Sunday, August 10, 2014

 

Two Conflicting Ideas at the Same Time


Wise and worldly readers, in a passing comment this weekend, I realized that I believe two conflicting ideas at the same time.  I’m hoping you can help me figure this one out.

Idea One is that the “high tuition, high aid” model doesn’t work.  Students are scared off by the high sticker price, and simply don’t apply.  

Idea Two is that students are unduly impressed by “scholarships” that are actually discounts off an artificially high sticker price.  That’s why they’ll choose a forty thousand dollar tuition with a twelve thousand dollar “presidential scholarship” over a ten thousand dollar tuition with no scholarship.

At different moments, I have believed -- and professed -- both of these.  But I’m having a hard time believing both at the same time.  If “high tuition, high aid” didn’t work, then students wouldn’t go for high discounting.  But they do.

Of course, it might be possible to believe both ideas if they didn’t really conflict.  If, say, the definition of “students” in each idea were different, then it would be possible for both to be true.  For example, the “students” in Idea One would be low-income and/or first generation students, especially in the context of community colleges.  The “students” in Idea Two could be the sons and daughters of the upper middle class applying to private four-year colleges.  If that’s the difference, then it’s entirely possible for both to be true.  Students who are new to higher education may be intimidated or scared off by high sticker prices, whereas students whose families went to college may not be.  

That explanation seems to work at first blush, though it falls apart somewhat when applied to for-profits.  For-profits focus(ed) largely on first-generation and low-income students, but at considerably higher tuition that most publics, and with little discounting.  Here I’ll draw on Tressie McMillan Cottom’s insight that many for-profits structure(d) their costs with an acute awareness of the psychological difference between the money a student has to come up with now and the money she’ll have to repay later.  They backloaded, creating an initially low barrier to entry.  In other words, while the for-profits may have been much more expensive than most publics, they got good at hiding the fact.  The exception may not be an exception.

If this is all basically true, and the division between Idea One and Idea Two is the social class of the students involved, then we’re looking at continuing economic polarization among sectors.  The sectors that draw upon the (relatively) affluent can compete on amenities, using discounting from a wildly high sticker price to fill the class as they see fit.  Meanwhile, community colleges -- whose budgets are increasingly tuition-driven -- are locked into low costs and a self-perpetuating cycle of austerity.  

This is not good.

I think it’s Stein’s Law that says that anything unsustainable won’t be sustained, and the “discounting” approach is showing signs of unsustainability among some of the private colleges.  At some point, the market will bear only what it will bear; if you’re in a region with a declining number of 18 year olds and relatively flat incomes, and your endowment is finite, you can only paper over the gap for so long.  Eventually, something has to give.  

Or maybe it’s simpler than all this.  Maybe Idea One is right and Idea Two wrong, or vice versa.

Wise and worldly readers, are One and Two mutually exclusive?  Or is there a way of reconciling them other than what I’ve offered here?

Comments:
I'm not sure these statements are contradictory. There's a segment of students/parents that understand how the selective college pricing game is played (e.g. with massive price discrimination to try to extract as much money as they can out of trust fund babies), who are typically either people who went through that experience themselves or are savvy enough to learn about it through reading US News and the like, and there's another segment that isn't and is looking at headline prices.

At the same time, though, like you I wonder if Idea One is really true since the for-profits have been able to eat the lunch of much less expensive alternatives, among a segment of the public you wouldn't think is savvy about discounting practices.

For example, I teach at a four-year institution where the semi-mythical "$10,000 degree" is actually something close to reality (with book rental we're probably closer to $12k over four years), yet I know there are lots of for-profits that are somehow attracting students who could be here paying a lot less money, not to mention local private alternatives whose post-discount pricing is still much more than ours for no real gain in instructional quality.

My gut feeling is that to the extent people pay attention to pricing, they see it as a proxy for quality, just like why people will pay $4 for a box of Cheerios rather than $2 for a box of Kroger Oaty-Ohs (or whatever Kroger's Cheerios knockoff is called); if you have a $1 coupon for the Cheerios, even better.
 
