colleges that aren't worth 80k

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04/11/2022 18:35

Subject: Re:colleges that aren't worth 80k

quote

Anonymous

Anonymous wrote:

Anonymous wrote:I teach college. The question isn't really whether families value what they are getting in return for 80K, whether in the short term or the long term. Everyone will have different answers to that, and for different reasons.

The question that is universally relevant to all consumers of higher education, instead, is whether this industry actually needs to collect 80K from _anyone_ in order to do what it is doing (bearing in mind that many people do not pay sticker price). The answer, from the inside, is quite simply no.

can you speak more to this?

I am trying to wrap my brain around a state school costing more than my private school did in the 90s. And that private school now costs 4X what it did then - did family incomes actually increase 4X? NOPE

PP here. There is a _lot_ to unpack here, so I will just offer a partial list:

1. The actual costs of higher education have definitely risen, in real life and without malfeasance. This has a good deal to do with what proportion of a person's income it takes nowadays to purchase certain tangible and intangible commodities, in contrast with (for example) a century and a half ago, when many small collegiate institutions were founded. It also has to do with institutions pressuring themselves (or the industry pressuring its participants) to do *everything,* rather than just sticking to what they can reasonably do best. It saves a good deal of money to reduce reduplication, even if it means that students must make harder choices about what they do and where they go. The SUNY system went through this kind of change some years ago, making certain majors available on certain campuses.

2. Tuition cannot cover the rising expenses associated with higher education any more than ticket prices alone can support an opera company. The expenses associated with producing the product are only partially made up by the access charges, and less so with every passing year. The rest of the funding has to come from someplace else. Universities can expect in this regard to draw on appropriations and other governmental support (though not in all cases), philanthropy, investments (which are often the results of stewarding philanthropy), grants, licensing (including of patented research products, not just sweatshirts!), leased resources (including land, property, and other assets), and other things. The more diverse and robust this portfolio of other complicated things is, the less an institution has to rely on / hope for tuition dollars. And it is not just all about the size of the endowment, contrary to many people's impressions.

3. University marketing professionals know the psychology of sticker prices, and it goes way beyond the perception of luxury branding. If they set the tuition at 80K, a few people will pay that. Others will pay diminishing amounts below that. Then there are algorithms about how much 'merit' aid needs to be given in order to push a given applicant with a given profile over the top to attend. If giving an admissible student who needs some financial aid a $2500 'merit' scholarship makes them attend, then the university is still collecting the balance of the tuition, maybe 40K or 60K. Worth it? Absolutely. And more money coming in than if the school were to lower its per capita sticker price to something closer to the amount it actually collects. There is a formula for this:

(total tuition dollars foregone in financial aid) divided by (# of students attending x sticker price)] = discount rate, as a percentage

The lower the discount rate, the more students at the institution paying sticker price. This might mean you are maximizing your dollar yield from your student demographic--or it might mean your sticker price is lower than the market might bear.

Because tuition is only one item in the revenue mix (#2 above), and indeed an item whose weight in the revenue mix is continually shrinking (#1 above), skyrocketing student costs are not necessarily a sign of institutional health, except insofar as they may be pushing the envelope on a perception of exclusivity (#3). Raising tuition is a way to bring in a limited amount of unrestricted funds for annual budget operations, but it is not a way to bring in enough (for example) for a new football stadium, or a supercollider for the physicists, or a new library. And because you can't "save up" this kind of money in the nonprofit world, you can't use an increase over time to fund something years from now.

All of which is to say that going to college doesn't actually cost 80K per year. It costs more like the total of your school's sticker price x your school's discount rate, which gives yuo the amount the school expects to collect per student. But even once they collect that, they have to make up a LOT more just to keep the lights on.

Now, 80K might represent something else to a given family, especially in terms of intangibles (including life after college). But the very schools that are notionally collecting 80K are often the ones that are most proficient at maximizing those other revenue streams I outlined above. They don't need that 80K, which is fortunate, because most of the time they're not getting it, either.