Running head: HELPING STUDENTS PERSIST 1

Helping Students Persist:

Learning Deposits and Loss Aversion

Evan “Rupert” Miller

Southern Utah University

Running head: HELPING STUDENTS PERSIST 2

Abstract

This paper explores a hypothetical economic intervention to increase student persistence and

bolster retention in higher education institutions with student body sizes of 10,000 to 14,000

students. University students often depart from their first institution higher education due to

perceived economic hardships. If universities established a learning deposit, loss-averse students

on the margin of deciding to persist or depart at the initial institution will persist to the next year.

Universities would watch their revenues increase, and more students would complete degrees.

This would lead to several positive outcomes. Universities could increase the amount of

scholarships given, as well as quality of education. Students would complete degrees, making

them able to find work that will help them repay loans and become productive, educated

members of society. These outcomes would lead to a brighter future for institutions of higher

education and all those who enter their doors.

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Helping Students Persist:

Learning Deposits and Loss Aversion

1.1 Introduction

Students must graduate. The consequences of students failing to complete their degrees

are grievous. According to the US Department of Education, students without a degree are three

times more likely to default on their loans, which average $14,500 (2015). Furthermore, the

student’s earning power is decreased by 66%, limiting their ability to pay back their loans. Yet in

Utah, only 44% of students actually complete their degree in less than six years (US Department

of Education 2015). Students have financial incentive to complete their degrees. The Department

of Education estimates that those students with a bachelor’s degree earn $1 million dollars more

than those who do not complete a degree (2015). With more than half of students not completing

degrees, and those students likely to default on their loans, more must be done to help students

complete their degrees.

Why should institutions retain their students? Universities are leaving a lion’s share of

revenue on the table by letting students depart from their institutions. In table 1.1, Southern Utah

University’s retention return on investment is shown, adjusting for 2017 cohort size of 1,827

students (Kirby & Tippets 2015).

Table 1.1.1
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Retention Number of 1 Year ROI 2 Year ROI 3 Year ROI

Increase Students

2% 36.5 $146,548 $293,096 $439,644

4% 73.1 $293,497 $586,994 $880,491

6% 109.6 $440,044 $880,088 $1,320,132

8% 146.2 $586,993 $1,173,986 $1,760,979

10% 182.7 $733,541 $1,467,082 $2,200,623

12% 219.2 $880,088 $1,760,176 $2,640,264

The ROI is calculated based on 2015 estimates of average institutional grant per student

and average tuition paid per student. Therefore, the average student pays the following amount as

modelled below:

Average tuition paid ($5,924) - Average Institutional Grant ($1,909) = Average Yearly Student

Tuition ($4,015)

Therefore, for each student retained, the institution makes $4,015 per student. As shown in table

1.1, SUU has ample reason to target retaining students. This can be done through a relatively

simple intervention called a “learning deposit.”

This paper introduces the learning deposit, and the rationale behind it (1.1), as well as

relevant literature for its application to the real world of higher education (1.2). Then, a

procedure to implement the policy is proposed (1.3). Finally, a metric of success is proposed as

well as suggestions to the governing body of Southern Utah University to implement a learning

deposit on their campus(2.1).

1.2 Learning Deposits

Universities invest large sums of money to educate students, and have a right to nudge

students to remain at their institutions. One way they can encourage students to stay at their
Running head: HELPING STUDENTS PERSIST 5

institutions is by implementing a learning deposit, which is a sum of money that the student

receives at the beginning of each third week of fall semester to which they persist.

This is not a revolutionary or unfair policy. This practice is used by landlords to ensure

tenants take good care of their property and mitigate behavior detrimental to their assets.

Although SUU puts students first, it has a brand to maintain, and the SUU brand cannot be

maintained if students come here for a cheap associates degree and then transfer to a more

‘prestigious’ institution.

The learning deposit is described in table 1.2.1.

Table 1.2.1

Sophomore Year (Start of 3rd semester on $200

campus; Year 1)

Junior Year (Start of 5th semester on campus; $300

Year 2)

Senior Year (Start of 7th semester on $500

campus; Year 3)

Tution would be raised across the board by $200 for all incoming students, increasing Average

Yearly tuition to $4,215. To understand how this intervention would work financially, the

following formula would be used, whereas R=Students retained, T=Average yearly tuition:

Year 1: (R)(-200)+(R)(T)

Year 2: (R)(-300)+(R)(T)

Year 3: (R)(-500)+(R)(T)
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Expected in enrollment percentages1 and number of students are used as guides to estimate

revenues and are listed in table 1.2.2. With a class size of 1,800 students, university gains are

stated in table 1.2.3.

