The End of College Tuition Pricing as We Know It?
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or the University of Illinois $20,000 iMBA [1] (at Coursera) is getting us closer to "The End of College Tuition Pricing as We Know it".
A 50% discount from a $200,000 undergraduate degree at Harvard is not.
The UIUC iMBA smells like a scam. MBA's are mostly about the networking.
Students at private colleges received an average 42 percent discount on their tuition in 2014-2015. As recently as 2010, it was 36 percent.
There is another number that is perhaps even more important for students and parents to consider. The same survey, from the national association of college financial officers, found that the average discount for first-year students is 48 percent. That gap of six percentage points between the overall rate and the discount for freshmen usually means that colleges are giving bigger grants to first-year students than everyone else.
In other words, it’s a classic bait and switch. Colleges attract students with a bigger discount and a boatload of financial aid the first year, and then once the students like the campus and want to stay to actually finish their degree, they give the students less aid for their remaining years.
The author never fully distinguishes between scholarships and financial aid. He lumps them together in a "discount" category. The two forms of cost-saving are very different and should have been addressed separately in the article.
It makes sense that merit scholarships pay our more on aggregate to freshmen rather than seniors, as some percentage will lose their scholarships due to poor grades (happened to a friend), social infractions, or some other merit scholarship-ending action. Most scholarships in my experience are real (half tuition, full tuition) rather than nominal ($25k per year).
I can't speak to financial aid, but I assume it's like any other contract where you can see the terms and conditions and amount that the college is willing to subsidize your education expenses every year, subject to certain academic and social standing requirements. Again, some percentage of students probably lose financial aid for not meeting these requirements from one year to the next. Maybe it's easier to game financial aid as tuition rises and students are offered a fixed nominal amount?
Is it fair to characterize financial aid as a bait and switch?
The college isn't subsidizing anything.
It's called price discrimination. That's what the article is partially about.
If you look at the demand curve, you see that different people are willing to pay different prices for the same service. Some people have more money, some less. Some want it more, some less.
Ideally, what a service provider wants to do is charge everyone the maximum price they're willing to pay. This maximizes their revenue at the expense of everyone else.
They blow up their tuition to ridiculous levels and then discount all the way down the demand curve to maximize intake. They discount using scholarships, financial aid, and other programs. And then they sell you the bullshit that they're helping you.
We don't tolerate this abuse from any other industry.
What about airline tickets? Some people pay more than others for the same class of seats, depending when purchased.
Elastic pricing is not the problem. The problem is the collapse of free markets in such areas as education, airline travel, etc. In the higher education area, it manifests itself with pretty much all private colleges charging $50K/year and up, regardless of their repute/ranking.
Ironically, it is usually the better known colleges who offer the best discounts (if you have high GPA/SAT, etc)
Ridiculous for some, not ridiculous for others. Some parents don't even bat an eyelash while writing the $200k check for their kid. If schools couldn't get away with charging the $200k sticker price, they wouldn't.
First degree price discrimination would be an auction system. We would see spots at Harvard, Stanford, and MIT going for tens of millions of dollars. Merit would mean money. Thankfully, we aren't at that point yet.
I agree that the system is broken and extortionate, and that a lot of students are getting much less out of a degree/attending school than what they are paying for it.
But it's what we as a society are choosing to reinforce. Public education is still seen (in most cases) as inferior to private education by parents and employers. We are not enforcing a progressive tax system to reduce inequality and generate revenues to pay for more investment in education and infrastructure. Instead we are spending on war, social security, and healthcare. We are transferring wealth away from the young and the middle class to the old and the wealthy. As a democratic country, these decisions are on all of us.
Actually, we are: http://www.forbes.com/sites/eamonnfingleton/2012/11/30/do-th... https://www.quora.com/Do-rich-people-really-pay-their-way-in...
The problem with this is that if it were too rampant it would diminish the value of the product being bought. Harvard/Stanford/MIT are valuable institutions to attend partly because seats there can't just be outright bought.
If Harvard abolished its admissions system and replaced it with a $10,000,000 price tag per seat, the school would lose the majority of its prestige rather quickly, the quality of the student base would deteriorate even more rapidly, and it wouldn't be too long before even wealthy parents wouldn't be willing to pay that price tag.
The current strategy is probably reasonably close to the optimal long-term profit-maximizing strategy with the property that the school's prestige and reputation are maintained (or even enhanced) each year.
There is some behind-closed-doors deal making going on, but that has always happened and will always happen.
Thus the pricing strategy masks out potentially solid students and that is a bad thing both short and long term for the University and for the country.
