A New Model for a New Reality

St. John's College gambled its finances and its reputation when it cut tuition and turned to donors to replace lost revenue. Applications shot up, as did donations. Can this new financial model be the answer for making college more affordable?

October 28, 2019
 
St. John's College

St. John's College administrators insisted they were going against the grain last year when they announced that tuition was being reduced from $52,000 to $35,000.

The leaders of the private liberal arts college contended they were different from other institutions embracing tuition resets and being criticized for taking part in what some consider a misleading pricing gimmick. St. John’s would make up for the loss of tuition revenue not by increasing enrollment or reducing financial aid, but by using a new financial model based on raising more donor dollars -- $300 million more.

Just one year later, St. John’s leaders say they’re already seeing indicators that their big bet may be paying off. A record 1,414 students applied for admission for this year’s freshman class, the first to enroll under the new pricing plan.

The college, which has campuses in Annapolis, Md., and Santa Fe, N.M., has raised $205 million in commitments toward the $300 million goal. More than $1 million came from gifts under $5,000, a first for the institution. The support will help the college “maintain an affordable tuition price and allocate significant resources to support students with real financial need,” according to the fundraising campaign.

Ben Baum, St. John’s vice president of enrollment, attributed the increased interest in the college in part to the new tuition pricing.

“I think it’s a variety of things,” he said, “but a key piece of it is our new financial model. We have some information, mostly anecdotal, about students who were drawn to enroll because of the lowered tuition. We’re looking to see how it sustains itself over time and if there are patterns to follow.”

Baum said publicity about the new pricing plan also helped spread word about the college.

“We heard from students who didn’t know about St. John’s until we made this change in tuition,” he said. “That clearly was compelling to them. We devoted resources to make sure people knew about the new model and lowered tuition, and we got a lot of press about it.”

St. John's is the third-oldest college in the country and a unique and respected institution with small classes, no-frills campuses and a curriculum focused exclusively on the so-called Great Books. The college is promoting the new pricing initiative as an alignment of its values “of offering an honest education at an honest price” and outlines the reasoning behind it in detail on its fundraising campaign website.

“I think this is a game changer,” Bill Hall, founder and president of Applied Policy Research Inc., an enrollment and pricing advising firm, said of the funding framework. “They’re not just talking; St. John’s is really shifting the financial burden on families.”

Hall said a lack of transparency in the true costs of college has long frustrated parents trying to pay for their children’s college education.

“Transparency has been the theme I’ve heard over and over again,” he said. “Families are asking what is the real price of going to college. St. John’s is saying, ‘let’s get that down to something more transparent.’”

Hall said other colleges and universities that have tried to address this issue have failed for various reasons. Some cut tuition and then "overcorrected" on financial aid and lost yield potential, he said. Others "undercorrected" on financial aid and lost aggregate revenue.

“But St. John’s appears to have kept their financial aid strong and shifted to endowment backing with the objective of achieving enrollment goals and socioeconomic diversity.”

Freeing Minds, Lowering Costs

The college accepted 880 of the total students that applied for admission; 238 enrolled. Although the new freshman class looks similar to last year’s class -- 47 percent are women, 25 percent are the first in their families to attend college, 28 percent are student of color, 13 percent are international students and 13 percent are children of alumni -- they’re paying significantly lower tuition.

The fundraising campaign -- called Freeing Minds: A Campaign for St. John’s College -- which was officially launched in September 2018 is the cornerstone of the plan to considerably reduce “one of the most significant barriers to admissions” at the college and other similarly priced institutions.

Before the tuition cut, the actual cost of attending St. John’s was about $60,000 per year, including housing and other expenses.

“This makes St. John’s one of the most financially inaccessible colleges among its peer institutions,” a statement on the website explains. “Notably, 53 percent of the students who were admitted to St. John’s in 2017 but chose not to enroll attributed their negative decision to ‘cost’ and ‘financial aid.’”

The statement also notes that the 53 percent figure doesn’t account for students who chose not to apply because of the steep sticker price.

“Alumni tell us that St. John’s is unaffordable, that they cannot send their children to St. John’s, and that they themselves would not be able to attend St. John’s today based on the current cost of tuition,” it says. “And they question our complicity in a national social failing wherein a college education is no longer seen as accessible and colleges no longer serve as ladders leading to social mobility.”

Fourteen more students enrolled at St. John's this year than last year, representing a 4 percent increase across the two campuses, which have a combined total enrollment of 817.

“For us, that’s a pretty substantial increase,” Baum said.

Twenty-five percent of the freshmen that enrolled at St. John's were eligible for federal financial aid compared to 23 percent last year, and 13 percent were first-generation college students compared to 16 percent last year, but the college’s net tuition revenue increased slightly.

“We’ve drawn a larger group of students with more capacity to pay even if they’re receiving financial aid,” Baum said. “Ninety percent of our students receive financial aid.”

