Textbook Economics

I had not noticed this before, but apparently August is college textbook season. I guess that makes sense. School will start up in a month and college students are widely known for not leaving things to the last minute. Both SmartMoney and The New York Times’ Bucks blog came out with items on how to save on textbooks in the last 48 hours.Grads Kit

My first reaction to the focus on textbook costs is that it is misplaced. College is an expensive endeavor, and the price of textbooks does not help any, but let’s get real. It’s like worrying about the low gas mileage on a Ferrari. Double what you spend on books or eliminate it entirely and you’ll still graduate with essentially the same heap of debt.

Alas, this is yet another triumph of psychology over math. Textbooks, unlike tuition, are usually not financed, so the expenditure is more noticeable. Money not spent of books can be spent on Pizza. Further, my unscientific guess is that texts are more likely to be paid for out of the pocket of students, rather than by mom and dad.

Textbooks are also an area of yet more unnecessary federal regulation. A law passed in the waning days of the Bush administration mandates that, starting this summer: a) Publishers must tell professors what they will charge students for the books b) Publishers can no longer bundle together software and other items, but must sell them separately and c) Colleges will be required to provide lists of required texts at registration time.

My thoughts are: a) Professors only care about the price if they wrote the book. b) Now only one student per campus will need to buy the software, the others will just copy. c) More good news for the many college kids fond of planning ahead.

The SmartMoney article is actually entitled “Should You Rent Your Textbooks?” Apparently, the latest craze on campus is to rent the things.  SmartMoney more or less answers the question positively.

Going by the book for college textbook savings no longer requires buying the book. Students facing a hefty annual bill for books can save an average 30% to 50% by renting that required reading.

It is not exactly clear where the 30%-50% figure comes from, but from reading the rest of the piece I get the impression they mean that the per-semester rental cost is that much lower than the purchase price. If that were the right way to evaluate these things then nobody would ever buy a house.

The basic calculus for comparing renting to owning a textbook is simple. You compare the cost of renting to the net cost of buying the book and then selling it after a semester. (The math is a little more involved for houses and cars.) So you need to know what it will cost to rent and buy and what you could get for a nice used copy in a few months.

A key point is that the purchase price to plug into the calculation is not the price for a new book. Neither SmartMoney nor the Times makes this clear, but I am inferring that what you rent is a book that has likely been rented to others before you.

And, of course, neither article cites any kind of broad pricing information, such as that on average used texts cost X% of new, or that you can sell them for Y% of the used price. So, like the articles, I will have to resort to providing an anecdotal example rather than a general statement.

A website mentioned but not linked to by SmartMoney, called eCampus.com, will rent a copy of Greg Mankiw’s Principles of Economics for $100.06. They will sell you a used copy for $158.82. And they will buy it back from you for $65 cash or $78 in store credit. $158.82 – $65 (or $78) = $93.82 (or $80.82). That’s less than $100.06.

So renting is a bit more expensive than buying and selling used. At least for this book and this website, both of which I selected arbitrarily. I have a feeling that you could do better on both the buy and sell prices if you shopped around.

Bigger picture, how could renting possibly be meaningfully cheaper than buying and selling used? The renting out is done, after all, by the same outfits that do the used book selling and buying. Why would they rent if they could buy and sell for more?

That sounds like just the sort of very basic economics lesson college students should be learning. I think it is in Mankiw’s book somewhere.

[Photo – Kit]

23 Comments

  • By Chuck, August 4, 2010 @ 12:54 pm

    However, renting a book does allow you to hedge against the possibility that book stores will not buy your book back at all due to the release of a newer version of the same textbook. When I was in school a few years ago, this occurred so often as to make a decent case for renting books (at least conceptually; I haven’t run any numbers).

  • By Adam, August 4, 2010 @ 1:02 pm

    Chuck beat me to it…unless you are selling futures when you first buy your book, your actual cost is $158 – your expected sell value, where the probability that your book is worthless is non-zero.

  • By Neil, August 4, 2010 @ 1:15 pm

    Renting moves risk from the student (small, undiversified book portfolio) to the renter (large and diverse book collection). The resale value at the end of the semester is not the same as it is now. If used copies are available this semester, odds are good that a new edition will come out next semester, making your book worthless.

