Privates Matching Public Prices

Tying tuition to public universities' prices can be a lower-risk way for private universities to compete on price. The strategy is gaining attention this year, but it turns out it has a track record.

September 10, 2018
 

This fall, the trendy pricing strategy for private universities might just be matching public universities’ tuition.

Two private universities unveiled price-matching programs over a span of five days at the end of August. First, Oglethorpe University in Atlanta announced a program under which it will match tuition sticker prices at a list of flagship universities in every state for high-achieving first-year students enrolling from those states next fall. Then Robert Morris University outside Pittsburgh said it would undercut students’ average cost of attendance at Pennsylvania’s two flagship universities by $3,000 next fall for high-scoring freshmen who had been admitted to the public institutions’ main campuses.

A pair of pricing programs does not a trend make. But the fall semester, when college and universities often announce pricing actions that will take effect for next year’s freshman class, is still young.

Even if no other colleges or universities announce a flagship matching program this year, it’s a good time to take a hard look at the idea. The recently announced programs fit into a landscape in which colleges and universities seek punchy new ways to market to students who are worried about the price of college -- but who aren’t necessarily familiar with the complex world of scholarships, unfunded aid, sticker prices and net prices in which the cost of actually attending a private college is often much lower than the prices quoted on its website.

Existing examples also indicate that price-matching efforts can attract incrementally more students while limiting the likelihood key enrollment metrics will spin out of control. A tuition-matching program has been in place at the University of Maine in Orono for several years, under which that public university offers academically qualified students who come from several other states the chance to pay the tuition and fee rates published for public flagships in their home states. Since 2008, California Lutheran University has matched the average cost of attendance at certain University of California institutions -- currently matching the average cost of attending six universities in that public system for students who were admitted to one of them.

The tuition-matching efforts represent a way for private universities to compete on price without the high-risk, potentially high-reward model of resetting tuition. Last year, a group of institutions concerned that lofty sticker prices were turning off students announced tuition resets. They slashed their tuition rates for students starting this year, cut tuition discounts by similar amounts and used the ensuing attention to try to convince more students to enroll.

That strategy sacrificed revenue from a small but valuable set of students who pay full sticker price in exchange for the prospect of attracting a larger student body. It came with risks, because full-pay students are a critical source of revenue for many small colleges and universities. Resets might be hard to walk back quickly if they prove too expensive -- how fast can a university increase tuition a year after heavily marketing a tuition reset? However, many of the colleges trying the strategies had few if any students paying full freight, meaning it was effectively a marketing move that didn't necessarily lower the cost of attendance for many students.

In contrast, newly unveiled price-matching programs are much more targeted. Only students fitting a narrow profile will qualify, and while the programs can be renewed for students enrolling under them, they would be relatively easy to discontinue for future cohorts if they don’t yield hoped-for results.

“You have a particular class of private institution -- I would call them hardworking, nonelite comprehensive privates that have to work superhard to get their inquiries and make their classes,” said Kim Reid, principal analyst at the research and advising firm Eduventures. “They’ve seen rising competition from publics. They have to go, now, head to head with publics.”

The private universities found a way to succinctly tell students they can compete on price. And they’re doing it in a way that puts them in the conversation with one of the biggest brands in any state -- a flagship public university.

“They’re taking the competition straight up, head-on,” Reid said.

Each private university with a tuition-matching program is not constructing the program in exactly the same way, though. Oglethorpe, which has 1,280 students, called its program Flagship 50 and tied tuition to sticker price at flagship public universities in each of the 50 states plus Washington, D.C. Next year, freshmen who bring a cumulative high school grade point average of at least 3.5 and minimum test scores of a 1250 combined SAT or 26 composite ACT will pay the in-state tuition rates of flagship universities in their home states.

Published tuition and fees at Oglethorpe for 2018-19 come in just short of $40,000, before financial aid. For comparison, the Flagship 50 program lists the University of Georgia's tuition and fees at $11,830, the University of Florida's at $6,380 and the University of Tennessee-Knoxville's at $13,006.

Leaders at Oglethorpe expect 70 students to qualify under the program, up from 40 who would have qualified had it been in place this fall. That should push total fall enrollment up to 1,310. Projections show tuition revenue climbing while net tuition revenue per student holds steady.

Oglethorpe’s program has an element of risk because a large increase in students from a neighboring state with a low-cost flagship could drive up its tuition discount rates. But such a change would still increase room and board revenue. Flagship 50 will also help the university compete for students from Georgia -- it draws 73 percent of its students from within the state currently.

While it’s possible to model the results of Oglethorpe’s program, it may be easier to predict the results of the Public Price Match Plus at Robert Morris. The private university in Pennsylvania, which enrolls about 4,200 undergraduates and 800 graduate students, tailored its program to focus on in-state students and ties its tuition to a single average public rate, rather than a different rate for different flagships.

