Background

There are several issues plaguing the traditional textbook and course materials model. The U.S. Bureau of Labor and Statistics (BLS) reported that textbook prices have increased over 35% over the decade ending July 2021.¹ The rising cost of course materials may be particularly disadvantageous to lower-income families. Such costs may also vary widely by major, creating potentially significant inequity among students in different schools and majors. For students relying on financial aid, the aid provided for textbooks is based on a campus average, resulting in many students left with potentially significant remaining uncovered costs. In the face of increasing costs, students may not be able to afford all required course materials. According to the National Association of College Stores (NACS), 28% of students did not purchase at least one of their required course materials in 2019-20 and only 34% had most of their materials before classes started.² Forgoing materials likely results in negative effects on academic outcomes. Another challenge is that sourcing course materials from multiple vendors across multiple platforms may cause confusion and take up valuable teaching time.

In response to these issues, certain colleges and universities are adopting or considering programs that provide all course materials for an established fee for each term. Students pay a fee to the college when they pay tuition, which the college uses to purchase course materials from publishers and distribute the materials to students. This financing method offers several advantages, including:

• Students can access course materials for a known, predictable fee
• Students arrive at the first day of class with all materials available
• Class time is spent teaching instead of discussing how and where to acquire materials
• Students receiving financial aid can apply those funds directly to their course materials because the program operates within campus billing

Comparisons to health insurance and the actuary’s role

For students, this program is a familiar model like many other subscription-based services they already purchase (e.g., Netflix or Spotify). To the university, it can be a complex model where the school accepts financial risk to supply a variable quantity of course materials in exchange for an established fee. The university’s experience is not unlike offering health insurance. Schools include the cost of a course material subscription while considering comparisons of the fee to what students would be able to find elsewhere. With choices and the federal requirement³ to offer students an option to opt out each term comes selection risk.

Selection risk occurs because students know the list of required course materials and are likely able to determine how much the materials would cost if purchased independently. For example, students may opt out of the subscription service if they have a light book load that semester or the cost of their books is otherwise lower than the subscription fee. If the lowest-cost students opt out, the cost of the program will increase on a per participating student basis. To avoid selection risk and sustain a financially viable program, universities must design a program that provides value to the student with a combination of cost savings and predictability alongside ease of use and convenience.

Establishing the network

Like health insurers with provider networks, colleges may need to balance access and cost when establishing a network of publishers. Schools should examine the list of required course materials to determine which publishers provide the highest volume of materials to leverage the schools’ buying power and influence publishers to potentially reduce the cost of course materials for students. Colleges may be able to further increase their leverage by encouraging staff to adopt materials from an established network of publishers. By negotiating lower rates with publishers than students may be able to find on their own, schools can pass along the savings to students to reduce opt-outs and manage selection risk.

Schools should have available a reasonable mix of publishers and options because relying on a network of too few publishers could cause costs to increase over time. If a college relies too heavily on a single publisher, that publisher may gain negotiating advantages, and vetting new publishers and course materials takes time and resources. Schools are not typically able to quickly establish relationships with different publishers and have faculty switch to using the new publisher’s content. Without established alternatives for competition, any one publisher may have leverage to increase costs.

Establishing a cost-effective and sufficient (but not excessive) network of publishers needs to be balanced with sustaining academic freedom for faculty to select and refresh course content. Checks should be in place so that faculty thoughtfully consider costs and value to students before increasing the number of required course materials or adding premium content, because those materials costs are distributed across multiple payers.

Designing benefits of value

A successful subscription-based model should offer value to students by providing course materials at a lower cost than acquiring the materials independently with frictionless access to all course materials on the first day of class. With that baseline in mind, there are additional details to consider when designing a program to maximize the value to the students.

Colleges should consider whether to provide digital content, physical content, or both, while being mindful of their students’ access to technology when making this decision. Students at a wealthy private university may have different technology resources than students attending two-year or community colleges. If offering physical content, schools should consider how to distribute content seamlessly at the beginning of the semester, collect that content efficiently from students at the end of the semester, and provide incentives for taking care of materials that will be returned.

Surveying the student body to understand their unmet and ongoing needs and establishing a student advisory board to work alongside faculty and administration in the design and management of the benefit may help sustain and maximize the value of the program to the students. Prelaunch, schools may consider surveys to understand the number of students who do not have access to all required textbooks and/or measure their perceptions of the current program. Postlaunch, universities should periodically track how these metrics change.