    However, there is one other aspect to the calculation – odds of referring to the book after completing the class. It’s been my experience that job-related texts (law and accounting in my case) are useful things to own permanently. But some textbooks turn out to be utterly useless (even during the class).

    On the whole, students care about the cost of textbooks because its one of the few school-related costs which they can control. And saving $100/semester on textbooks on textbooks may meaningfully change a student’s lifestyle while they’re in school. The mountain of debt is still there, but liquidity is tight enough for many students that the little things mean a lot.

  • By Frank Curmudgeon, August 4, 2010 @ 1:22 pm

    Futures markets for used textbooks? I like it. Think of all the additional lessons the kids will learn.

    True, I did not consider the volatility of the sell price at the end of the semester. And just to anticipate the next comment, I did not factor in the cost of capital for the student during the semester.

    All I meant to do was lay out how a reasonable person might think about buy vs. rent, something the article that asked “Should You Rent Your Textbooks?” failed to do.

  • By Adam, August 4, 2010 @ 1:38 pm

    Of course, it all becomes moot once you realize that the large majority of your books are available in the campus library. It took me two years of learnin’ to figure that one out.

  • By Steve, August 4, 2010 @ 2:56 pm

    This contradicts one of your previous posts, about how people will drive across town to save $100 on an iPhone but won’t drive across town to save $100 on a car. Money is money. If you can save $100 a semester on text books, why wouldn’t you?

    In other news… maybe it depends on the field, but neither I nor my wife has ever used one of our textbooks once we were out in the professional world. We both still have a stack of them on our book shelf though, waiting for that fateful moment when some bit of information isn’t available easier from a different source.

  • By jb, August 4, 2010 @ 3:04 pm

    Completely beside the point of the post, I wish now I hadn’t sold back all my textbooks due to a long running streak of extreme poverty during college.

    As a mechanical engineer my textbooks would have made a solid reference to have on the shelf.

  • By BostonSteve, August 4, 2010 @ 3:33 pm

    Actually school libraries are not allowed to lend out current textbooks.

    Many teachers are now listing articles for their classes online on such sites as blackboard or using the school libraries reserve department, so that students don’t have to buy multiple expensive books.

    I agree that many students like to own the books in their main topic of study, but if you’re an economics major you do not want to own a $ 125.00 English lit book….

    As for buying and selling used, most students do that already on amazon, half.com, etc. However many schools use class specific books or packets and you cannot find them used.

    As for used book values….my wife bought $ 900.00 of nursing books for her RN classes a couple of years ago. At the end of the last semester I went to sell the books to the used book sellers on campus. I was offered a total of $ 2.00 for one book, the others had already had new editions come out and so the “old” ones were valueless……

  • By Adam, August 4, 2010 @ 4:32 pm

    @BostonSteve

    Textbooks that can’t be lent out are still often available on reserve in the library to be used as necessary…I do this often so I’m not sure what you’re talking about. Which is also why I said “available.”

    Moreover, it depends on your field: take a history, english, poli sci class, and your bound to have required readings from books that aren’t textbooks per se and can be found (and lent) from your library.

  • By Craig, August 5, 2010 @ 12:57 am

    Frank contradicts himself? Very well: he contradicts himself. Frank is vast; he contains multitudes. And a foolish consistency is the hobgoblin of little minds.

    I photocopied most of my textbooks at the office and returned them, and I’m not even slightly ashamed of this. Bloodsuckers. If I kept a textbook, it was generally because I thought I’d want it on my bookshelves twenty years later. Gleitman’s Psychology, Brook’s The Mythical Man-Month, Kernighan and Ritchie’s The C Programming Language, that sort of thing. And there they are, to this very day.

  • By Aaron, August 20, 2010 @ 8:55 pm

    A far better option than buying or renting the textbooks in the college bookstore is to punch the ISBNs into google along with the phrase, “international english version.”

    Textbook publishers sell the same book (generally in soft cover), with the same page numbers outside of N. America for about half what the hardback version costs here. Even with international shipping, I make out like a bandit.

    Textbook companies have tried, and failed, to keep international versions of their books from being sold in the US, so you know it is a good deal. :)

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