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Posted at 12:41 PM ET, 01/09/2012

Is higher tuition what the public wants?

Update: I added a couple qualifications in brackets.

If you are wondering why college tuition keeps rising, let me tell you the reason: College presidents think that’s what you want.

I am exaggerating, but not by much. Choosing a college isn’t, in the end, so different from buying an outfit at the mall. The customer wants a good deal. Nothing says “good deal” like a discount.

Colleges keep raising tuition [partly] so that they can offer ever-deeper discounts to prospective students. Offering the customer a 40 percent discount on an impossibly high list price accomplishes two things. It tells the customer the product has considerable worth and that it is being offered at great value.

“Perceived value is important,” said Miriam Pride, president of Blackburn College in Illinois, speaking Friday at a meeting of the Council of Independent Colleges in Marco Island, Fla. “The dollar amount of our discounts is very valuable to our students and their families.”

I attended (and spoke at) the conference and heard Pride’s remarks at a session titled “Cutting Tuition: An Old Strategy for the New Liberal Arts College?” I will return to her shortly.

The average “discount rate” at private colleges is approaching 50 percent. That means the typical student (or, more likely, her parents) might be paying around $30,000 a year to attend a school whose sticker price, [including living expenses,] exceeds $50,000.

The structure of private college tuition and fees is increasingly progressive. At many schools, only a smidgen of students pay the full published price of attendance. Some students -- those with the greatest financial need, or the most impressive credentials, or both -- pay very little, or nothing at all. Everyone else pays some percentage of the sticker price, a figure often set on a sliding scale according to how badly the college wants the student, and how badly the student wants the college.

Other schools, particularly those with the largest endowments and the lowest admission rates, award aid solely according to need. Their students, too, seldom pay full price.

Lately, a few colleges have broken rank with this pervasive pricing strategy by lowering their tuition.

In the world of college pricing, that is a big deal. A college that lowers tuition is turning conventional wisdom on its ear. Let’s return to that two-part marketing strategy: By cutting tuition, a college risks conveying to prospective students that A) its product is not worth so much, after all, and B) it is not being offered at such a great discount. The average student might actually feel she is getting a lesser deal, even if she is paying less.

Trustees as Sewanee, The University of the South, cut tuition 10 percent last fall, reducing the total cost of attendance from $46,000 to about $41,500. President John McCardell said he did it to end the vicious cycle of escalating price and soaring discounts.

“Our discount rate was heading toward 50 percent,” he said, speaking at the Presidents Institute in Florida. The share of students who paid full price was approaching zero, and the average discount was rising every year.

“Something has to change,” he said.

McCardell traced discounting mania back to the gen­esis of college rankings - - the very mention of the term set off a round of nervous coughs around the conference room.

Rankings appeared in the 1980s and began to influence how colleges assembled their freshmen class. Colleges needed students with good grades and test scores so that their metrics would look better to the rankers. So, they began offering aid in ever-larger quantities to “students who didn’t need it,” McCardell said.

Merit aid, dispensed purely on the basis of academic currency, was almost unknown before the rankings era. Now, it is the dominant force in aid awards at many of the liberal arts colleges that make up the Council of Independent Colleges.

At the same time McCardell reduced tuition at Sewanee, he made a concerted effort to refocus aid on need, rather than merit, and a “firm commitment not to dicker with families who were looking for a better deal.”

The strategy worked. The discount rate at Sewanee has dipped below 40 percent for the first time in four years. The average student pays, in essence, a larger share of a lower tuition. Applications rose 20 percent. Visits to campus rose 60 percent.

Sewanee took the additional step of freezing tuition for returning students, a practice pioneered by George Washington University. That yielded “a degree of certainty” in how much those students can expect to pay.

Someone asked how many other presidents in the room had cut tuition. Two hands rose. In another show of hands, several presidents indicated they were considering a price reduction.

McCardell’s strategy does not always pan out.

Pride, the president of Blackburn College, told an altogether sadder story about her own experiment with tuition cutting.

Blackburn College is part of a network of seven “work colleges,” where students are required to work to offset some or all of their tuition. Some students at Blackburn are the children of those who work in a local mining industry, and the total cost of attendance was a modest $20,000 in fall 2008. Blackburn is considered a top collegiate value.

Pride reduced tuition by more than 10 percent that year and froze tuition for returning students. As a result, the school’s discount rate declined from 29 percent to about 20 percent.

The president thought the change would position Blackburn as a good value among local colleges. But she said the strategy backfired, and enrollment declined.

Students and their parents liked the idea of lower tuition. But they resented the fact that their discounts had dwindled. In the end, families seemed to prefer paying a lower share of a higher price, the same consumer mentality that might guide them at the supermarket.

“Positioning yourself as the lowest-cost alternative is a risk,” she said, “and offers very little maneuvering room.” Pride said the school plans to raise tuition in fall.

A third president offered a more upbeat account. Leaders of Muskingum University in Ohio cut tuition by 20 percent in 1995. Enrollment nearly doubled over four years, delivering the school from financial malaise. Each student paid a bit less in net tuition dollars, but the increase in enrollment more than made up for that loss, said Anne C. Steele, the president.

Since then, annual tuition at Muskingum has never risen by more than an annual 5 percent. Parents overwhelmingly supported the lower price structure in a poll, even though it meant each family would receive a correspondingly lower aid award.

College pricing is complicated stuff. “It was clear,” Steele told the audience, “that they really did not understand financial aid.”

By  |  12:41 PM ET, 01/09/2012

Categories:  Access, Admissions, Aid, Finance, Marketing, Rankings, Privates

 
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