Is Going Cheap Choking Higher Education?
For years colleges and universities, particularly private ones, have been involved in a practice known as tuition discounting. The practice involves telling students and their families that the actual cost of attending a particular institution is much more than what they are being charged. What it really means is that they charge larger amounts to well-to-do parents as a form of maximizing revenues, while claiming big discounts for less well-to-do students.
The way it is done is by offering merit and athletic scholarships to attract students those colleges want, regardless of their actual financial needs. Yet by doing so, institutions of higher education are becoming engaged in an arms race that has little long-term future. It also doesn’t help the significant portion of truly needy students.
The rationale behind this tactic is that although most people pay less than the actual cost because of government subsidies and private donations, by inflating the calculations of the theoretical cost, a particular college appears as very generous. This behavior, in turn, can be used as a fundraising tool with alumni.
When it comes to merit scholarships, these institutions know that admitting students who are more academically qualified increase their chances to retain and graduate them, another yardstick that enables them to look good before legislatures and in rankings like those in U.S. News & World Report. For athletic scholarships, this tactic also improves a college’s success in recruiting athletes, which, in turn, will improve their reputation in sports headlines.
Additionally, many public institutions that traditionally have charged less to their state residents under the premise that they are already contributing through their state tax dollars, are offering in-state tuition to residents of other states.
They do this in response to ever decreasing state government support. Public institutions of higher education are becoming more and more dependent on tuition dollars (just as private colleges are). And because the demographics in many states – including Illinois – indicate a dwindling population of high school graduates, these institutions feel they need to recruit more and more students, regardless of where they live.
This tactic raises a number of financial and ethical issues that make it self-defeating in the long term. First, state institutions that offer in-state tuition (i.e., discounts) to students of other states (generally neighboring ones) require those states to reciprocate. The result? States are competing for the same students but charging them less for the same services. This results in a net loss of revenue for all involved.
From an ethical perspective, why should the taxpayers of one state subsidize the education of residents of a different state? Some public colleges have gone so far as to offer in-state tuition to international students so they can claim a larger headcount of students.
Another issue is how these tactics affect students with meager means. Recent studies have shown that because of this tactic, four-year flagship universities give less than half of their aid for truly needy students. For private schools it’s even worse. More than 70 percent of them offer merit awards. This means that barriers to an education remain in place only for those students who cannot attend college for financial reasons alone.
Because almost all institutions are using these same approaches, the competitive edge among colleges is disappearing. According to a recent study, 44 percent of public colleges and 45 percent of private ones now end up with a lower SAT average for their entering class because of these policies.
In a recent book by Suzanne Mettler titled “Degrees of Inequality,” the author demonstrates that all this financial aid ends up supporting mostly people with high income. For example, for the 20 percent at the top of the income spectrum the cost of attending a public college has increased from 6 to 9 percent of total family income between the years 1971 and 2011. Yet, for the 20 percent at the bottom, the cost of public education rose from 42 to 114 percent of the family income during the same period.
Another problem for colleges and universities following this path is the effect on their rating by Moody’s Investors Service. Moody’s is an agency that rates the value of institutions’ credit ratings. The lower the rating, the higher the interest they have to pay when borrowing money. Not only that, but now a number of savvy donors look at those numbers when deciding whether or not to give philanthropic support to an academic institution. The rationale is that the lower the rating, the less worthwhile the institution.
The best proof that these strategies do not even work from a financial standpoint for public institutions is a recent study by the National Association of College and University Business Officers. It showed that tuition revenue remains stagnant. If there is an indication of what higher education needs to do to face this issue it is the fact that while national enrollment in higher education dropped by 0.8 percent, it increased by 2 percent at private four-year colleges.
Some private institutions, such as Franklin & Marshall in Pennsylvania and Macalester College in Minnesota, have been shifting merit scholarships money into need-based scholarships. Far for being a financial or academic calamity for them, they have seen their admissions yield rate (percentage of admitted students who applied), selectivity, SAT scores and diversity of economic background of incoming students increase.
Although everybody knows that students are price-sensitive when it comes to deciding which college to attend, they are also concerned about the quality of education they will receive. Colleges and universities should concentrate on quality instead of a self-defeating arms race.
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Is Going Cheap Choking Higher Education?