The challenges facing small, tuition-driven colleges have been in the news recently. A couple of weeks ago, Hampshire College announced that it is seeking a partner for its future and that it is considering not enrolling a freshman class this fall. Then last week another New England institution, Green Mountain College, announced that it will close at the end of the academic year.
A front-page article last week in The Washington Post highlighted a survival strategy being adopted by other small colleges -- a slash in the sticker price being charged to new enrolling students. St. John’s College, one of the gems of American higher education with its Great Books curriculum and campuses in Annapolis, Md., and Santa Fe, N.M., has become the 23rd private college since 2016 to reduce its tuition. St. John’s tuition this year is $52,734, with room, board and fees pushing total cost close to $70,000. For next year St. John’s will reduce tuition nearly a third, to $35,000.
St. John’s follows in the footsteps of other colleges that have gone the tuition-reset route, including places like Sewanee, Drew, Mills, Birmingham Southern, Sweet Briar and Elizabethtown. But are they isolated cases or the beginning of a movement? Does resetting tuition reflect desperation, social conscience or strategic genius? Has the high sticker price/high discount paradigm that has guided higher education for the past 40 years run its course?
I’m glad this issue is getting attention. Media coverage of college admission tends to focus on the most selective colleges and universities, but that focus misses a larger story.
The gap between haves and have-nots in higher education is increasing in ways that should concern all of us. For every school able to brag about record application numbers and declining admit rates, there are numerous others where net tuition revenue is the most important admission metric.
Concerns about the cost of higher education have been a topic of discussion since my career began in the late 1970s, but we have been able to continue to escalate sticker prices without consequences. Over the past 20 years, private college tuitions have increased 166 percent, two and a half times the Consumer Price Index, and yet net price increased only 17 percent during the same period. Following the 2008 economic crisis fueled by the housing bubble, many economists wondered if higher education might be the next bubble to burst.
The growth in sticker prices has been fueled by the belief that high price reflects a quality product, or at least the hope that the public believes that. So while sticker price has increased, so has tuition discounting. Over the past two decades, the average discount rate at private colleges has increased from 33 percent to nearly 50 percent. At many small institutions, the discount rate is closer to 60 percent, and many tuition-driven institutions employ consultants who use sophisticated algorithms to dispense “merit” aid.
But is there a point where the high sticker price/high discount model no longer works? Is there a price point where middle-class families are not even willing to consider a private college? I have certainly noticed over the past five years or so that cost is a much more important issue in college choice for my students and their families.
Is resetting tuition a solution? It’s certainly more transparent, perhaps even more honest, especially when the word “resetting” is used rather than “lowering.” Colleges that reset tuition are not intending to lower net tuition, but rather bring their sticker price closer to the net price by lowering the discount rate they provide in “scholarships.”
The truth is that it is too early to know what the impact of resetting tuition is. In 2015 Lucie Lapovsky, the former president of Mercy College, wrote a white paper analyzing the experiences of eight institutions that had reset tuition.
Lapovsky found that it is hard to arrive at a consistent set of conclusions. For some institutions the reset is too recent, while for others the tuition reset was part of a broader package of institutional changes, including curricular changes, designed to rebrand the college.
The eight unnamed colleges in Lapovsky’s study are all private, enrolling fewer than 3,000 students. All did the tuition reset in hopes of increasing enrollment, based on concerns that their sticker price was an impediment to families even considering them as an option. At some level, they all believed that lowering price was the right thing to do, although those of us who are cynics will note that no thriving college or university with full enrollment has elected to reset tuition for purely philosophical reasons.
What keeps colleges from lowering tuition is concern that their reputation will suffer. Lapovsky calls this the “Chivas Regal” effect, the belief that price is a measure of quality. In a previous study conducted by Lapovsky of 750 students and parents on college choice, both groups disagreed with the statement “The price of a college is a good indicator of its quality,” and yet a majority agreed that “You get what you pay for.” In the same study, a majority of students stated that they would rather attend a college with a sticker price of $30,000 that gave them a $10,000 scholarship than a college with a $20,000 sticker price and no scholarship.
What was the experience of the Lapovsky 8 with regard to resetting tuition? Seven of the eight increased enrollment in the first year, with increase ranging from 1 to 50 percent, while the other experienced a decrease of 42 percent due to poor implementation of the strategy.
Almost all of the colleges devoted considerable resources to the public relations rollout of the new strategy, including individual letters to applicants and returning students offering a comparison of their costs under the old and new paradigms. Working with returning students was a particular challenge, as some institutions implemented the tuition reset only for new students and others had to deal with disgruntlement from students who felt their merit scholarships had been taken away.
Of the seven colleges with increased enrollment, all increased net tuition revenue, although three saw a per-student net revenue increase of 1 to 4 percent and the other four a per-student decrease of 3 to 16 percent. Resetting tuition can have immediate impact but has to be a long-term strategy. In subsequent years most of the colleges continued to have healthier enrollment, although as a carry-over of the initial success. There was some erosion of the initial application increases, and a number of the colleges have already raised both tuition and their discount rate.
It is too early to know how well the tuition-reset movement will work or whether the business model on which higher education has been built is about to change in a significant way. In either case having colleges with honest pricing and lower sticker costs is a welcome alternative to the arms race that has led us to $70,000 sticker prices and amenities like climbing walls and lazy rivers.