Last time a private college came recruiting at my high school, I spotted several 'tricks' they were playing to make their diploma look cheaper than an engineering degree (even though it cost more). So I believe that your point about how they are really good at hiding costs, coupled with the usual human tendency to discount future costs (especially high in teenagers) works to their advantage.
 
Teens don't look much at the price—their parents do.

As a parent of a student about to start as a freshman, I can say that it is d*** difficult to figure out how much college will really cost. The net price calculators want detailed financial records from you, and then give misleading answers.

Colleges are about the only business I know that requires detailed financial information from their customers before they'll set the price. And charges you to provide that information to them. And then decides they don't want to sell to you anyway.

It is no wonder that people are confused about college pricing schemes (and I use "schemes" in its most negative sense).

Personally, I've always felt that the high price-high aid model was flawed. Colleges should set one honest price, and financial aid should be an independent deal that does not come out of tuition, but only from endowments or government aid specifically intended for financial aid. The pricing would be a lot easier to understand then.

Community colleges, at least in California, have followed a simple pricing scheme that does not include high price or high aid. I wish I could say the same of UC, where over 1/3 of every new tuition hike is earmarked for "return-to-aid", so that the net gain from a tuition hike is only about 65% of what the hike is.

 
The difference is marketing. I know I did not look at an Ivy as an alternative because my parents did not know about discounts. Who expects college pricing to be like a used car dealer on meth? "Today, just for you ...." Only those from that background.

But a well-defined price with scholarships, that is a clearer picture no matter where the money comes from. The difference between the latest round of for-profit ads and what happens at my college is that the former offers a scholarship to everyone!

But the real marketing trick is bottom line pricing. "What will it take to get you in this car today?" The focus is cash out of your pocket today, not the actual cost -- let alone the cost after interest is included. Did your college used to quote the price after scholarships, or include loans as if they were "aid"? I think everyone did the latter until the forms changed.

It is only here and there during certain advising periods, but I've noticed some new students and quite a few returning students who were very much aware of the difference between loans and scholarships.

PS - Just like GSwoP above, in another state, my CC has been forced by the legislature to use part of each tuition increase for need-based scholarships. It's almost as if all of those lawyers in the legislature went to selective professional schools that used that model.
 
Idea Two holds more merit than Idea One. Idea One was recently tested by the British and their drastic fee increases. http://higheredstrategy.com/uk-tuition-hikes-revisited/
The result of increased fees was a one-year stall in enrolment, followed by increased application in future years.

As for Idea Two, the appeal of scholarships comes from the time delay between finding out what your tuition is and finding out what scholarships you'll get. When you register at a college, you sign up to the sticker price and you've committed yourself to that price. After committing to the sticker price, any and all scholarships you get are discounts and never fail to make you feel really good about being at college X. If the scholarship announcements arrived at the same time as the tuition announcement (not tuition due date, but the day you find out what your tuition will be), then it would be a simple matter of subtraction, and scholarships would lose much of their psychological impact.

Mind you, at my uni's, most of my scholarship arrived after the semester started, not before. My experience and opinions are shaped by that time delay.

Some more food for thought on tuition and aid:
http://higheredstrategy.com/the-effects-of-tuition-fees-part-1/
http://higheredstrategy.com/the-effects-of-tuition-fees-part-2/
 
The statements are not contradictory. You're talking about different groups of students.
 
Something I've always wanted--since financial aid obscures so much between institutions--would for there to be a set of "standardized financial aid applicants". This would be six or so "students" of different financial backgrounds (student A comes from a family with 40k income and no savings, student B comes from a family with 60k and has a sibling...) and each college would have to say how much aid each student could expect (without merit scholarships) for a full time load and how much of it is grants vs loans. All colleges would post this information along with their yearly tuition and other financial things.
 
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