Four Big Problems with the Published Price of Colleges

Sensitivity to the published price of colleges and universities is becoming a major marketplace force—and one that could soon move beyond the capability of admissions and enrollment professionals to manage, let alone virtually anyone in senior higher education leadership. Here are four reasons the high tuition/high discount model that predominates in higher education has become so problematic:

1. Inexorably rising published prices enable political and media sensationalism. We all know how news stories have been covering tuition prices: by citing sticker price. As a New York Times columnist recently pointed out in “How the Government Exaggerates the Cost of College,” because the stories of tuition and fees more than doubling since 1992 use published prices instead of net prices, it masks the reality that actual tuition paid at private colleges has decreased from its pre-recession amount.

2. Too many people never get beyond the sticker shock of the published price. Last month’s release of Sallie Mae’s “How America Pays for College 2014” showed that 44% of students and parents eliminated colleges based on cost before even researching them. And a recent Longmire and Company study revealed that approximately 60% of students and parents are unaware that private colleges will discount their published tuition. If it seems hard to believe that literally most people don’t know about tuition discounting, consider that three of every 10 students in the Sallie Mae report were first-generation. And don’t forget that even among those whose parents did attend college, probably only about 25% of the parents, at best, attended a private college or university.

3. The lack of transparency in discounting the published price affects willingness to pay. Among those families who are sophisticated about tuition discounting, there’s the feeling that they could be getting more merit aid. It becomes a system for them to beat: “How to Win the College Scholarship Game,” as The Wall Street Journal put it this month. But families have such imperfect information for comparison purposes (as the Chronicle pointed out in “Comparing Colleges’ Net Prices is Tricky, in More Ways Than One” about the different reporting standards for financial aid awards) that it “leads to a very imperfect market where suboptimal choices are made,” as a Forbes contributor argues in “College Discounting Does Students a Disservice.”

4. The published price sets the standard for expectations of what will be delivered for it. A student whose tuition is discounted to $15,000 will still express something like this upon encountering a facility with deferred maintenance: “I’m paying for a $40,000-a-year school and I have to live in this dump of a dorm room?” The higher a college’s sticker price, the more highly critiqued its value and worth will be.

Another complicating factor is the growing aversion to student loan debt. The latest Sallie Mae report showed that the percentage of college costs for 2013-14 that was covered by borrowing was at its lowest level in five years. And the most recent analysis of data from the Gallup-Purdue Index, “Student Debt Linked to Worse Health and Less Wealth,” is now generating mainstream media headlines like “Student Debt Hurts More Than Your Wallet” (U.S. News), “What We Mean When We Say Student Debt Is Bad” (New York Times), and “Student Loan Debt Can Lead to Poorer Health, Middle-Age Malaise” (NBC News). As student loans gain such a bad reputation, the price variable in a college’s value proposition comes under even more scrutiny.

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In 2013-14, half of all full-time undergraduates at public and private nonprofit four-year colleges and universities combined attended institutions charging published tuition and fees of $11,093 or less, according to College Board. Yet that median price point for the private institutions alone almost tripled to $31,290. As a sector, private colleges and universities definitely need to address pre-conceived ideas about published price.

And individually, your college may wish to consider solutions that are being pursued at other institutions. You could lock in a tuition rate for all four years for each incoming class or freeze tuition increases for those who maintain a certain GPA. You could conduct price sensitivity research to assess perceptions of your institution’s value and worth at different price points. You could even consider the more foundational step of resetting your institution’s published price for a low tuition/low discount model. In our work with a variety of clients, we’ve determined that this latter possible solution isn’t right for every college. Data must inform decisions. But when the proper conditions warrant a tuition reset and it is executed strategically, indications are that it can be very successful.

For example, our client Concordia University, St. Paul is matriculating its second class to enter under the terms of its tuition reset. Its first class balanced the ledger and brought gains in both enrollment numbers and academic profile, and this fall’s class built on that momentum, coming in at the desired discount rate with even further enrollment and profile gains. And our client Converse College in South Carolina, which is now welcoming its first class using the low tuition/low discount model, likewise is experiencing enrollment increases, in both first-year and transfer students. Just as importantly, the retention rate has improved at both colleges.

Most people believe in the value of a private college degree, but the price of that investment creates a serious quandary for them. There are a number of variables that enter into the equation for assessing value and worth. But the one that is getting even more attention these days is price. If too many people in the marketplace are using published prices rather than net prices in assessing value, fewer students and families will have the willingness to consider, let alone select, a private college or university. They will then miss out on a priceless experience that is a worthwhile investment—and missing out on these students is becoming a very expensive proposition for private institutions.

 

In the News

Inside Higher Ed reported on a new LinkedIn tool, the Field of Study Explorer, that lets users enter a major and see which companies the people on LinkedIn who had that major now work for—and where they went to college. Since a user can also search by college, the tool effectively becomes a results tracker. As Inside Higher Ed put it, LinkedIn “has long asked users for their education history and employment information—unintentionally developing a career-outcomes database in the process.”

 

Did You Know?

63% of parents with children under age 18 are worried they will not have enough money for one or more of their children to go to college.

Source: Harris Poll