Setting the premium (fee)

The premium (i.e., fee charged to students) should cover all anticipated expenses. Course content is the largest expense. Physical materials may be reused, reducing the financial burden, but may increase administrative costs arising from storage of materials, shipping, and administration (distribution to, and collection from, students). Digital content and/or technology fees, school support expenses, and any overhead expense allocations must also be included in the expense determination. Expenses should be reexamined regularly for changes in the cost of materials or negotiated rates, updates to the mix of physical and digital content, and revisions in the mix of publishers used.

As part of developing the fee, schools should also consider adding an additional expense to establish a reasonable funding reserve. Such a reserve may serve to shield colleges from adverse financial experience and mitigate more significant changes to student fees from year to year if expenses exceed revenue, knowing that expenses and revenue will vary annually. After several years of program operations and reserve fund monitoring, schools should evaluate the reserve levels and needs. Until historical data accumulates, any fee actions to change the carry-forward balance should be done thoughtfully to minimize fee changes year to year and sustain the predictability of the subscription model.

Once expenses are determined, schools can decide how to structure the fee. The simplest fee structure example would charge a flat fee for the semester (same fee for all students), with more complex structures including fees that may vary per course or credit or by college or major. When establishing the fee structure, it is important to consider enrolled student sensitivity to changes in fees. Students may compare the fee to the cost and effort of securing course materials independently. The ability to price-compare increases the risk that students with lower-cost course materials opt out, increasing the expenses per enrolled student.

It is prudent to consider and periodically reevaluate the competitiveness of the student fees alongside the costs of course materials for students not participating in the program. Reviewing schoolwide student costs may reveal variations in material costs by program or major and support considering a more complex model of fees by major or program to mitigate anti-selection risk. In setting the fee, schools should weigh the anti-selection risk against campus receptivity to the structure and their ability to operate and manage the program. The simplicity of one fee for all students may be the best fit for the school and its resources to support the program even with the incremental anti-selection risk.

Starting a program

You don’t need to be a large campus to initiate such a program. Some textbook retailers are offering subscription services for colleges to administer to the students. While perhaps a more ready-made solution, many of the same considerations above will still need to be addressed ahead of implementation. Depending on the contract, schools may have to accept some financial risk, including paying per student regardless of the number that enroll in the program or accepting the risk of materials that are not returned.

Implementing such a program can be a significant operational and cultural shift. To ease the shock of such a potential change, schools may want to test program feasibility by easing into a comprehensive implementation and starting with a subset of undergraduate students (i.e., first-year students who have not participated in the traditional model) or only undergraduates for the fall and spring terms. Such a smaller test to assess the strengths and weaknesses of the program may allow colleges to move forward with subsequent improvements and expansion campuswide, e.g., add the summer term or other shorter terms, include graduate programs or advanced schools (law, medical), etc.

Other issues

Additional issues for schools considering a textbook subscription program may include the following:

• Program convenience and ease of use may be the overarching principles driving participation. The information available to students to assess costs of not participating may be incomplete or otherwise imperfect, and students may be willing to pay a premium if program enrollment and access is efficient and effective.
• Alongside operational efficacy is the importance of regular communication and continued engagement of all stakeholders, including students, faculty, and school leadership. Periodic surveying for ongoing program accountability will also help the program identify and understand emerging issues. Among the sensitivities to keep in mind may be the funding reserve described earlier and clarifying its function and necessity.
• Constituent choice and freedom may be important concepts on a few fronts:
• For students, schools must offer the ability to opt out. By publicizing the policy and creating a seamless opt-out process, schools may reduce any controversy surrounding implementation of a subscription model. However, if opt-out procedures are too easy without support for why participating in the program may make sense, schools may experience increased anti-selection risk.
• Students may also want a flexible program that allows for the option to purchase certain course materials for future reference.
• For faculty, protecting academic freedom is a priority. Schools may do so by collaborating with faculty to ensure all course materials are available for adoption.
• The role and integration of open-source educational resources within a textbook and materials program.

Conclusion

In a world where course materials can be too expensive and/or unpredictable for some college students, such that they may forgo purchasing materials to the detriment of their academic progress and well-being, a textbook subscription model may be a lower-cost and more accessible and predictable option. Being mindful of the risks involved with such a program will contribute to its success and sustainability. Actuaries are trained to identify and manage risks and can serve as valuable independent and collaborative developers and assessors of such programs.

¹ BLS (August 31, 2021). Cost of college tuition has remained stable since September 2019. Retrieved October 5, 2022, from https://www.bls.gov/opub/ted/2021/cost-of-college-tuition-has-remained-stable-since-september-2019.htm.

² Nemec, J. (June 25, 2020). NACS Report: Student Spending on Course Materials Continues to Decline. Retrieved October 5, 2022, from https://www.nacs.org/student-spending-on-course-materials-continues-to-decline.

³ Electronic Code of Federal Regulations §668.164, Title 34-Education.