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<p>I think the authors of this study would disagree with you somewhat, snugapug. Their model assumes colleges aren’t profit-maximizing institutions. Instead, they hypothesize private colleges try to maximize educational quality so as to preserve their “legacy” or enhance their reputation. To do so, the colleges obviously need money, so they will try to maximize tuition revenue to the extent that’s compatible with their educational quality objectives. But those educational quality objectives also require that they attract top students. So even if they could generate higher net revenue by, e.g., raising tuition (= the top price they charge) and reducing or eliminating financial aid (= price discrimination in favor of certain students depending on SES and/or ability), they won’t do so if it drives out high-ability students in favor of wealthier but lower-ability students. Thus you sometimes hear it said that Harvard could charge any price it wanted and someone would pay it; but Harvard won’t do so because that would drive out most of the best students and attract a bunch of rich dunderheads, and Harvard’s reputation would go into decline. </p>
<p>For state schools, the model assumes their mission is to maximize the number of in-state students they serve, regardless of ability. This would tend to push public universities in the direction of lowering net cost to in-state students to the extent they can afford to do so, either by lowering tuition, providing more institutional aid (something many of them can’t afford), or by enrolling more out-of-state students (but this cuts both ways, because even as it raises revenue that can be used to keep net costs for in-state students low, it makes fewer places available to in-state students).</p>
<p>I think both sets of assumptions are overly simplistic. On the private school side, it doesn’t account for non-tuition revenue sources, or for the low numbers of Pell grant recipients at some schools. I can’t imagine Harvard being so sensitive to a $2,000 increase or decrease in maximum Pell grants when that $2,000 represents less than 5% of the tuition of a student receiving the maximum Pell grant; the maximum $8,000 Pell grant represents less than 20% of the recipient’s tuition; and only 15% of undergrads receive Pell grants of any size. If I’m doing my math correctly, that means Pell grants represent less than 3% of Harvard’s tuition revenue (how much less would depend on the size of the average Pell grant at Harvard). And tuition represents a relatively small fraction of Harvard total revenue. Do we really think that 3% is the tail wagging the tuition dog, such that Harvard “games” its tuition policy so as to reap maximum benefit from that 3+/-%? That just seems really, really doubtful to me.</p>
<p>Of course, the authors might respond they’re talking about all private colleges on average, not necessarily Harvard which in important ways is an outlier. But then my question would be, what evidence do we have that the more pedestrian private colleges out there–say a Concordia Univeristy in Saint Paul, MN, a fine institution in many ways, I’m sure, but not exactly top-of-the-charts in selectivity–is so laser-focused on maintaining and enhancing educational quality, as opposed to more pedestrian goals like, say, keeping the doors open and the lights on and making payroll? In which case it might actually behave more like a profit-maximizing institution, seeking to maximize tuition revenue even at the expense of educational quality, for the sake of staying in business. </p>
<p>As for public universities, I think the authors of the study completely ignore or assume away the fact that there are tiers of selectivity and quality. I suspect many of the more highly regarded public universities act more like top privates, in that their goal is to maximize educational quality and reputation rather than serving as many state residents as they can. Yes, they typically are constrained by their own policies if not by state law to enroll relatively large numbers of in-state students, but the wealthiest of them could expand enrollment beyond its current levels if that was their priority, yet they decline to do so for fear of diluting educational quality. Lower-tier and less selective public universities seem more inclined to expand if there is demand and the money to pay for it. Lumping them all together does something of a disservice, though to some extent that’s what all models do, they abstract away nuance, context, and individual differences in favor of elegance.</p>