together. 

1. Designing such a model would theoretically require a near perfect knowledge of everyone's preferences. And even if we had some data to guide us in that regard, we have no knowledge of how these have already changed during the pandemic. What does staying at home for 4-5 months do to students’ preferences? Those are the points raised by an economics Ph.D. friend of mine. 

2. A math major friend of mine criticized me for not being able to construct reasonable confidence intervals and estimating the variance for the success of my proposal. Well, I admit that I’m merely an undergrad economics student after all. 

3. I have previously always thought that by requiring students to fill out surveys and acting deliberately based on this and other available data, it is entirely possible to construct a fairly accurate model with the help of all the brilliant minds on campus. Now, one of my economics Ph.D. friends warned me that surveys would likley not work. Why would people report truthfully? They would overstate how much they would have to be rebated to stay at home and understate how much they would pay to go back to campus.

   My solution would be that there are various data sets we can rely on: 1) the University carries family financial records at least for a large portion of students, which may provide a more reasonable estimate. 2) We have data from last spring on who needed to stay on campus and who didn’t have good studying conditions at home, as well as more health data today on who have already gotten COVID antibody and who are still at-risk. 3) A more extreme solution than polling is to simply hold students accountable for their polling choices. We say: “those are your options (stay home vs. return to campus) and interval of prices you may pay, and if you elect this option, you have to stick to this choice later.” We provide rough price estimates at first, but can simply refine the pricing after students already elected their options.

Regardless, the imperfection of this current model should not be enough to deter further discourse or policy actions. Almost all readers of this model so far have acknowledged that this is at least a good first step. What pains me more is that Princeton has not even made such an attempt. 

The urgent need to reopen

None of us are here to demand the University to make perfect choices – there are none. However, if other schools across the country are reopening, why can’t Princeton? To simply say that it’s because most students live on campus is a cop-out answer – so do students in Williams or Boston College, and they’re reopening. Cornell and NYU are fully reopening, and UChicago has basically announced a plan very similar to ours above – allowing anyone who wishes to return the opportunity to return. No school has the ideal set of circumstances to open up, but many have managed to overcome the difficulties, and Princeton has failed to convince the students that there is truly no other way around. The students are not disappointed by the fact that they cannot go back on campus. They are disappointed by the fact that Princeton, once again, has failed to come up with innovative and bold solutions. 

Worse, Princeton has not shown much transparency in their decision making process. They listed out dozens of task forces, so why not also publish the data and reasoning for those decisions? Even many faculty members I’ve spoken to are disappointed that the released plan is filled with vague phrases like “develop strategies” and “provide recommendations” only to hide what probably actually happened – a coin toss between several cautious options without providing any bold advancement to the thinking about how higher education should shape up in the future. The series of discussions between like-minded people are the antithesis of scientific thinking, yet Princeton somehow managed to portray their decision as a “data-driven” one… 

The world has already been in lockdown for months, and the recent political unrest and frequent violations of social distancing policies only show that you simply cannot tell people to keep staying home anymore. This is not a particularly conservative or naive free marketeer argument (I’m vouching for fiscal redistribution here, not some regulation-free utopia), and nor am I saying that one shouldn’t continue to social distance in public or implement sensible disease control policies. What I hope to convey in this op-ed is that individuals don’t make decisions based on what the authority tells them to; they do so based on their preferences, peer sentiments, existing incentives, and other factors that we can control with a scientific mindset. There is an urgency that we need bold thinking in such unprecedented times. Princeton, as the nation’s leading educational institution, has a responsibility to do so.