Budgeting 101

As the holiday shopping period begins, students on a budget need to remember that the Harvard shopping period is only around the corner--and with it the next round of textbook purchases, with books that can place an even heavier weight on wallets than on knapsacks.

This semester, students taking Social Analysis 10, "Principles of Economics," paid $80 for a new copy of their textbook. In Chemistry 5, "Introduction to Principles of Chemistry," one book costs $93.50 new. And in Chemistry 17, a "value pack" including a textbook and study guide sells for $111.60.

"It's a rip-off," says Victoria O. Santana '02.

Students frequently single out the Coop as the culprit, the Coop says change needs to come from professors, but professors lack a financial incentive to control the costs of books for their courses.

The result is an industry that deviates from the typical free market, filled with middlemen who lack incentive to lower prices, maintained by a group of student consumers held captive to their syllabi.

One university, Cornell, is using technology to restructure the market, but it's a radical step initiated by an administration committed to saving students money.

Harvard Coop: The Distributor

Chair of the Undergraduate Council Student Affairs Committee John Paul Rollert '00, says the primary rants he hears from students on their textbook costs blame the Coop, where they buy most of their books, for overpricing.

Coop officials say, however, that there is no fortune to be made in textbook sales. In fact, they say that textbooks are offered more as a service to students than a profitable venture.

Coop President Jeremiah P. Murphy '73 was happy to explain where the 25 to 28 percent retailer markup on a textbook goes. Of this markup, about 11 percent goes to the administrative costs of book purchasing, including hiring staff to obtain book lists from professors.

"We go through the trouble, the expense, the frustration of trying to get book lists from professors as early as possible," Murphy says.

A further 2 percent of the sale price covers the costs of book transportation to the Coop--and back on unsold texts and returns.

Physical operations including shelving, customer service and sales staff account for 13 percent of the sale price leaving the cooperative with a 2 percent profit.

But as a cooperative, any profit must be returned to its members proportional to their purchases. The rebate for the previous fiscal year was announced in October as 4.5 percent. Since the standard Coop profit on a textbook sale is 2.5 percent lower than the rebate, the Coop actually takes a loss on textbook sales to Coop members.

"We're able to provide the textbooks based on being more profitable in other areas of the store," Murphy says. He explains that serving the needs of Harvard and MIT students is not a road to profit for the store but part of its core mission.

"The Coop is a cooperative corporation that was setup in 1882 by students at Harvard to reduce their cost of living," Murphy says. "We are not directly connected financially with the University, but our by-laws commit us to service the University community."

The Consumers: The Faculty

Unless professors order texts they author, they do not stand to gain financially.

They also do not stand to lose. In deciding which and how many books to order, professors have the most control over how expensive their course materials are.

While many students may conceive of the textbook sale as occurring between them and the Coop, the more important sale occurs between a representative from the publisher and the professor.

"The sale is made between the professor and the publisher," says Coop Board member Daniel F. Runde, a second-year at the Kennedy School of Government. The Coop is "an intermediary between those parties and the student."

Professors do not always realize the direct impact that their choice of texts has on students' pocketbooks, Rollert says.

And since most professors have no financial stake in that transaction, there is no personal incentive to keep the cost of books for the course low.

Faced with high prices, students often find themselves picking and choosing which texts to buy, and in some cases, which courses to take.

Mike D'Alto '02 says he spent $270 buying books Afro-American Studies 10, "Introduction to Afro-American Studies," a purchase he says he now regrets.

"You don't have to buy all the books for every class, but I did," D'Alto says. "I'm a freshman, I'm an idiot. I spent a lot of money."

The total cost of all 24 books for the course at the Coop: $348.50.

If students are not buying books because of their cost, and therefore not reading them, high prices are affecting more than just students' pocketbooks.

"That's an issue we need to look into more," says Associate Dean for Undergraduate Education Jeffrey Wolcowitz.

The Suppliers: Publishers and Authors

Wolcowitz, who is also a senior lecturer on economics, discusses an article on textbook pricing and compensation in his course, Economics 1010a, "Microeconomic Theory." The economics of the issue are that in seeking to optimize profit, publishers seek to meet the desires of their consumers, who are the professors, not really the students.

Professor of Economics N. Gregory Mankiw, the author of the Ec 10 textbook, says the reason textbooks are more expensive than trade books such as hardcover novels is simple: higher costs of production.

"The up-front costs to a publisher of textbooks are huge compared to a publisher of novels," says Mankiw, who received a $1.4 million advance for the textbook that has won critical acclaim. He cites features such as colorful graphics, reprints of copyrighted material like cartoons, supplementary material, like instructor's manuals, and length as factors that account for the higher price.

Mankiw defends publishers' practices on economic grounds saying that if someone could do it better, they would.

"Anyone is free to enter the market and avoid these costs," he says. "One could probably publish more cheaply a black-and-white textbook without any" of the added features, but "few instructors would choose such a book, I suspect, because it is not really in the students' interest to sacrifice educational value to save a few dollars."

Mankiw adds that while the costs of textbooks may be significant, he says they are not unreasonable.

By Mankiw's reckoning, the average hour-long lecture at Harvard costs students $100. "So the cost of a typical text is similar to--actually, a bit less than--a typical hour lecture," he says. "Where do you get more educational value? From the standpoint of students trying to get the best education for the dollar, textbooks are a bargain."

Financial Aid

But despite Mankiw's claim, there is an important difference for many students.

While the cost-per-class figure is part of tuition and therefore covered under financial aid, textbook prices are lopped in with pocket expenses.

First-year Angela M. Hur '02 spent only about $300 on her textbooks this semester, but she says she feels the sting of high prices.

