INSIGHT: Valuing in-Person Classes in College Tuition Class Actions

Universities and colleges closed campuses and moved courses online in the middle of the spring semester in response to the Covid-19 pandemic. By summer, class action lawsuits had been filed against more than 100 colleges and universities, including Columbia, Harvard, Penn State, and the University of Southern California.

These complaints do not allege that schools were wrong to close campuses, but that they should have lowered tuition fees because an online education is not worth as much as the in-person version. (See Dutra v. Trustees of Boston University (D. Mass. April 29, 2020)).

Class certification in these matters often hinges on the question of whether plaintiffs can establish that common issues predominate over individual issues. Economic analysis can be helpful to courts in answering a key question: Does a formulaic method exist that can be used to determine injury and damages without the need for individualized inquiry?

In the context of tuition refund matters, the relevant question is: How subjective and individualized are students’ valuations of the in-person aspect of a college education?

Pre- and Post- Pandemic Differences

College tuition pays for a number of things, including: the ability to fulfill degree requirements; actual learning through coursework; the in-person experience of being on campus; and the importance of the degree for future opportunities.

Students may have different valuations of these features because students themselves differ in many ways. Students in the same proposed class may be enrolled in different degree programs, in different years of study, and pay different costs of attendance. Even students similar on all those counts are likely to have varying valuations of the different features of a college education.

Relying on pre-pandemic price differences between online and in-person versions of courses—an approach suggested by some plaintiffs—is unlikely to be sufficient, because many courses might never have been offered online in the past. Universities have also improved the online experience during the pandemic by using better technology and top faculty.

Finally, the demand for online courses has dramatically increased during the pandemic, and higher demand, all else equal, results in higher market prices. Any quality difference and resulting “price premium” between online and in-person courses is likely to be different now than it was pre-pandemic.

Is There a Formulaic Approach?

One area of litigation in which plaintiffs have had to evaluate harm based on consumers’ subjective valuations of a component of a product or service is false advertising.

For instance, when claiming a food product was falsely labeled “All Natural,” plaintiffs had to propose a formulaic method to determine harm from the allegedly higher price charged by the defendant.

In such cases, plaintiffs’ experts have proposed two methodologies: hedonic regressions and conjoint surveys. Both methods are based on the economic concept that the price of a product is the sum of the prices of its component features. In the present context, at issue is the “on-campus” feature of college education.

Hedonic regression analysis has been proposed as a method to extract individual product attribute values using data on actual prices and quantities of products, their features, and any relevant economic factors.

However, hedonic analysis is data-intensive, and data on prices and quantities for the different types of education (online and in-person) in the unusual economic environment caused by the pandemic is simply not available. Moreover, the economic conditions for hedonic analysis to be reliable typically do not hold in the case of highly differentiated services such as college education.

In a conjoint survey, respondents are asked to choose between multiple hypothetical product options, each with a different combination of product attributes. The survey data is used to determine the average consumer’s willingness to pay for the individual product features.

However, in several cases, courts have found the method to be insufficient because consumer willingness to pay cannot determine the actual harm to consumers—defined as the difference between the price consumers paid and the price they would have paid but-for the false label. Courts have ruled that consumer willingness to pay only looks to the demand side while ignoring supply, and both are needed to determine market prices.

Moreover, the on-campus experience is difficult to define, making conjoint survey design very subjective. One of the complaints lists at least eight different benefits of on-campus education, including “face-to-face interaction with students and peers,” “student governance and student unions,” and “social development and independence.” (See In Re Columbia Univesity Tuition Refund Action (S.D.N.Y. April 23, 2020)).

At the class certification stage, plaintiffs seeking tuition refunds are likely to encounter similar challenges in courts due to the lack of available market data (hedonics) and the inapplicability of survey methods (conjoint) to determine harm to consumers.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Sushrut Jain is a managing principal at Edgeworth Economics where he advises clients on the economics of class certification, false advertising, antitrust, and intellectual property.