Determinants of Willingness-to-Pay for Tuition Fee of a Private

Technical Higher Education Institution in Indonesia

Sri Nadapdap

and Yosef Manik

Engineering Management Study Program, Institut Teknologi Del, Laguboti, North Sumatra, Indonesia

Keywords: Willingness-to-Pay, Tuition Fee, Technical Higher Education

Abstract: Tuition fee is a critical decision variable for families who plan to send their children for college. For any

purchase decision, there is a difference between the ability to pay (ATP) and the willingness to pay (WTP).

While ATP depends on income, families’ assets, and other information related to families’ wealth, WTP is

determined by how families’ perceived the value proposition provided. In Indonesia, no studies has been

published in identifying factors that affect the WTP for tuition of higher education institution. Such

information, however, is essential for higher institution, particularly private institutions, to pursue a pricing

strategy that is tailored to the target students. This study is aimed to measure the WTP and to identify factors

affecting the WTP of prospective students’ parents for tuition fee of a private technical higher education

institution in Indonesia (PT X). This study was conducted between January and March 2018. Using

questionnaire that was distributed in several districts and cities that became target area of PT X, 215

respondents who have the potential to send their children to PT X have been queried about their WTP and

factors that affect the WTP. The median of WTP found in this study is Rp 5.000.000,-. Over seven

hypothetical variables, this study found that family income is the only significant variable that affects the

WTP. The outcome of this study will be used for better formulate both pricing strategy and financial planning

for governing bodies of PT X.

1 INTRODUCTION

Education is one of the important things for the

society. One of the education that can be taken is

higher education. Based on Law No. 12 of 2012 about

higher education, higher education is the level of

education after secondary education that includes

diploma and programs, undergraduate programs,

master programs, and professional programs, as well

as specialist programs, organized by universities

based on Indonesian culture.

For students who are still in third grade of Senior

High School in Indonesia, universities become a

dilemma because the will be dealing with various

considerations that must be considered. One of the

things to consider is the tuition fee of higher

education in college. The tuition fee is important for

the continuity of the education cycle in universities.

Talking about the tuition fee for higher education

in college, there are two things that cannot be

separated and have an impact on tuition fee in

institution, namely ability to pay (ATP) and

willingness to pay (WTP). Ability to pay is defined as

the actual allocation or distribution of its revenue to

purchase services that limit the ability to purchase,

such as services (Joewono, 2009).

Willingness to pay is the highest price of a product

where a person is willing to pay for goods or services

(Breidert, et al., 2006). According to Pantari and

Saptutyningsih (2014), the willingness to pay is

closely related to income level, a person with high

income is likely to have a higher willingness to pay

than a person who have a lower income.

ATP is the ability of a person to pay for a product

(good or service) based on income earned. From

various studies (Kurz, et al., 2008), ATP is affected

by income, assets, family size, tuition fee of college

and other important information obtained from the

Free Application for Federal Student Aid.

Within the geographical context of Indonesia,

there are still few studies conducted in measuring the

willingness to pay of universities and their

determinants. Therefore, this study is important for

PT X to understand the WTP of its prospective

students so that its governing body can set appropriate

strategies in determining the operational policies. The

420

Nadapdap, S. and Manik, Y.

Determinants of Willingness-to-Pay for Tuition Fee of a Private Technical Higher Education Institution in Indonesia.

DOI: 10.5220/0010044004200423

In Proceedings of the 3rd International Conference of Computer, Environment, Agriculture, Social Science, Health Science, Engineering and Technology (ICEST 2018), pages 420-423

ISBN: 978-989-758-496-1

purpose of the study is to determine the tuition fee for

education in PT X by prospective students, to identify

factors affecting the prospective student’s WTP to PT

X, and to find out the recommendation of the strategy

of determining the tuition fee for decision maker in

PT X.

