Basically yes, you are paying to subsidize the extra costs for the empty legs. They add those extra legs in order to create more flying time for the students. You receive credit hours for completing it and the university charges the same fee for everyone. When I was there some students lucked out and flew 70+ hours. Some weren't so lucky and only flew around 30. There were usually around 6 in the course and they tried to split the flying so everyone would receive around 50 hours, but it didn't always work out. I'm not sure how the program is run now.

I do agree that a pay as you go system would be more fair for the students and I'm sure the school is making some kind of profit off this course. Like I said, for me it turned out to be cheaper than renting and I got some college credit for it.