<p>I have only skimmed some of the posts, so excuse me if I repeat a point already covered.</p>
<p>Years back, as a Wellesley Alumnae Council participant, we discussed exactly the point of why colleges choose to subsidize those who could easily full pay. Accepting for the moment that their statement of true costs is honest, and that they are subsidizing even Mr. and Mrs. GotRocks kid to the tune of $20-25K, what is the sense in that?</p>
<p>The answer that the College gave us is that they long ago decided it is prefereable to sit down with Mr. and Mrs. GotRocks and help them embrace the notion of GotRocks Hall, the Sophie J. GotRocks Chair in Philosophy and so on and so forth. Much more lucrative (and beneficial to all students, affluent or not) to aim for substantial contributions from these alums and parents than to charge them the small differential between true cost and established tuition rate.</p>
<p>Well, it looks like they less and less believe that, as 1) there is no direct relationship between costs and list price (there's no way Wellesley and Yale and 40 other institutions would price within 5% of each other); and 2) they are raising list-prices well in excess of inflation (perhaps to narrow the gap, though actual costs are hard to figure.) So JHS' explanation makes much more sense to me: they just haven't really thought it through.</p>
<p>I think they've thought it through. The college understand that the price is ultimately set by competitive marketplace pressures. Nobody is going to jump out of the pack. Pricing is set primarily by looking at what the competition is doing.</p>
<p>The important point for consumers is to understand that college pricing mimics the airline model in that list price doesn't mean much. There really is quite a range of price points from vendors selling a premium product at premium pricing to vendors selling a less expensive product at discounted prices. The fact that the pricing tiers are thinly conceiled behind list prices and "financial aid" discounts shouldn't confuse the savvy consumer.</p>
<p>It doesn't confuse too many parents here. CCers are among the best at deciphering the "merit aid" discount pricing scheme and know how to find the bargain seats.</p>
<p>mini, I think you're missing a point here. Most businesses do not price based on costs. My law firm doesn't determine the hourly rates of its attorneys by the rent we pay, but rather by how much we can get in the market without reaching a tipping point where clients will go to other, lower priced firms. There's an implicit component of costs to be sure--you can't price so low given your cost structure that you'll go belly up even if your product or service sells to capacity--but the truth is that the price of goods and services is primarily based on other concerns.</p>
<p>That said, your idea that elite colleges haven't thought out tuition increases is, in my opinion, incorrect. They've thought it out a lot. And, they've decided that what they're charging is not, as you characterize it, a "bargain", but rather the peak of what they can charge without exceeding the tipping point.</p>
<p>Boy newmassdad, did you ever cherry pick that AM article. Having read both the Hoxley and Kreuger/Dale studies, the former is by far the more persuasive in terms of methodology and data base employed. The AWM Foundation data base use by K&D is the largest and longest ever assembled, involving 10,000+ people over 3+ decades. </p>
<p>And the K&D conclusions just make sense because success in life is almost always determined by the qualities of the individual not the college name on the diploma.</p>
<p>It also make sense when you look at faculties in most colleges today. In my son's CompSci department, the faculty have earned their PhD's from colleges like Stanford, Penn, Columbia, Berkeley, CMU. Brown, MIT, Yale, Harvard, Cal Tech, UIUC, IIT(India). And even faculty with these credentials may be surpassed in the classroom(where it counts for undergrads) by PhD grads from colleges like Wisconsin, GaTech, UMd-CP, RPI and the NatAcad of Science(Warsaw). You can find similar faculty resources in thousands of department across the country.</p>
<p>Actually, given that price discounts (euphemistically called "financial aid) are growing faster than sticker prices, it could be argued that colleges, as a group, may have pushed the ceiling a little too hard with their price increases.</p>
<p>There are only a small handful of colleges and universities who could sell more full-fare seats without diluting the "quality" of their student body. Outide of maybe a dozen universities and colleges, the marketers are trying to entice more "full-fare, high stat" customers with the old sale-price gimmick: posting an inflated sticker price and offering them a special discount ("merit aid").</p>
<p>This explicit price discounting to high-stat wealthier students starts as high as #4 on the USNEWS liberal arts college rankings (Carleton) and #8 on the USNEWS national universities rankings (Duke).</p>
<p>It starts even higher on both lists if you count quasi-merit aid discounts such as loan-free aid packages (Princeton), additional money for overseas travel or grad school (Swarthmore and Williams), and other inducements to highly qualified students -- although these programs are typically used as minority/diversity recruitment tools at the very top schools.</p>
<p>"Actually, given that price discounts (euphemistically called "financial aid) are growing faster than sticker prices, it could be argued that colleges, as a group, may have pushed the ceiling a little too hard with their price increases."</p>
<p>No. I think just the opposite. The Princeton strategy is to raise prices more quickly than inflation (or "costs" - which I think is a red herring in any case), then enroll more $100-$160k students with little so-called "need-based" scholarships (making the parents happy -- "sonny-boy got a scholarship!" - and keeping them away from Vanderbilt), making the school look more diverse, and pocketing the additional income. </p>
<p>Remember that 'list price' only has impact on those "able" to afford it. The student at $160k who doesn't get "need-based" aid at $45k/year gets lots of it at $60k/year. And (because, after all, it's a "scholarship") may be more rather than less likely to attend. Everyone likes a bargain.</p>
<p>But, the real prices (sticker minus discounts) is not increasing. In fact, it is falling at most schools - certainly relative to inflation. That's why they are hiring enrollment managers and writing endlessly about reducing discount rates.</p>
<p>Oberlin, for example, is quite frank in their latest strategic plan. They point out that the school is not currently in financial equilibrium (meaning that they are spending down the endowment).</p>