2 CONTEXT OF THE STUDY

OBJECT

PT X was established in 2001 aimed at providing

access to quality education in remote areas for

outstanding students with economically

disadvantaged backgrounds, particularly those from

surrounding areas where PT X is located. PT X was

established with the vision of being a center of

excellence that plays a role in harnessing technology

for the development of the nation. Since its

establishment, the number of students in PT X has

increased significantly from year to year (Fig. 1)

Figure 1: The Number of Students and Registrants in PT X.

From the graph above, it can be seen that the

competition level of senior high school students

registering to PT X increases year by year. PT X is

committed to improving facilities and services that

support its academic and operational activities. This

commitment drives interest of prospective students to

enroll in PT X.

3 METHODOLOGY

In conducting this study, the following methodology

is employed (Fig. 2).

Figure 2: Methodology of Study.

This study begins by conducting a literature review of

ATP and WTP to understand to which extend the

context of the study has been discussed elsewhere.

Several literatures have been reviewed and the result

reveals that:

1. There is no study of WTP for level in Indonesia has

been conducted, but there is a study of WTP for

middle school in Malang (Rosyadi, et al., 2016).

The determinants are household income, the

number of children, parental education and access

toward school.

2. There are several studies of WTP for higher

education in other places in the world (Hu &

Hossler, 2000; Li & Min, 2001; Blomquist, et al.,

2009; Ke, 2012; Bruckmeier, et al., 2014). The

common determinants for WTP found by those

studies are:

‐ Educational background and income of

parents.

‐ Family education background, students with

good academic preparation, and financial

factors

‐ Value proposition of the college.

‐ The estimated tuition fee and the number of

students willing to pay.

500

1000

1500

2000

2000 2005 2010 2015 2020

People

Year

Students Registrants

Determinants of Willingness-to-Pay for Tuition Fee of a Private Technical Higher Education Institution in Indonesia

421

After conducting the literature study, analysis the

characteristic of the population also conducted in

parallel. The intended population is the parents of

prospective students who have an interest to continue

studying in PT X. From the analysis of population,

the facts about the characteristic and attributes of

registrant PT X is obtained, which includes the

characteristic demographics and preferences.

Based on the information from literature review

and population analysis, modeling is done that

connects independent and dependent variables. This

research uses multiple regression method to estimate

the influence of independent variable to dependent

variable. Here is the estimation model used to

determine the value of the independent variables that

affect the dependent variable (Eq. 1).

WTP = β

+ β

,... ,β

+e (1)

WTP = Willingness to pay

β = Intercept

…

= Factors affecting WTP

= Family income level

= Parent’s age

= Parent’s education level

= Geographical location of domicile

= Number of family members

= Perception on PT X’s value proposition

= Perception of PT X’s image

= Ability-to-Pay

e = Standar error

4 DATA AND DATA ANALYSIS

4.1 Characteristics of Sample

Data collection has been conducted in the period of

January until March 2018. A total of 215 respondents

have been queried through a series of interviews and

questionnaires. These respondents are parents who

have children who are still in high school and have

interest to enroll in PT X. Domicile of these

respondents spread over several districts and cities

that became the main target of prospective students of

PT X in the last 10 years. These respondents have

earnings in the range between Rp 2,000,000.- and Rp

10,000,000.- per month. Age of respondents are in the

range of 30 to 50 year olds with varied professions

such as farmers, civil servants, traders and private

employees. The educational background of the

respondents vary from low education (elementary and

junior high school) to higher education (Diploma / S1

/ S2 / S3).



4.2 Willingness-to-Pay

From the results of data analysis, it is obtained that

the range of WTP falls between Rp 1,000,000.- and

Rp 10,000,000.- per semester with the mode value of

Rp 5,000,000.- per semester and mean value of Rp

4,500,000.- per semester. Less than half of the sample

surveyed are willing to pay tuition fee of more than

Rp 5,000,000.- or more per semester. However, about

4% of the sample said they are willing to pay tuition

fee for Rp 10,000,000.- per semester (Fig. 3).

Figure 3: The Willingness-to-Pay of Tuition Fee in PT X.