Public Price Match Plus promises students who were accepted to both Robert Morris and the main campuses at Penn State University or the University of Pittsburgh that they will pay $3,000 less than the average cost of attending Pitt and Penn State.

Robert Morris’s largest student application overlaps are Pitt and Penn State, said Wendy Beckemeyer, vice president for enrollment management.

“We expect that there will be some students that may be very excited about Pitt and Penn State, but they may prefer to be in an institution that’s not quite so large,” she said. “I think it’s healthy for families to have broader conversations about cost and also about selection set than perhaps they would have had. In this region, it’s very common to think about Pitt and Penn State as your destination institutions without thinking about other institutions.”

Robert Morris doesn’t need a huge influx of students to consider the effort a success. About 20 enrolling under the program would make leaders happy, Beckemeyer said. Those students shouldn’t have a significant impact on overall net tuition levels or discount rates at Robert Morris, because the university’s net price is already close to net price at Pitt and Penn State. The students who would enroll under the price-matching program also fit a profile that would likely receive aid packages, bringing their net price close to what the program is advertising.

Net revenue calculations can be straightforward for tuition-matching programs, said Craig Goebel, a principal at Art & Science Group, a consulting firm. Both Robert Morris and Oglethorpe likely know how many students they are drawing from each state or public university and how much they are currently charging those students after all forms of financial aid.

If something unexpected does happen, the structure of the programs can be tweaked for the future, changing standardized test score requirements to limit the number of students who qualify in future cohorts, for example.

“There are fairly easy ways to adjust it moving forward without having to reset tuition or move to a different marketing message,” Goebel said. “If in year one or year two, you start to see a significant increase in students or decrease in net revenue, it’s fairly simple to alter the paradigm.”

Tuition-matching programs can grab attention in a market, but they can’t be the only way a private university is selling itself to students, said another Art & Science principal, Rick Hesel. Few students are going to believe they will have the same experience at a small private university that they would at a large public flagship, even if the price is comparable.

“This ought to go along with saying, ‘We’re doing this because we want students to have the experience at Oglethorpe,’ and define what that experience is,” Hesel said.

If the experience of other institutions trying price matching is any indication, the programs can be used to boost enrollment. But they don’t provide spike after spike.

Full flagship matches awarded by the University of Maine went to 305 students in the program’s first year, 2016. The number increased to 461 in 2017, when it added three additional states, and it is expected to be 460 in 2018. If those numbers look higher than those targeted by Oglethorpe and Robert Morris, remember that the University of Maine is a much larger public institution enrolling some 9,300 undergraduates, plus nearly 2,000 graduate students annually.

The 4,200-student Cal Lutheran provides a closer comparison to the recently announced programs at private universities. In the last 10 years, it enrolled 1,799 students under its Public Price Promise scholarships. In 2016, the scholarship was expanded to a sixth institution, UC Irvine, after previously being launched with two institutions and then expanded to students admitted to UC San Diego, UCLA, UC Santa Barbara, UC Davis and UC Berkeley. The program awards scholarships that buy down the cost of attendance at the private university to be the equivalent of attending a UC institution. It is open to freshmen, transfer students, out-of-state students and international students.

This year, 43 percent of students receiving Public Price Promise scholarships were first-generation college students. And 35 percent identified as Latinx, in line with the one-third or so of Cal Lutheran’s undergraduates identified as Hispanic or Latino in federal data.

“What we saw was a huge number of first-generation, low-income students,” said Matthew Ward, Cal Lutheran’s vice president for enrollment management and marketing. “Lots of students in the region, I think, were interested in staying closer to home and liked the idea of being at a smaller private institution, not a UCLA or UC Santa Barbara.”

About 12 to 15 percent of incoming Cal Lutheran freshman and transfer students enroll under the price-matching program in a typical year, in the range of 100 to 120 students. Students enrolling under the program post a tuition discount rate that’s higher than the student body as a whole by 10 to 12 points. But those students would otherwise fall into a group that normally receives high levels of non-need-based aid, so the variance between those students and a student with a roughly equivalent academic background who did not apply to a UC institution is only a percentage point or two, Ward said.

Universities exploring a price-matching program will want to beware that tying price to public tuition can at times be expensive. If the public institutions don’t increase tuition but costs rise at the private college offering a price match, the private college can be left eating the difference. Cal Lutheran’s program is more of a challenge in years where UC tuition is frozen than it has been in years when UC tuition rose by 30 percent.

Ward also cautioned that the price-matching promise can have a waning effect every few years. The programs can still boost enrollment, but they tend to become less effective as time goes by.

In such cases, the programs can be expanded to new institutions or changed to better target specific students, adapt to changing times or better work in specific places.

“It’s contextual,” Ward said. “When you’re in Southern California and have UCLA bordering you, it’s a much different situation than if you’re in Southern Maine.”

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