The cost of college, a daunting concern for many American families, is now the central storyline of a Hollywood movie.
In a short-lived summer movie release called The House, Will Ferrell and Amy Poehler, a middle-class couple, open an illegal casino to cope with their personal gamble: how to pay for their daughter’s college tuition. The movie’s blend of satire, farce and desperation is sometimes difficult to watch—especially for those of us who work in higher education.
Here is welcome news for college hopefuls: U.S. college tuition is growing at the slowest pace in decades, Labor Department figures show. Tuition at college and graduate schools—after factoring in scholarships and grants—rose just 1.9 percent last year, in line with overall inflation.
To put this in perspective, college tuition has been growing at roughly double the rate of inflation for decades. At last, the trend of annual tuition hikes appears to be cresting.
Missed opportunities
As the president of the private Stetson University, I am heartened that a small but growing number of colleges are exploring collaborative approaches to keeping costs down. We all want to make the dream of higher education more attainable, and soon. Too many students and their parents really have no idea of the true cost of college.
Wary of student loans, they automatically rule out schools based on an artificially high sticker price that masks the real tuition after factoring in scholarships, grants, loans and other types of aid. It’s a self-destructive cycle of misunderstanding that feeds many missed opportunities.
Explaining this high-tuition, high-discount pricing model to families is an ongoing challenge. Recent headlines like “Tuition Is Too Damn High!” add to the anxiety about runaway costs, even price gouging.
Despite the media’s continued coverage of the “high cost” of higher education, many people aren’t aware that private colleges are skating on thin margins due to increasing financial aid budgets and declining attendance—and despite cost-cutting and program consolidations.
Net tuition revenue from first-time, full-time students grew a modest 0.4 percent this academic year, down from 1.5 percent in 2015-2016, and 2.1 percent the year before, according to the National Association of College and University Business Officers.
Not sustainable
In reality, many tuition-dependent institutions find themselves trapped in a financial corner. The root of the problem is revealed by simple economics: An abundant supply of educational options is bumping up against reduced demand from a shrinking pool of traditional college-age Americans.
To entice students in a competitive market, schools are offering hefty discounts and financial aid packages.
The widespread practice of discounting tuition has hit a historic high, according to NACUBO.
In 2015-16, the average discount rate for first-time, full-time first-year students reached 48 percent and climbed to an estimated 49.1 percent in 2016-17, the highest level ever recorded. The discount rate for all undergraduates in 2016-17 rose to an estimated 44.2 percent, another all-time high.
For every dollar in gross tuition revenue from first-year students, institutions used nearly half for grant-based financial aid. The bulk of these funds often come from operating budgets, not earnings on endowments. Many of the chief business officers surveyed by NACUBO warn that these discounts aren’t sustainable, at least not for long.
A perfect storm
Higher education is battling a perfect storm of market pressures. What’s the appropriate battle plan? If adversity fuels innovation, now is the time for concerted action. As leaders of private colleges and universities, it is our job to guide our institutions into the future, not to live in the shadow of an opaque pricing strategy.
Today’s high-tuition, high-discount model is failing us, and it’s failing families.
A “tuition reset,” as it’s called, is a move in a promising direction—if only we could talk to each other. The National Association of Independent Colleges and Universities is petitioning Congress to ease federal antitrust laws that prohibit private colleges from even discussing tuition prices and student aid.
The current law, dating back decades, aims to prevent collusion across industry sectors to set prices high. In the unusual case of higher education, our goal runs in the reverse direction. We want to keep prices down. NAICU proposal calls for a five-year relaxation of antitrust restrictions for the purpose of discussing affordability and efficiency.
At a time when many are promoting free public education, NAICU contends Congress should not prohibit private colleges from discussing their own pricing and financial aid practices. Public colleges are exempt from antitrust rules.
I’d like to give the NAICU proposal a fighting chance. A free, open and “regulated” discussion among peer institutions could be just what’s needed to rightsize a pricing model currently causing more harm than good.
Schools have a vested interest in exploring ways to link tuition to the real cost of college, to rein in sticker prices, and to distribute a portion of the savings to financial aid.
Percolating proposal
On the surface, a tuition-reset strategy seems imminently sensible, even obvious. If few students are paying full price, why not bring the sticker price down to the amount the typical student pays?
Part of the problem is managing perceptions. When a college reduces its tuition, it risks signaling to students and their families the school might be in financial jeopardy—or is worth less as an educational investment.
As Richard Detweiler, president of the Great Lakes College Association, put it, “If everyone got into the boat at the same time, then they could drop their tuition.” Speaking to The Washington Post, Detweiler went on to say that, from a consumer and public policy point of view, the collaboration ought to benefit everyone.
Thus far, the NAICU proposal is quietly percolating among lobbyists and congressional committees. However, one obstacle is that exempting any sector from antitrust law, even temporarily, is certain to incite controversy.
Years ago, as many as 150 schools belonging to 24 groups convened to compare notes about financial aid and tuition costs, according to the Institute for College Access and Success.
Then, in 1991, the Justice Department brought charges of price fixing against the most prominent of them, the Ivy Overlap Group, which included MIT and eight Ivy League institutions—Brown, Columbia, Cornell, Dartmouth College, Harvard, Princeton, Yale and the University of Pennsylvania.
The government charged the defendant schools with violating the Sherman Antitrust Act “by illegally conspiring to restrain price competition on financial aid” to prospective undergraduate students. The group quickly settled, and the practice of comparing notes officially ceased.
The subject is still so touchy that many higher ed organizations don’t even want to broach it. We could head off controversy by designing a collaborative process that runs on transparency and adherence to a clear goal: a revised pricing system that benefits students and institutions alike.
Widespread reform won’t happen unless we commit to studying the issues in-depth and from multiple perspectives, ideally learning from the handful of schools that have pioneered tuition resets on their own.
The cost of college is a national preoccupation. Many private colleges and universities find themselves in a darkening market position, with no easy way out. To move toward a brighter future, educators should be given the opportunity to collaborate—and not collude—on solutions.
Wendy B. Libby is president of Stetson University.
