Classic economic theory predicts that when demand falls, so do prices. But when it comes to the price of college in the past few decades, it’s been just the other way around.
As data from the National Student Clearinghouse Center shows, tuition has escalated even as enrollments fell.
The dispiriting result is that half of all low-income high school graduates, cowed by sticker shock, don’t even bother to fill-out applications to go to college. A report by the American Council on Education concludes: "The rapid price increases in recent years, especially in the public college sector, may have led many students—particularly low-income students—to think that college is out of reach financially.”
Responding to the challenge, a few universities are finally reversing course or slowing tuition increases, either stepping on the breaks or tossing-out tuition altogether. One of the most dramatic examples comes from NYU’s Medical School which recently ended its $55,000 yearly tuition, at a cost to the school of about $24 million annually.
When I first came across this striking news, I hesitated to even imagine that NYU’s action might be a harbinger. But after digging into recent news reports, I discovered that NYU’s move was not an outlier. A handful of colleges have eliminated fees; others have frozen tuition; and many others sliced tuition like lunch meat at a deli counter. Mills College, for example, a small San Francisco Bay area liberal arts college, chopped $25,000 off tuition.
Tuition Resets
About 20 schools have reduced tuition, from a 42 percent cut at Utica College, in New York, to 5 percent at Washington State University. I wondered if this is the start of an academic Costco movement.
Unfortunately, the reality is a bit more complicated, and not always a better deal for students. Some colleges, it turns out, are using a curious academic sleight-of-hand known as “tuition resets” to make changes that look like discounts but sometimes aren’t. That’s the argument made by Rick Seltzer in his thorough investigation last fall of recent college pricing techniques.
In his Inside Higher Ed piece, Seltzer argued that “resets typically aren’t being used as a mechanism to cut the net price a private college or university charges—the net price being what students and their families actually pay after colleges lower the sticker price by offering grants and scholarships.” Seltzer recognized that many recent cuts are merely marketing flags, fluttering as in a used car lot, broadcasting lower prices, signaling that “an institution is affordable—a way to grab students’ attention and tell them they really can find a way to pay for a private college.” But as some colleges lower tuition, they also cut financial aid, leaving students and their families stuck with exactly the same bill as they’d pay before the misleading cut.
Tuition resets reveal that college leaders, especially at schools that are watching apprehensively as enrollments dip, are fearful of marketplace resistance mushrooming—resistance that may eventually put them out of business.
Looking to Philanthropy
Luckily, some of the discounts are real—and promising. St. John's University, with campuses in Santa Fe, N.M. and Annapolis, Md., is cutting tuition from $52,000 to $35,000, rending a deep gash in the college’s finances. To make up for the loss, the university plans to generate $300 million in a fund-raising campaign.
"We believe the days when students and families could pay exorbitant tuition prices are gone and they aren’t coming back—nor should they—and we are placing philanthropy at the center of our financial model rather than student-derived revenue to ensure we remain strong financially as a college," said Mark Roosevelt, college-wide president of St. John's College and president of the Santa Fe campus, in one report.
St. Johns is not alone in turning to philanthropy to cut or eliminate tuition. Fundraising will also make it possible for NYU Medical School to enroll students tuition-free this year. Uptown, Columbia University’s Vagelos College of Physicians and Surgeons will replace all student financial-aid packages with grants made possible with resources in a new fund launched with a $150 million donation.
Last year, a wealthy real-estate developer donated millions to the University of Hawaii to make the institution tuition-free eventually. Donors also funded Brown University with enough cash to do away with student loans entirely. Among other institutions using philanthropy to ease tuition hikes, donations at Arkansas State University made it possible for the school to avoid a price increase this year.
The biggest news in academic philanthropy this year is the unprecedented $1.3 billion Bloomberg gift to Johns Hopkins, allowing financially-strapped incoming students starting in the fall to eliminate taking out federal loans.
While philanthropy is one way to reverse the spiral, it’s a tough struggle for many.You’d think that with the top 1 percent of American households, now owning 40 percent of the country's wealth, raising money from the super-rich would be easy. With such unparalleled deep pockets, these ultra-rich can easily make college affordable for the rest of us. But this group has proved tight-fisted—often giving away less than 2 percent of their income to charity.