<p>To get back in financial equilibrium, they plan to reduce enrollment by 100+ students, while keeping the number of full-pay students the same. In other words, they plan to lop off discount-price customers.</p>
<p>At Haverford, the "discount rate" has increased for the second time in the last decade to a level that triggers an automatic Board review of discount ("financial aid") policies.</p>
<p>If you read the financial planning papers for virtually any college, I think you'll find the same issues and language -- except at the big R1 research universities where the financial reports mostly drone on about the size of their hospital, physician-practice, and health care subsidiaries with a few footnotes here and there about smaller divisions (like undergrad education).</p>
<p>Mini, what evidence do you have that Princeton is "pocketing" the additional income?</p>
<p>We were all weighing in last week on a thread about how Rutgers, the flagship NJ public, was cutting programs and slashing costs and how it was going to drive away top students. You would prefer that Princeton (which doesn't have to negotiate with politicians when it sets its fees or determines how to spend its money) start slashing and burning rather than raise tuition? </p>
<p>My take is that the top privates have chosen to raise prices (because they can..... as evidenced by the droves of people forming a line to the left and right, despite the well-published odds that they won't get in....) and have also chosen to invest in programs which meet their strategic needs. For Brown it means investing in faculty and financial aid.... which they needed to do to stay competitive with their peer institutions who have larger endowments and were already need-blind, no-loan, etc. For Yale it means more emphasis on the hard sciences. For Harvard it means lots and lots of real estate and high-end programs in neuro and life sciences... and so forth. Should top schools spend down their endowments to lower tuition, enroll more middle income students, eliminate all loans, pay the kitchen staff $100K per year? I don't presume to dictate what they should or shouldn't do.... but to insinuate that there's some secret plot to soak the middle class by raising tuition is ridiculous.</p>
<p>Save your ire for the families who have always assumed that their flagship public U would be an affordable option for them and their top student. Many of them are now finding that tuitions are sky-high, merit money is virtually non-existent, and that the likelihood that jr. can graduate in 4 years is extremely slim in many popular majors. Do I give a $%^& about what Princeton does with its tuition? It's important to a few thousand families per year who pay it. I feel for the tens of thousands of families who are getting screwed with the budget shenanigans in the public U's.... not to mention the millions of kids who couldn't get accepted to these colleges in the first place since their horrendous HS graduates them reading at a 7th grade level, if they can manage to graduate at all.</p>
<p>Puleezze. And you care that someone making 160K gets to brag about being on financial aid? What world do you live in?</p>
<p>"You would prefer that Princeton (which doesn't have to negotiate with politicians when it sets its fees or determines how to spend its money) start slashing and burning rather than raise tuition?"</p>
<p>Gosh, why do you think ire? I would be IN FAVOR of them raising prices (as they are, so it doesn't matter whether I favor it or not), and having them "invest in programs that meet strategic needs". My question was aimed at just the opposite - why would they choose to keep tuition so LOW when they have such needs? JHS suggests inertia.</p>
<p>" I don't presume to dictate what they should or shouldn't do.... but to insinuate that there's some secret plot to soak the middle class by raising tuition is ridiculous."</p>
<p>What "middle class are we talking about? To afford any of these places full freight puts one in the top 3% in income/assets of all American families. Median family income in the U.S. is under $50k (which will also get you a full-tuition subsidy at virtually all of these schools, if you get in.) And there's no secret plot. All of the schools publicly announce their tuition hikes every year - they are always above the rate of inflation, but below the increases in income/assets of the top 3%. There aren't any secrets. For full-pay customers, virtually all of these schools are cheaper than they were a decade ago. </p>
<p>"And you care that someone making 160K gets to brag about being on financial aid?"</p>
<p>I don't care in the least. Princeton (not to pick on them - they are just the most public example) seems to, though. </p>
<p>"I feel for the tens of thousands of families who are getting screwed with the budget shenanigans in the public U's...."</p>
<p>I'm with you! My question (which is a real one) is nonetheless in the category of what is the cost/price/value equation for Jaguars, not what the local bus should cost (which is of course far more important, but a different forum.)</p>
<p>I read that harvard income/school article and it was very weak in adjusting for outside influences such as parents income, job locations and did not even consider public schools except in one little paragraph where it said the gap was less pronounced. Weak.</p>
<p>To be frank, this string has become a bit overwhelming. If schools charged what it really cost the student body would become limited and reflect income rather than academic ability. That's very old school, and many country clubs and small private colleges are run that way. But, obviously there are trends which have turned the priority of selecting exactly what to charge. The economics ends there. By the way there are economists (from Yale no less) who have tried desperately to correlate subjective "value" to market "value". Refer to the case studies of Ross/Roll for example, I'm sure there's plenty more.</p>
<p>FWIW, I find Hoxby's work provocative, especially some of her other stuff. She's a well respected economicst that tackles tough, politically charged issues. </p>
<p>But, as you said, the magnitude of the effect she found is small, and her classification of colleges underlying it can certainly be debated (so what else is new?).</p>
<p>Nonetheless, if you take her work and Krueger and Dale together, you can certainly argue that studies that control for input variables find the elite ed implact to be low to insignificant. And, if I recall correctly, she also found no difference in the prestige of the jobs held. Interesting.</p>