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The past few years are not a fluke: a four-year MIT education is in high demand. From 2004 to 2010, the number of applicants to MIT’s undergraduate program has gone up 48.5 percent, from 10,549 to 15,663, and early application numbers suggest this year will reveal a further 7-8 percent increase. This is not merely a matter of students applying to more colleges — the matriculation rate of admitted students has gone up, not down, from 58.7 percent to 64.6 percent.

Most private businesses, faced with these circumstances, would expand production. But not MIT. Over this same time period, the number of students admitted to MIT has actually fallen, from 1,735 to 1,676.

Why is this the case? MIT may not share the same profit motive that most private businesses have, but it almost certainly understands that higher output means more satisfied customers and more benefit to society. If anything, MIT ought to take the task of expanding production even more zealously than a profit-focused enterprise. Frequently we are reminded of the importance our institute plays in innovation and technology development — as a socially-conscious organization, cognizant of the potential positive spillovers from a technical education, MIT should feel compelled to increase its number of students even beyond the point where private marginal costs equal private marginal benefits.

President Hockfield talks the talk — her 2008 address to the National Association of Independent Colleges and Universities is an excellent appeal to expand the U.S. college system — but she does not walk the walk. Today we see a minor effort at increasing enrollment, but this comes only at the prodding of Fariborz Maseeh. If the administration’s actions absent Mr. Maseeh’s $24 million bribe are any indication, then it is clear this institute’s leaders care more about research and the “prestige” of MIT than doing the important work of educating the next generation.

We typically hear two excuses whenever someone points out that MIT should let in more students:

First, we’re told that letting in more students would lower MIT’s standards. It stands to reason that if MIT lets in 1000 students, its 1000th pick is not going to be as attractive as its 1st pick. Let in the 1001st pick, and the average student quality will go down, and with it, the brand name of MIT.

But the truth is that MIT’s admittance process has a low signal to noise ratio. A GPA (likely inflated), an SAT score (of dubious predictive power), and a couple essays (probably half-written by a helicopter parent) are not enough to distinguish the wheat from the chaff in any meaningful way. At the margin, MIT is making a decision between an applicant with a 2070 SAT and another with a 2080 SAT. I doubt anyone is willing to bet much on the 2080 kid being smarter than the 2070.

MIT regularly wait-lists about 500 students each year. It describes these students as qualified applicants (and probably considers many more that it doesn’t wait-list to be qualified as well). If we increase enrollment, we can increase it quite a bit before worrying that we are watering down our standards.

Second, we’re told that letting in more students is too expensive. We simply do not have the resources to accept all the candidates we would like, and are forced to ration the number of seats we offer.

But this is a made-up restriction; it’s self-imposed. MIT chooses to charge students a tuition that is below the marginal cost of educating them. MIT could, if it chose to, charge students more.

Imagine for a second that MIT expanded enrollment and divided students into two groups: an incumbent group, who would have been admitted even if MIT hadn’t expanded enrollment, and a newcomer group, who would not have been admitted without the expansion. MIT offers the incumbent group all the same prices that it charges today, with all the same discounts and special treatment. But it offers the newcomer group a rate equal to their marginal cost — if it costs $60,000 per year to educate these students and retain the quality of education for the incumbent students, then that is what the newcomers pay.

Who is made worse off by expanding enrollment in this way? Not the incumbents — they get the same education at the same prices as before. Not MIT — they get what they got before out of the incumbents, and at worst break even on the newcomers, who are paying their own way. And the newcomers themselves can’t lose — if they don’t like the option of attending MIT at a higher price, they can simply go somewhere else and be no worse off than they were before they were given the option.

Of course, offering this set of prices is probably a very non-optimized way of expanding enrollment. There really is no reason why the 1000th student to be accepted into MIT should pay a very different amount than the 1001st. If MIT wants to subsidize its prices from its endowment, it would do more good spreading the love evenly across both newcomers and incumbents. But the example is illustrative of what might be called the “Pareto improvement” of expanding enrollment — there is, at minimum, a way of expanding enrollment that does no harm — so long as there are additional qualified students ready to pay the true cost of an MIT education, society is made better off by opening new seats.

It’s refreshing to see MIT widen its doors and expand the undergraduate class size by six percent. But this response is an order of magnitude less than what the observed increase in demand calls for. President Hockfield should set a goal of enrolling at least 1600 students into the class of 2020, and work from now until then on ensuring that MIT has the dorms, classrooms, and teachers to meet this ambition.