Automatic Textbook Billing

After decades of steadily increasing textbook costs that added to the financial burden of a college education, textbook price increases slowed starting in 2017. The reasons for this slowdown likely include competition from used books, sharing of online resources by students, and the availability of free open educational resources.

Amid stagnant student spending on textbooks and growing competition from open educational resources, publishers have turned to automatic textbook billing, in which students are charged for textbooks (often digital) and other online course materials on their tuition bills, unless they opt out. Contracts signed by colleges and universities with not only publishers, but also bookstores and digital platform operators that help provide materials to students, set the conditions and prices under which students are automatically charged.

While supporters of automatic textbook billing, also known as “inclusive access” and by various brand names, argue that the arrangement can provide cost savings and more convenient access to course materials for students, a review of contracts between schools, bookstores and publishers shows that the system may also keep students locked into an uncompetitive textbook market and may limit the spread of free open educational resources. Moreover, the claimed savings of automatic textbook billing are difficult to quantify.

To update our 2020 analysis of digital textbook billing practices and costs, we reviewed 171 contracts at 92 two- and four-year public colleges and universities or consortiums of public higher education institutions collected by SPARC, a nonprofit organization that supports open and equitable systems for education and research. This analysis includes more schools than our previous report, and includes a more detailed look at contracts with third-party bookstore operators. This review supports the previous finding that many automatic textbook billing practices may not be in students’ best financial interests.

Specifically, we find:

1. Savings in contracts with publishers, third-party bookstore operators and digital platforms are difficult to evaluate, and some contracts may provide no savings.
2. Many contracts with publishers require that a very high percentage of students participate in automatic billing programs or the school risks losing promised discounts. This may discourage schools from promoting used or rental textbooks that might save money for students or from making reasonable efforts to ensure students can opt out.
3. Most contracts between bookstores and schools include commissions and incentive payments from bookstores to the college or university. These payments – often based, in part, on sales through the automatic textbook billing program – may discourage schools from supporting the development and adoption of free open educational resources that would save money for students and build a more competitive textbook market.

Finding #1: In many contracts, savings are difficult to evaluate. A key selling point of automatic textbook billing programs is that they will reduce costs for students. We found unclear savings in contracts between schools and publishers, third-party bookstore operators and digital platform operators:

• More than half of all the contracts between schools and publishers include a provision for a percentage reduction off a base price. While these price cuts are often listed at 20% to 25%, there is no reasonably transparent way to know the nondiscounted prices from which savings are calculated.
• At some schools, a third-party operated bookstore manages the automatic textbook billing program. Of the contracts between schools and third-party bookstore operators that include pricing information related to automatic billing, we found no indication of the level of savings. These contracts place a limit on the markup the bookstore can apply to the price it pays the publisher. The actual price of the textbooks is based on a separate contract between the publisher and the school or bookstore, to which we did not have access.
• Fourteen contracts between schools and third-party bookstore operators list automatic textbook billing rates in terms of a price per credit hour ranging from $19.87 to $26 per credit hour. For a student taking a full course load, this means a cost of $596 to $780 per year.
• Savings were unclear in many of the 45 contracts between schools and digital platform operators, which provide students with online access to textbooks and homework and charge a fee in addition to what students pay to publishers. Some RedShelf contracts that we reviewed, for example, stipulate that the school will pay RedShelf 5% to 10% for each resource purchased from a publisher and accessed through RedShelf. In this case, potential savings are contingent upon the discount that the school negotiates with each publisher, and we did not have access to that information.

Finding #2: High participation quotas for automatic billing programs may discourage schools from promoting used or rental textbooks that might be less expensive for students, or from making reasonable efforts to ensure students can opt out. Under contracts with participation quotas, if too few students purchase their course materials through the automatic textbook billing program, the publisher may increase the price of course materials the next semester or school year by revoking discounts negotiated in the contract or canceling the contract.

• More than 40% of the contracts between publishers and institutions include a participation quota. For example, many require 85% to 90% of students in classes that use the automatic textbook billing program to buy their materials through the program.

Finding #3: Commission and incentive payments from bookstores to colleges and universities may discourage schools from supporting the development and adoption of free open educational resources. Many campuses outsource bookstore operations to a third party that often pays a commission based on sales. When a school implements an automatic textbook billing program, it effectively guarantees the bookstore operator an increase in sales and therefore an increase in the commission to be paid to the institution – creating a potential conflict between students’ and the institution’s financial best interests.

Of the bookstore operating contracts that include provisions for automatic textbook billing programs, almost all include revenue-sharing provisions between the bookstore and the school. In other words, the school bills students for textbooks, pays the bookstore and then receives a portion of that money back.

• In 90% of the bookstore operating contracts for which we could see the details about commission payments, the school received a commission payment based on sales of automatic textbook billing products.
• Only four bookstore operating contracts paid no commission on these materials. We could not determine commission payment rates for nine contracts.
• The commission rate for digital materials and automatic billing course materials was 7% or higher in more than two-thirds of the contracts for which we could see commission payment information.

Policymakers and campus leaders should act to protect students’ financial interests and allow for choice in the textbook market.

• Campus administrators should ensure that the pricing structure of automatic textbook billing arrangements provides savings for students. The original price of the assigned material and the discount off the publisher retail price should be easy for school administrators and others to assess.
• Campus administrators should reject provisions that restrict their school’s ability to provide alternative course material purchasing options or that punish the school if too few students participate in automatic billing.
• Campus faculty should explore the use of open educational resources to replace restrictive digital materials that limit creation of a more competitive textbook market with long-term benefits for students.

The U.S. Department of Education should require automatic textbook billing programs to operate on an opt-in basis. Students should be asked whether they consent to participate in automatic textbook billing before they are billed.