"It's pretty sad that I have to choose my classes not based on my interest but on the cost of the textbooks," Hur says. "[The high price] is limiting flexibility of choice and basically goes against Harvard's idea of education being open to all quarters."

Monica E. Eav '99 says she agrees.

"I definitely spend more on books every semester than I want to, probably $600 to $800," Eav says. "I don't think the University budgets it into financial aid. If you get $2,000 for living expenses and you're paying $1,200 just for books, that's not realistic."

John C. Santry, staff assistant at the Office of Financial Aid, says he was surprised that students were picking classes around their expense.

"We would handle that sort of thing on a case by case basis," Santry says. "If a student came in and said they wanted help meeting costs for the books in a class, we'd be happy to talk about that." He added that the problem in handling books in financial aid is rooted in the wide variance between book costs per student--from Hur's $300 to Eav's $800.

"Personal expenses is supposed to include books, but not the entire cost of books," Santry says. "We would encourage anyone who has concerns about these expenses to come and talk to their financial aid counselor."

Possible Solution: More Used Texts

The easiest and simplest remedy for high textbook costs is for students to buy used books, but that requires action by professors and the Coop.

It's an idea that Rollert and the Committee on Undergraduate Education got behind last year and have made progress on by working with the Coop.

"The Coop has been fantastic in its willingness to work with both Harvard College and the U.C. on some of the perceived textbook pricing problems," Rollert says.

Availability of texts is an issue that Murphy says the Coop is very conscious of, but it is dependent on the Faculty to improve. The Coop's ability to get used books and the price at which they get them are contingent on having book-lists early from teachers.

"If we know a book will be used next semester or the subsequent semester--condition [of the book] permitting--we will pay 50 percent of the cover price," Murphy says. "The same book goes on the selling floor for 25 percent off cover."

It's standard industry practice, followed by other Ivy League schools such as Cornell.

When a text is not being used again in a Harvard course--or the Coop hasn't heard from the professor that it will be--wholesalers buy used texts at prices in the range of 0 to 40 percent.

To improve the situation, the Coop can educate the Faculty as to the impact of getting their book order forms in on time.

Rollert says Murphy and his staff have made big leaps, leading to 350 additional used book titles this year.

"When you consider that you save about 25 percent on used books over the new book cover price, the 350 additional used book titles translate into a significant amount of money saved by students," Rollert says.

Market Competition

A basic tenet of Ec 10 is that free market competition makes for cheaper and better products, but in the textbook industry, Coop competitors don't offer a much better deal.

A Sept. 1997 Crimson article compared prices and service--including delivery times and refund policies--between the Coop and Amazon.com for a series of books.

The Coop came out the decided winner, and a quick check reveals that little has since changed. Local booksellers might be a better option, but they say they face constraints similar to the Coop's, and that they have no incentive to take on the Coop's role.

Daniel D. Albano, academic marketing manager for the Harvard Book Store, says textbooks are an area that his company has become increasingly interested in.

"Over the past few years, we've been more aggressive in trying to find out the reading lists for the Core Curriculum courses, because those have been the more widely attended courses," Albano says. "We've been able to get those books in, albeit in modest quantities since we don't have the mandate or space for that inventory."

Store managers have appealed to Faculty to provide them with booklists, and the store purchases students' used books for courses that are still being offered and sells them at half the cover price--cheaper than the Coop's price for used books.

But, according to Albano, the Harvard Book Store is choosing to enter this market more to build customer loyalty than to create a major new profit center.

"The primary idea behind the program is to be able to say 'yes' to people coming in looking for books and to be responsive to their need," Albano says. Nevertheless, he says he thinks that his store competes favorably against the Coop.

"Based on the changes we have worked on in the last few years, I would suggest that it would be worthwhile for any student to competitive shop with us," says Albano.

Murphy says the Coop isn't really concerned.

"The challenge is, can you find the 12 or 14 books that you need [at another store] while I know you can get those here," Murphy says. "We take it upon ourselves to carry every book requested, regardless of the quantity." Moreover, textbook purchases at the Coop are not taxed, while those at Harvard Book Store are.

A Brave New World

While both more used texts and retail competition may ease the burden on some students to some degree, more significant change can only really occur as the publishing industry evolves, and fundamental change may not be that far away.

Imagine a world in which each textbook is custom-made for the student with different features available at different prices.

All of a sudden the market impact of the student's purchase becomes much more significant since each student, and not his or her professor, decides whether to buy certain features.

It's a program in the works at Cornell University called Course Web, and Cornell officials say they would like to have it running by the fall of 1999.

"I envision a course Web page where the student will choose the citations on the Web page of the articles they want. That would generate a print command, charge their bursar bill and then they would stop by the nearest print center to pick that up," says James S. Lawrence, custom publishing manager at the Cornell Campus Store.

While CourseWeb is now designed for coursepacks rather than standard textbooks, Cornell is looking to innovate in textbooks as well.

One out of every 12 to 14 textbooks is sold out by the first day of class, providing the impetus for the second program, Lawrence says. The goal is to put the first two to three chapters of every textbook on the Web so that no assigned readings are ever unavailable.

"That's pretty dramatic given numbers of titles and faculty and student frustration levels," Lawrence says. "We think this will be a pretty powerful project that may come to fruition in the next semester."

With these two programs, coursepacks and textbooks could merge through electronic delivery, and if the sentiment of students has any impact, that level of change will soon be in the works.

And given that the players in the industry--from the Coop, to publishers and authors, to professors, to even the financial aid office--are either unable or unwilling to lessen the burden of textbook prices, using technology to give students more choice over what to read may be the only way to significantly lower the bill. --Sasha A. Haines-Stiles contributed to the reporting of this article.