Online to the Rescue
As an online dean, over two decades my philosophical position was that there should be no difference between virtual and face-to-face education. To avoid establishing an academic class system, with online the bargain-basement poor cousin of the superior designer model on campus, colleges must set the same price, too. In my new book, Going Online, I argued: “By and large, colleges and universities charge the same tuition on campus and online. The practice follows the principle that, if the programs offer the same content, with the same or equally qualified faculty, eventually reporting the same outcomes, there should be no difference in tuition either.” But recent examples at a few enterprising colleges have caused me to change my tune.
Eager to attract budget-minded students, online has cautiously entered the discount economy. One of the first schools to offer differential pricing, Berklee College of Music’s online tuition, for example, is set at just over a third of the base price for its on-campus degrees. Online tuition for its bachelor's this academic year at nearly $60,000; That’s about 60 percent less than the more than $171,000 residential students pay in Boston.
And in an historic shift, the University of Pennsylvania, one of the nation’s most-selective schools, announced recently that it will offer a nearly fully online bachelor’s in applied arts and sciences next year. It is among the first of the Ivies to offer a virtual undergraduate degree. (Harvard, for example, does not offer a single complete degree online, neither in its master’s nor bachelor’s programs.) In an equally surprising move for a premier institution, the university is also giving enrolled students in its new online bachelor’s an unprecedented discount—cutting virtual education tuition by $1,000 per credit.
Scale is the driving force behind the extraordinary economic advantages of MOOC-based online degrees—mostly at the master’s level—that are now available at steep discounts from first-ranked schools from such providers at Coursera and edX. In 2014, Nelson Baker, Georgia Tech’s dean of professional education, launched among the very first of these. Baker recently told me that scale allows the school to offer its digital degree for far less than it charges residential students. Four thousand students are enrolled in the school’s online computer science master’s, with just 300 in the on-campus Atlanta program. Georgia residents pay about $20,000 per year for the residential degree, with out-of-staters paying nearly double that. Online students pay an astonishingly-low $7,000 per year for a first-class degree.
“Other universities are coming to us to learn how we’ve done it,” Baker added in an interview last month. “We open our books to them.”
In partnership with edX, GeorgiaTech will deliver two more low-cost online masters—one in analytics and another in cyber security. Seven others from University of Texas at Austin, University California at San Diego and other top schools were also announced by edX this month. Not to be outdone, Coursera, offers 12 discounted master’s, also from top institutions, with online degrees from the University of Michigan and the University of Illinois, among other schools.
Efforts by just a handful of schools do not constitute a national movement to hang discount tags on academic degrees, but taken together, with the news that the nation’s knee-jerk annual rise in tuition is stabilizing, there are signs that the spiral may no longer be spinning out of control, releasing a deep sigh of relief from millions soon heading for college. Even before new online experiments and other tuition-slashing movements, the Bureau of Labor Statistics data shows a recent easing of year-after year increases, with annual growth this year at its lowest in a decade. Ten years ago, yearly hikes hovered around 6 percent. In sharp contrast, this academic year, increases tracked as low as 1.7 percent, a sure sign that institutions are getting the picture with tuition creep slowing down—heading to zero?
Reversing the tuition spiral is not going to be easy for most schools. Forces that compel colleges and universities to continue to take their annual escalator towards ever higher tuition are formidable. At public universities, the principal driver comes from the long-term withdrawal of state funds. An American Council on Education report concludes, “Based on the trends since 1980, average state fiscal support for higher education will reach zero by 2059, although it could happen much sooner in some states and later in others.” At private institutions, rapidly rising costs are propelled by continuously swelling student services and ballooning nonacademic bureaucracies.
Still, colleges that have devoted imagination and commitment show that even with the financial stranglehold in which most schools are locked, the spiral can actually be arrested.
College leaders need to recognize that prices have shot up too far. In the next budget cycle, as they face their treacherous spreadsheets—and before they add yet another percentage point to next year’s tuition—they must act to roll back the perilous climb.