Starting a Trend

It’s not just potential students, or parents that would be footing the bill, who have taken note of the changes at St. John’s. Representatives of other colleges have reached out to various St. John’s administrators, as well as the presidents of the two campuses, seeking information about replicating the institution’s financial model.

“I have had conversations with five other colleges and one boarding school about the dynamics of a tuition reduction and how it has worked out for us, and we have helped counsel them on our experiences and whether it might be appropriate for them,” Pano Kanelos, president of the Maryland campus, said in an email. “When people ask me if they should reduce their tuition, I tell them if it's part of a broader strategy that intersects with other strategic initiatives for the school, it can be an accelerant and help pave the way for other outcomes.”

Mark Roosevelt, the collegewide president and president of the Santa Fe campus, said he has been talking over the last few months with the presidents of two liberal arts colleges considering tuition reductions.

“I shared how we made our decision and that we faced little opposition but some skepticism at first, but I always say that every school’s situation is different,” he said in an email.

Phelosha Collaros, the college’s vice president of development and alumni relations, joked that curiosity and a “little bit of jealousy” also drove the inquiries.

“People are watching us, and they’re like, ‘How did you guys pull this off?’” she said, laughing.

Baum said he has heard from at least three other vice presidents of admissions at other colleges, and even from high school guidance counselors who are helping students apply to colleges and the presidents of private high schools concerned about the affordability of their schools.

“People are very curious and concerned at a time of underenrollment,” Baum said. “They’re calling us and asking how things are going and whether we can serve as a model for them.”

Baum said the college worked with Whiteboard Higher Education, an enrollment management consulting firm, on shaping the institution’s financial aid policies and developing the new financial model.

“When we made this decision, they helped model what the consequences would be and worked very closely with us throughout this whole process,” he said.

The outcome so far is “actually very close to what they modeled and probably a little bit better,” Baum said. “When you lower tuition, you are giving up revenue -- are you going to increase enrollment? We had to guess what applicants we might see, what the demographics of the applicant pool might be.

“What helped is a pretty sizable applicant pool, more sizable than we expected. There was expectation for loss, but we experienced gain in both head count and revenue.”

Baum said there is a palpable sense of excitement and momentum on campus about the shifts taking place. But he says St. John’s still has work to do getting the message out that the college is now a very affordable option.

“That is probably the most important fact than any of the other levers,” he said noting that discussions about the cost of college often emphasize sticker price rather than financial aid. “I think the biggest issue is people misunderstanding how this works.

“They hear sticker price and think that’s what they’re going to pay,” he said. “It’s a very complicated message, and we need to better align what people actually pay with our sticker price and the financial aid available. There’s still education that has to happen, but what we’ve done goes a long way toward having a sticker price that actually looks like what students will have to pay.”

St. John's leaders sought a lot of input before launching the new pricing plan, Collaros said. They held focus groups with donors and alumni, held private meetings with influential donors, and surveyed alumni.

Two key questions drove those conversations, she said. “What are our values, and what was the right thing to do?”

“We just heard resoundingly that the cost of education in this country was out of control and that St. John’s was part of the problem. Alumni told us of the regret they felt that they could not afford to send their kids to the college,” she said. “We already knew and were in alignment about what the problems were. What we wanted to do was find an internal solution.”

The conversations led to the development of the new tuition pricing and the case for donor support.

“It just had an immediate resonance with the concerns that were already in the community,” Collaros said. “People were enthusiastic to learn the college shared those concerns. It was not something we had to sell; it was something we had to invite people to help us with it.”

She said administrators were surprised to learn “how much in alignment we were with the community.”

“If there was any hesitancy, it was the concept of prestige pricing -- there were a few people that worried that if we lowered our price, it might say something about our quality. But the overwhelming sentiment was that St. John’s does not look affordable and the price tag was too high.”

This $300 million campaign will add $200 million to the college’s endowment, which was about $180 million as of June 2019. A portion of the money, $50 million, will be used to strengthen the college’s operating finances, and another $50 million will go to physical improvements needed on both campuses. (The campaign website emphasized that this means renovations of existing buildings and not construction of new ones.)

“In addition to significantly strengthening the operating finances of the college, a greatly expanded Annual Fund will support areas alumni want improved,” the website states. “These include creating stronger student supports in areas such as academics, mental health, and student life, and expanding our career services and professional development programs for students. We will also support tutors in their own professional and academic development.”

Baum said administrators are already considering next steps and asking the questions that will help the college move closer to its goals.

“What continued traction do we get from this? Do we stabilize going forward? Does publicity trickle down from the high school seniors who are applying to St. John’s to the juniors who will be applying next year? So far things look positive,” Baum said. “It makes me think we’re heading into another year where this financial model has real traction.”

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