Table 1.2.2

Year Percentage of Students Number of Students

Enrollment

Year 1 (term 3) 74.1% 1,354

Year 2 (term 5) 50% 665

Year 3 (term 7) 40.2% 549

Table 1.2.3

Cohort Year Expected Average Expected Learning Net Revenue

Yearly Tuition Deposits Paid

Year 1 $5,707,110 $270,800 $5,436,310

Year 2 $2,802,975 $199,500 $2,669,975

Year 3 $2,314,035 $274,500 $2,204,235

These tables show that a negligible amount of revenue would be lost. In comparison,

when the learning deposit bolsters retention, SUU can expect to see the increases in revenue for

the corresponding increases in retention. Table 1.2.4 shows the expected revenue for the

corresponding increases in retention for Year 1 Cohort, table 1.2.5 for Year 2 Cohort, and table

1.2.6 Year 3 Cohort.2

Table 1.2.4

1
These percentages were obtained in a during a meeting of the Completion Team at SUU in which the
author was present. The percentages are students currently registered for the fall 2018 semester with 18
weeks remaining until the semester begins. These are not official retention numbers and are not for
distribution without the express consent of Dr. Eric Kirby.
2
These calculations and the corresponding google sheet are available upon request.
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Year 1 Number of Students Revenue Increase

2% 1,389 $140,525

4% 1,426 $289,080

6% 1,461 $429,605

8% 1,498 $578,160

10% 1,535 $726,715

Table 1.2.5

Year 2 Number of Students Revenue Increase

2% 678 $52,195

4% 692 $108,405

6% 705 $160,600

8% 718 $212,795

10% 732 $269,005

Table 1.2.6

Year 3 Number of Students Revenue Increase

2% 560 $40,791

4% 571 $81,581

6% 582 $122,372

8% 593 $163,163

10% 604 $203,954

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These numbers demonstrate that a learning deposit is an economically viable option. However,

the key to its success, and the power of its nudge to persist is found in the behavioral economic

doctrines of the framing effect and loss aversion.

1.1 Literature Review

The manner in which words are placed carries great significance in how humans

understand them. Kahneman and Tversky proposed the framing effect, which postulates that

humans decide on different outcomes to the same question based on the way the questions are

worded (Matlin & Farmer 2016). Furthermore, Kahneman and Tversky propose that humans are

more averse to losing money than they are gaining money (1984). If a student was notified that

they are scheduled to lose $500 if they fail to persist at SUU to their senior semester, their would

be greater incentive to stay and complete.

It is important to understand why this intervention is relevant. Students leave for a variety

of reasons, and the literature assumes the departure is due to lack of connection to the campus

community (Braxton & Miller 2007, Engstrom & Tinto 2008). However, others contend that

finances drive students from schools (Xu 2017). Giving students a perceived economic boost

would help them stay.

1.3 Procedure

Students would be notified of their learning deposits in a letter sent to each household,

and posted on the student portal one month before starting school. The letter and message in the

portal would describe the background of the learning deposit, and explicitly state that students

would lose their deposit upon transferring.

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Deposits would be dispersed to students electronically after the third week, ensuring they

stay to be counted in the third week snapshot of all students, so that they would be included in

the retention numbers.

2.1 Conclusion and Recommendations

In conclusion, gauging effectiveness of this intervention is paramount. One effective way

to measure effectiveness is a comparison with the University of Montana3. That university would

function as a control sample. They are similar to SUU in size, demographics, and completion

statistics. If, at the end of four years and six years our graduation rate is higher, this intervention

has worked. Four and six years are the time frames given for students to complete their degrees,

and is a benchmark time in higher education. If the completion rate has not increased, this

measure should be scrutinized further.

Students need universities, and universities need students. The implementation of a

learning deposit is a simple plan that helps both parties. Financial aid offices could easily handle

the dispersion of deposits at each week three each fall semester. An increase in tuition revenue

could provide a job, possibly to more students to disburse the deposits. There is small overhead

costs for large increases in revenue and retention. Southern Utah University is this one

intervention away from becoming the Harvard of the West.

3
Information on the University of Montana gathered through collegefactual.com.
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References

Braxton, J. M., & Tinto V. (2007). Major theoretical perspectives on student success in college.

Engstrom, C., & Tinto, V. (2008). Access without support is not opportunity. Change: The

Magazine of Higher Learning, 40(1), 46–50. https://doi.org/10.3200/CHNG.40.1.46-50

Kahneman, D., & Tversky, A. (1984). Choices, values, and frames. American Psychologist,

39(4), 341-350.

Kirby, E., Tippets, J. N. (2015) Return on investment (2013-2014 data). President’s Cabinet

Meeting. [Presentation].

Matlin, M. W., & Farmer, T. A. (2016). Cognition (9th ed.). Hoboken, NJ: Wiley.

United States Department of Education. (2015). Fact sheet: focusing higher education on student

success [Data file]. Retrieved from: https://www.ed.gov/news/press-releases/ fact-sheet-

focusing-higher-education-student-success

Xu, Y. J. (2017). Localizing college retention efforts: The distance between theoretical

orientation and institution-specific needs. Innovative Higher Education, 42(1), 49–63.

https://doi.org/10.1007/s10755-016-9364-9