Middlebury to Abandon Inflation Peg

College received attention and praise for trying to limit tuition increases. Now, the college says the system will no longer work.

February 16, 2015
 

Middlebury College is ready to abandon its attention-grabbing effort to hold down prices.

In 2010, the Vermont liberal arts college announced it would not raise its sticker price more than one percentage point above the rate of inflation. Last year, the college began to back away from the plan. Now it seems likely to abandon it altogether.

In an interview with the student newspaper, President Ronald D. Liebowitz, who was there when the arrangement was announced five years ago and plans to step down this year, said the college simply had to move away from its plan.

The private college’s policy attracted considerable praise. It was designed to acknowledge that even the wealthiest families would question the price of a liberal arts degree at a certain point.

A college spokesman said Middlebury remains committed to meeting the financial needs of students who are admitted but suggested the college’s expenses were rising faster than the basket of consumer goods that dictate the Consumer Price Index, the measure of inflation also known as CPI that Middlebury used as a peg for its "CPI+1" strategy.

“In a low-inflationary environment such as the one we are in, the CPI+1 model, which has served us well for 5 years, will not cover the increase in our costs,” Middlebury spokesman Bill Burger said in an e-mail.

When Middlebury announced the CPI+1 strategy, the college had among the highest sticker prices of its peers, according to its own data. Last year, it has among the lowest. Amherst College and Hamilton College, for instance, charge more than Middlebury this year.

At Middlebury, the sticker price is dancing just beneath $60,000 -- tuition, room and board, and student fees are currently $59,160. Hamilton is $59,970 and Amherst is over $62,000.

But Middlebury said the plan worked while it lasted. Now, the college just cannot keep restricting its revenue in the same way.

“Consumer prices last year increased by the second lowest percentage in 60 years,” Burger said. “Our financial aid spending is increasing at a much faster rate than that.”

According to the college, about half its students get some kind of scholarship aid. For the current freshman class, the average grant is $41,046, according to its Web site -- or about 69 percent of the sticker price. Most private colleges operate with such a model, known as the "high-tuition, high-discount" model: they pretend to charge a lot of money and then cut prices -- although at places with large endowments, they actually have plenty of money to cover the discount.

The reason that many private colleges without Middlebury's endowment or academic reputation embrace this high tuition model is that psychologically, it appears that people like feeling as if they are getting a good deal -- they equate high prices with a quality product and feel enticed by the sale prices they are given via scholarships.

Last year, the college began to back away from CPI+1. The college’s Board of Trustees increased the sticker price for students by 1.44 percent above the rate of inflation -- which means students are paying about $250 more this year than they would have if Middlebury had kept the cap in place.

A college spokesman at the time blamed rising room and board costs, such as that of providing vegan and gluten-free dining options.

But the shift away from the CPI+1 plan last year was partially obscured by the language the college used to describe the year’s prices. Observers called the college’s strategy misleading and unfortunate.

Other Pricing Experiments

Middlebury is not the only prestigious liberal arts college to back away from an innovative attempt to cut prices. Two years after the University of the South -- also known as Sewanee -- announced a dramatic 10 percent price cut, charges there are back up to nearly what they had been -- although less than what they would have been had the university not made the 10 percent cut.

So, Middlebury’s move raises further questions about a number of marketing strategies colleges use based on their prices or perceived prices.

A move away from a plan billed as holding down costs could hurt a college’s credibility, said Jason Simon, a vice president and partner at SimpsonScarborough, a Virginia-based firm that advises colleges on strategy and marketing.

“Now, to move from that within, essentially, a short period of time, brings to question what’s the ultimate goal if we’re launching new goals and new initiatives that we retreat from when finances change, which they are apt to do,” he said.

Other colleges and universities have undertaken a variety of plans to try to assuage families’ concerns about college spending. Some strategies involve slashing sticker prices; others involve making clear that low-income families will be given generous scholarships. And others -- like Middlebury -- have attempted to guarantee some stability in the price. Simon said despite these efforts, families remain worried about college prices.

“I think the reality is that with the overall sentiment around cost, even predictability in pricing is not stemming that overall perception,” he said.

It is not yet clear what price Middlebury will charge next year. In the 18 years before it announced the CPI+1 plan, Middlebury’s price rose an average of 2.36 percentage points above inflation per year.

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