I'm pretty sure MIT will give extra weight to an alum's child, but that's only after he or she passes the "can they do the work" cut (as of some years ago but in this century, 13,000 applied, 3,000 made that cut for a class of 1100). They might not be up for a physics degree, but there's plenty of other tasty STEM majors. The one example I knew who followed that pattern and become a materialist (Materials Science and Engineering); she struggled a bit, but it wasn't that hard.
Similarly, every black I met or worked with was entirely qualified to be there.
There is in fact a limited, semi-open, semi-public admissions auction system at many elite schools, most famously Harvard [0-1] and Brown [2], though their peer institutions behave similarly in practice. The prices are probably an order of magnitude higher than the ones mentioned elsewhere in this thread, more on the scale of endowing large construction projects than what's been mentioned here.
[0] http://www.thecrimson.com/article/2002/6/6/the-back-door-to-...
[1] http://www.ivygateblog.com/2006/09/could-it-possibly-be-true...
This is a money laundering scheme. Many if not most benefactors of universities do not trust the administration to spend their money wisely, and/or they want to endow a particular part of it (e.g. the Chemistry Department for me). ADDED: this search will bring up a lot about the best known case of a university violating a donor's intent: https://www.google.com/search?q=woodrow+wilson+school+prince...
By washing all sorts of money through tuition, they get a substantial cash flow they can spend any way they want.
Yes it is. Absolutely in my opinion. My theory is that the ridiculously rising cost of tuition is directly correlated to financial aid. Govt or even private lenders pump in more money as aid, colleges take advantage of that by raising tuition further.
If only Colleges were told that there is not going to be more financial aid available, I wonder if that would factor in the tuition cost for next year and onward. Just wonder.
However, in the decades since then, states have largely defunded higher education. Schools have been directly forced to make up the difference through raising tuition, which can often only be paid for through loans.
[0]http://www.npr.org/2014/03/18/290868013/how-the-cost-of-coll...
That is my point exactly. I am not referring to only Govt. aid but also private loans. The entire idea that private loan is available makes it easy for these institutions to raise prices. Again, this is my opinion. I could be wrong. But imagine this. An institution like Phoenix etc. are charging high fees just because loans are available to students. They tout the availability of loans in fact.
My point overall is that having a really high fees and then mentioning "loans available" may be causing some of the rising tuition. May be.
I understand the political inclinations behind denying aid is the problem, but if it isn't "student aid has gotten too easy so of course the colleges have raised their prices", it's probably something even worse for the universities politically. That's more or less a morally neutral explanation, a simple and plausible story of incentives gone wrong.
Tuition inflation has been skyrocketing, at much more than the general inflation rate, since at least the beginning of the '80s.
No, it also dates back to the '80s. Partly this was political: right-wing state governments wanted to crush those damned hippies. It was also demographic: states had major obligations to fund, like tax-cuts for Baby Boomers and pensions for state worker, so public higher-ed got the cut.
Completely insane.
And to answer the headline's question. No. No this is not the end of tuition pricing as we know it. It's just a different sales pitch and marketing strategy.
In your first year, they give you "one month free" and then amortize it over the life of the lease. In the second year, you don't get on the one month and there's an increase, so it becomes a huge increase all at once.
For example (made up numbers):
Year 1: $1k/month on a 12 month lease, 1 month free amortized -> $917/month
Year 2: Year 1 + 5% -> $1050/month
Removing the discount and increasing the base is a double whammy. And - like in the article - the switching costs (economic and emotional) are so high that many people will go along with it.
The last week of the month, I got a call from the old landlords. They said they hadn't received a signed copy of their lease renewal. I asked why they thought I would accept such a huge increase in rent. They said they had just renovated the place before I moved in. I laughed at them, told them I'd give the keys back on the last day of my current lease, so please be prepared to return my security deposit, and hung up.
I'd like to imagine that the apartment went vacant for a few months after that, and they cried into their pillows every night because of it, but that wasn't very likely. The apartment market had a pretty rapid turnover back then, so it was probably only empty a few weeks.
In my view, that huge price hike was a clear GTFO/FOAD signal. But the university undergraduate education market is much less competitive than the apartment rental markets, and the cost to going to a competitor much higher, so it's no surprise that they can get away with higher and more frequent price hikes.
What does "real merit" mean? I can't think of any definition that doesn't include trying to bring in more smart students...
And schools are doing that sort of thing entirely because the US News and World Report rankings take into account average LSAT scores. Its just pure gamesmanship. The school doesn't really benefit from having an extra 172 scorer verse a 169. But they'll throw 150k in scholarships at the later.