4.3 Correlation Analysis between

Independent Variables and WTP

The correlation between independent variables with

WTP has been tested by multiple linear regression

method, that is a method of data analysis by using

assumption of OLS (Ordinary Least Square). The

correlation is tested on the significant level of alpha =

0.05. The result of statistic test to the model is shown

in Table 1.

Table 1: Correlation between Independent Variables and

WTP.

Variable Coefficients P-Value

Intercept 4,685,765 0.170412

Income Level (X1) Positive 0.013333

Age (X2) Negative 0.753862

Educational Level (X3) Negative 0.165371

Location of domicile (X4) Positive 0.576056

Number of family members (X5) Negative 0.47505

Perceptions of PT X’s value

proposition (X6)

Negative 0.640593

Perception of PT X’s image (X7) Positive 0.501938

Ability to Pay (X8) Positive 0.366728

0,2

0,4

0,6

0,8

0 5000000 10000000

ICEST 2018 - 3rd International Conference of Computer, Environment, Agriculture, Social Science, Health Science, Engineering and

Technology

422

Table 1 shows that the only variable that significantly

affects WTP (p-value ≤ alpha) is the income level

variable (X1). This variable shows a positive

correlation with WTP which means the higher the

income level of the respondent the higher the

willingness to pay. Meanwhile, other variables did

not show significant correlation.

5 CONCLUSIONS

Based on the results obtained, it can be concluded that

the independent variable affecting the WTP of tuition

fee in PT X is the income level. The per capita income

level around of PT X is categorized into two

categories, there are high income and low income.

Thus, if PT X wants to increase tuition fee, but the per

capita income around the PT X is a low-income

category, then PT X requires a source of subsidies

derived from the government and sponsors, such as

college operational support. If PT X still wants to

increase tuition fee, but per capita income is low

income category, then PT X needs to do promotion

outside the region of PT X which has high income and

high willingness to pay. However, it should be noted

that, if this scenario is implemented then the risk is

one of the missions of PT X, which is to provide

access to quality education in remote areas for

outstanding students with economically

disadvantaged backgrounds, especially those from

surrounding areas where PT X is located, become

unfulfilled. In addition, other things that can be done

is to establish cooperation with local governments in

making scholarship bonding services with higher

tuition fee value.

REFERENCES

Blomquist, G. C. et al., 2009. Estimating the Social Value

of Higher Education: Willingness to Pay for

Community and Technical Colleges. IZA.

Breidert, C., Hahsler, M. & Reutterer, T., 2006. A Review

of Methods for Measuring Willingness To Pay.

Bruckmeier, K., Wigger, B. U. & Fischer, G. B., 2014. The

Willingness to Pay for HIgher Education: Does the

Type of Fee Matter?.

Hu, S. & Hossler, D., 2000. Willingness To Pay and

Preferenve for Private Institutions.

Joewono, T. B., 2009. Exploring the Willingness and

Ability to Pay for Paratransit in Bandung, Indonesia.

Journal of Public Transportation.

Ke, X., 2012. The Willingness to Pay Tuition Fee at KTH.

Kurz, K., Scannel, J. & Veeder, S., 2008. Willingness to

Pay: Making The Best Case for Institutional Value And

Return on Investment.

Li, W. & Min, W., 2001. Tuition, Private Demand and

Higher Education in China.

Pantary, E. D. & Saptutyningsih, E., 2014. Faktor-faktor

yang Mempengaruhi Willingness to Pay untuk

Perbaikan Kualitas Lingkungan Kebun Raya dan

Kebun Binatang Gembira Loka Yogyakarta:

Pendekatan Travel Cost dan Contingen Valuation

Method.

Rosyadi, I., S. & Hoetoro, A., 2016. Willingness to Pay

Rumah Tangga Dalam Membayar Biaya Pendidikan

Menengah Unggulan di Kota Malang. Jurnal Ekonomi

dan Studi Pembangunan, pp. 153-167.

Determinants of Willingness-to-Pay for Tuition Fee of a Private Technical Higher Education Institution in Indonesia

423