On what basis can tuition fees be set? Let us count the ways.
The most obvious is “whatever the market will bear”. This is the way most goods and services are priced, and the system on the whole works pretty well. Private institutions around the world also work on this principle. So do public institutions in many places, at least where MBAs and international students are concerned (also out-of-state students in the US).
But other than that, public institutions are not permitted to charge market-based prices (if Australia ever passes its deregulation bill it will be the exception – but more on that tomorrow). They therefore have to find some other principles on which to base prices.
One option is to ask people to pay in some kind of relation to the returns on their education. In a pure graduate tax system (which doesn’t actually exist anywhere), this happens directly because education payments are tied to annual income. A rough-justice version of this concept sees fees vary by field of study, according to average returns in each field. Canadian universities superficially do this by charging higher fees in fields like medicine, dentistry, and law than in Arts and Science. But then again, in most cases, Canada’s variable fees only kick in at the second-degree level – at the first-degree level there is actually very little variation.
Australia has shown more gumption here: since the mid-90s their version of tuition fees (i.e. HECS contributions) have divided fields of study into three “bands”, with the lowest one (paying $5,000/year) containing fields like humanities, languages and education, the middle one (roughly $7,500/year) including computer science and engineering, and the top one ($8,500/yr) including law, medicine, etc. (Of course, they then went and altered this scheme by designating science and maths as “national priorities”, and reduced their tuition to about $4,000/yr, but whatever.)
A third option is to charge students in relation to what it costs to educate a student. In practice, this looks a lot like charging based on returns, because the capital-intensive programs also tend to be high-return programs. However, law and business tend to cost a little less in this variation, and Fine Arts tends to cost more. However, lack of clarity on how to define “costs of education” makes this a difficult system to adopt.
These are all ways of varying tuition; in practice, however, there is little variation in first-degree programs at public universities around the world, apart from Australia. The reason is fairly simple: in most places, fees are controlled directly or indirectly by government. And where government is involved, the key principle in deciding fee levels is: “what can we get away with?” Because for governments, tuition is less a legitimate revenue stream that institutions use to reach financial (and hence academic) goals, and more a necessary evil that must be subordinated to short-term electoral calculations.
Some Canadian governments take this idea completely meta. When Manitoba abandoned its tuition fee freeze in 2009, it chose to tie its tuition to the mid-range of what institutions in other provinces charge. That is to say: tuition in Manitoba is the average of what other provincial governments think they can get away with. Alberta does the same thing on a case-by-case basis: where institutions can prove that some of their programs are under-priced compared to similar programs at other major Canadian universities, the government will grant an exception to its blanket tuition policy and allow these programs to raise tuition to match. Somehow, this process came to be known as the “market-modifier” system, which is odd considering there appear to be no markets at work here whatsoever.
Anyways, the upshot is there are lots of possible ways to set tuition, very few of which are likely to see the light of day because governments are disinclined to give up control of the fee-setting process either to institutions or an algorithm. C’est la vie.