A full course load is about 12 hours total spent in class per week, for 16 weeks. Let's bump this number up to 20 hours, to account for overhead (homework grading, office hours, course design, etc). And given a class size of 25 students, that means 1 instructor can handle 50 full time students. If that instructor gets paid 100K a year, that works out to be 2K of instructor time per student. So what other overhead is involved that brings the cost of college up to 20 - 50K per year? You have the building, administration, potentially lab equipment, and teaching supplies (chalk/markers/copy paper/etc). But I still can't see that bumping the price up that much. Is the per-student share of the building cost really that high? Or are there 10 administrative staff for every one instructor?
Now its 55k
Also, class time is split about 60/40 between professors and graduate (sometimes undergraduate) student instructors. Class size for the student instructors is 25-30 and class size for the professors is anywhere from 100-1400, depending on the class. Some upper div classes are notably smaller, depending on the department. It's my understanding that this setup is pretty common at large public universities.
school costs are not high because you cannot discharge your loans, they are high because colleges know you will try to get the loans and its not the schools responsibility to deliver affordable classes.
simply make it part of federal law, if you accept any federal funds you will adopt the a federally prescribed costs structure for an education. if you want your students to have access to federal funds the same rules also apply
Would it? I was under the impression that private student loan lending collapsed shortly after the 2009 crash and hadn't really recovered, though its risen slightly since the crash. If private student loans were the main driver of tuition, it should have collapsed after the 2009 crash as well.
I still think that it would be wise to structure the marketplace such that there is even less private lending. I think this ultimately gives the Federal government more policy levers that can be used to push back on tuition.
I do agree with the original piece that the peek-a-boo games that college's play with their financial aid packages are silly. The pricing should be clear and simple, discounts for low-income students should be stated up front. Today's "Let's make a deal" games are just dumb...
[1] http://trends.collegeboard.org/student-aid/figures-tables/to...
It used to be that goods and services would compete on price and quality. If someone could offer the same quality for less, buyers would go there. It was self regulating to some point: predation was limited by the system.
Now, however, there are dozens of markets where this is no longer true. There are geographically region-locked prices: pharmaceuticals, textbooks, dvd's, etc. There are opaque and arbitrary prices like healthcare, software (hello oracle), and per the article, airlines and tuition.
Some of this is due to artificial protections like patents and copyrights. But not all of it. What's up?
It may not be realistic for private individuals to assess the quality of their healthcare or tuition, even after the event. See also VW: it's easy to lie about details which affect the quality.
(2) Increasing perfection of price discrimination: market participants charging different prices to different customers. Airlines can do this because of the ID requirements and non-resaleable tickets. Private healthcare can do this too.
(3) Switching costs: Oracle win at lockin. Big problem in the software world, but also for tuition (incomplete courses not portable).
(4) Regulatory capture & paid lobbying: applies to pharmaceuticals, textbooks, DVDs, healthcare.
In the context of the college discussion, it's largely informational and regulatory. How can you judge the value of a huge intangible such as a college education? How is the government structuring loans and the public school system to provide alternatives to the price of education on the free market?
The free market model assumes a variety of unrealistic conditions between buyers and sellers. The idea is that reality is close enough that the models still work. When the models don't work, instead of questioning the wisdom of the soothsayers and keepers of the economy, the economy itself is blamed.
> It used to be that goods and services would compete on price and quality. If someone could offer the same quality for less, buyers would go there. It was self regulating to some point: predation was limited by the system
I don't think this was ever true. So many cultures across all time periods have complained about charlatans and cheats, robber barons and the greedy rich. A lot of people think regulations exist because people are sour and can't handle being losers in the free market, or something. If you trust peoples' sense of fairness then the more likely scenario is that people have been getting cheated for a long time.
Why are regulations so ineffective? Intelligence is like water. If it flows towards some goal, it will flow around all obstacles to get there. Regulations are like trying to dam a river by putting a giant concrete block in the middle of it. It could work, but only if you're far, far smarter than the collective human intelligence you're trying to control. No one is, though. So every generation sees a new set of regulations, a new form of economic institutions, and a new nervous illusion of stability that will eventually give way to crisis and a new ideology of regulations and economic institutions.
It should come as no surprise that an adversarial system whose purpose is to allocate economic and political power leads to such abusive behavior.
It's even further complicated by the definition of "best". What is any given student optimizing for: Lifetime earnings? Some vague notion of happiness? Culturally fitting in? Chances of getting an elite job position eventually? Not all of these are tied to economics and prices.
Yet the only evidence offered is that tuition discounting has gotten greater recently.
It's ... kind of interesting how the article manages to spin "X is going higher" as evidence for "X is going to go way down".
Betteridge's law of headlines is an adage that states: "Any headline that ends in a question mark can be answered by the word no." It is named after Ian Betteridge, a British technology journalist,[1][2] although the principle is much older.