The cost of high education continues to rise, and rise, and rise — some private college are trying a new way to attract students. They’re slashing their sticker prices. Mostly, they’re just making the official price match what students pay in the end after all the financial aid and merit scholarships. But how does it actually affect the bottom line for colleges and for American students?
On the action private schools are taking in response to rising tuition costs nationwide
Anya Kamenetz: "The phenomenon we're talking about now is after decades and decades of raising prices, much faster than the rate of inflation, sometimes twice the rate of inflation. There's a small number of colleges according to this Washington Post story yesterday, 23 private colleges out of almost 1,700, that have slashed their sticker prices. And so the asking price, the opening bid in the auction if you will is going down sometimes quite significantly."
On the impetus for this move
Kamenetz: "I think that there's a number of trends that are kind of converging here. For one thing, obviously, even colleges are subject to the laws of economic gravity,so things that go up and up and up eventually do have to come down. And colleges are contending with a number of different factors right now. There's been a 9 percent decline in enrollment overall since starting in 2010. So there's just fewer students than there used to be. Part of that is demographics, part of it is employment trends. We've had a pretty strong economy — lower unemployment means fewer people looking to go back to school. In the last couple of years that's been joined by issues around international students. So there's been several year-over-year declines in international student enrollment. And that is significant especially for these private colleges, and that's because international students, they don't get federal student aid, a lot of them are not eligible for institutional aid either. They are members of a global elite that pays full price for the prestige of an American private school education. So when those students dry up that's a big loss of revenue for some colleges."
"Bottom line, most colleges, by cutting their tuition even significantly, they're not necessarily changing their revenue or their yield per student. In fact, it may be going up."Anya Kamenetz
On the impacts of tuition and other price cutting — is there an actual difference?
Kamenetz: "So across all private colleges, the discount rate is about 50 percent. There's a small percentage of students, about 1 in 10, who pay the full price, and then 90 percent of the people that get a discount, of those, in their freshman year, they're usually paying half price — that's the average. So bottom line, most colleges, by cutting their tuition even significantly, they're not necessarily changing their revenue or their yield per student. In fact, it may be going up because they may change the types of students they attract. What we're changing here then is really more about transparency in pricing. It's more about the negotiation that goes on. And if you think about the steeplechase that a freshman or that a prospective freshman and their family has to go through to get from looking at colleges, to figuring out which one they want, applying, applying for financial aid, comparing financial aid packages from one college to the next, really what this move is about is making it more transparent from the outset exactly where you might end up. Instead of forcing students to go through all those hoops."
On the story of St. John's College
Panayiotis Kanelos: "The story begins in the fall of 2017, actually, when we were having our annual meeting to discuss our tuition increase or proposed tuition increase for the following year. At that time, we were at about $52,000 a year for tuition. That's not including room and board. And we had been increasing our tuition like most colleges by approximately 3 percent, year after year, mostly just trying to keep up with the rising cost of things affiliated with the institution. But we just had one of these moments where we just asked a question, and we asked this question: We said, 'If we continue raising our tuition 3 percent a year from $52,000, where will we be in a decade? What is that gonna mean for us?' And we realized that we would be over $70,000 a year. And that was just a sobering moment for us.
"We just said, 'Is that who we are? Is that who we aspire to be? Is that thinking about how far away that tuition price is pulling from what most families make, what most families can afford?' And so we asked a follow-up question, and this began as a kind of a hypothetical. At St. John's, we really love asking questions that take us sometimes down rabbit holes but this one actually proved profitable. We said what if rather than moving in 10 years to $70,000 dollars, we moved our tuition back 10 years, back a decade, to where it was before many of the increases of the past decade had been incurred? Where would we be? What would that price point be? And it was about $35,000 dollars, half of that 70. And this just started us on a process of thinking about what that would mean for our institution. What would it mean if we moved back to $35,000 dollars? Is it sustainable? And ultimately after quite a lot of discussion, conversation, introspection, we decided to make that move."
"Really who these tuition resets are helping are those few students who pay full price at many of these colleges."Jeff Selingo
On who this really helps
Jeff Selingo: "The average tuition discount price — the average tuition discount rate is about 50 percent — so really who these tuition resets are helping are those few students who pay full price at many of these colleges, it may be a dozen or fewer students, or those students kind of paying between the average discount price and the full price. So it's mostly helping higher-income students who, in many cases, might be paying more of the full sticker price. It's not necessarily helping affordability. The other thing — and we haven't really talked about it — is it affects tuition. So many of these places are residential colleges where students live and eat on campus, and it doesn't affect the room and board. And some of these colleges are actually making a margin on room and board — in other words, they're making a profit on room and board, so it doesn't reduce that price."
Alex Schroeder adapted this interview for the web.