Article: How do colleges decide their pricing?

Parents Forum
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http://hechingerreport.org/rising-costs-brings-new-focus-on-how-exactly-colleges-set-their-prices/

I liked this excerpt:

“With no other product or service do you go in and fill out a form saying how much money you make, how much debt you have, whether you have a mortgage on your house, how many other children you have going to college,” said Richard Vedder, an economist and the director of the Center for College Affordability and Productivity. “If an auto dealer tried to get that information, they’d probably be hauled to court and accused of trying to engage in some sort of fraudulent practice or invasion of privacy.”

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This article just skims the surface of the question it raises. For one thing, it doesn’t talk about alternative sources of revenue (endowment, gifts, patents and contracts, tax-based support from state and local governments, etc.).

Second, it doesn’t talk about costs and expenses to the institution to provide education (teaching and advising, general management and planning), housing, and services (extracurricular programs, recreation, health and safety, etc.), facilities maintenance (buildings, labs, landscaping, etc.).

Third, it doesn’t touch on the market – competition – as a factor in the nominal and actual cost per student-year.

Fourth, and this is a more general issue that’s related to the the first two, it doesn’t talk about management efficiency and efficacy – something that has been subject to a lot of discussion in recent years owing to the bloated administrative hierarchy (provosts, deans, subdeans, chairs; special offices for every kind of service including intellectual property, occupational safety, financial aid, inclusion, etc.).

Fifth, it doesn’t talk about the general inflation in the cost of everything. While the net cost of college education has certainly accelerated faster than general inflation, it’s important to realize that the latter is nonetheless a factor. Since the year my kids were both in college in 1999 (they overlapped 1 year), the general cost of living has risen 42%. That should be taken as a baseline expectation for the increase in costs of college education between 1999 and 2015 (based on BLS cost of living calculator).

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Moonshot - you only have to answer those questions if you’re asking someone else to foot part of the bill.
Have you ever financed a car through a bank that didn’t verify credit, employment, income, etc? I haven’t.

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Regarding general inflation, note that colleges are labor intensive, and one of the things whose costs have risen faster than general inflation is medical care. So employer provided medical insurance benefits are likely contributors to college cost inflation.

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As much as the market will bear is the right answer.

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^Hat’s off to you, Zinny, for getting it correct (and succinct).

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@pardullet - I would say there is normally more of a separation between the selling entity which establishes the price and the financing entity for a transaction of this size, but it is a fair point. However, when you are buying a car, I don’t think they can refuse to sell to you based on a pre-conceived notion on whether you can pay for it. I’d say that is what happens with any adcom that considers financial need as one of the inputs for whether they will sell you their education.

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With no other product or service do you go in and fill out a form saying how much money you make, how much debt you have, whether you have a mortgage on your house, how many other children you have going to college,”
-This is NOT required to provide to colleges at all, this is required to provide on FASFA, which is not mandatory.

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Good point, I didn’t consider the economics of the adcom’s decision. However, if the budget only allows ~30% full-scholarships, how else can they do it? Not all schools have Harvard’s endowment. If one is asking them for money, they should be allowed to know how much, no? Most folks would like all the benefits of full pay, but at half the cost.

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There are very, VERY few need-aware schools in the country. The vast, vast majority, 99%+ don’t give a hoot about your financial situation when they offer you admission or not.

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it is like what is in the secret sauce??(it is really just mayo and Russian dressing) but nobody really knows for sure!

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romani’s got it right. A tiny number of wealthy colleges and universities are need-blind and promise to meet full need; they’ll admit regardless of your financial situation. A possibly even tinier band of private schools just below that level are need-aware because they want to make sure the need of all students is met, but they can’t afford to admit indiscriminately while adhering to that commitment. The vast majority of schools, public and private, don’t ask about your financial situation as part of the admissions process; they’ll admit you if you meet their academic qualifications, and leave it to you to decide whether you can afford to attend. If you want federal FA they’ll require you to fill out the FAFSA. If you want institutional need-based aid, they’ll either rely on the FAFSA or require you to fill out CSS Profile. But this is no more intrusive than doing the paperwork for a mortgage loan If you’re not asking for federal money or institutional money, you don’t need to tell them a thing about your finances.

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My mortgage application was WAY more involved than any financial aid forms we ever filled out.

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God point, romani. Bottom line, if you ask someone to give you a lot of money, they’re probably going to ask you a lot of questions.

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That’s because the bank wants to ensure it gets paid back. If it were the colleges themselves lending the money (instead of Uncle Sam), then the colleges would probably insist on more involved financial aid forms, plus your kidneys as collateral.

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"With no other product or service do you go in and fill out a form saying how much money you make, how much debt you have, whether you have a mortgage on your house, how many other children you have going to college,” said Richard Vedder, an economist and the director of the Center for College Affordability and Productivity. “

Seriously? What an idiot. How does he think people GET mortgages in the first place?

A) the mortgage fairy or B) answering a lot of questions about your income and debt.

You want to use someone else’s money for something you want - ya better answer the questions.

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@Pizzagirl

It’s not the bank that sets the sales price of the house.

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@romanigypsyeyes, I grant you that the publics don’t look at financial need (at least as far as I can tell), but if you are looking to go to a private liberal arts college - which is where the costs are highest and a significant amount of financial aid is more likely to be needed - there is a decent chance your ability to pay will be considered. For my son we looked at a sample of 31 LACs and 17 of them (or 55%) consider financial need as part of admissions decision.

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You have an extremely skewed sample. I’d water that all 17 of those schools are pretty generous with financial aid. That is the only reason a school would look at need and the vast majority of schools do not even try to meet need.

I’d bet there are less than 20 colleges total that look at need when making admissons decisions and there are thousands of colleges in this country.

Don’t mistake your research for a representative sample of colleges- even private colleges.

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And to add to Roman’s excellent point- as a percentage of total college students enrolled at any given time, the 17 colleges Moonshot refers to represents a very small number of students in college.

Add up the enrollment numbers.