Private colleges are offering steeper tuition discounts than ever before –49.1% for 2016’s first-time, full-time freshmen. But the strategy does not seem to be luring students or boosting revenue. The hefty discounts, reports the Wall Street Journal, “signal how pricing power is shifting from schools to students as some grow skeptical about the value of a costly college degree.”
Private college prices, like hospital prices, are increasingly divorced from reality. Only a tiny percentage of households can afford to pay $60,000 a year in tuition, fees, room and board — and only a small percentage pay the sticker price. Private colleges are price discounting aggressively as they compete for a shrinking number of college students. Nationally, undergraduate enrollment fell 1.9% last fall to 16.3 million.
Despite the increase in sticker price, rampant discounting resulted in net tuition revenue only 0.2% higher this year, well below the estimated 1.8% inflation rate for institutions of higher education, the Journal reports.
Said Ken Redd, director of research and policy analysis at the National Association of College and University Business Officers: “The path they’re on may not be sustainable for very much longer.”
Bacon’s bottom line: At Bacon’s Rebellion we focus mainly on Virginia’s public, not private, institutions of higher education. The sticker price for public colleges hasn’t gone as haywire as they have at private institutions, and public colleges don’t discount prices. Not officially. But they do discount through the back door by setting aside increasingly large sums of financial aid for lower-income students.
This chart shows the meteoric rise of financial aid provided by public Virginia institutions between the fall years from 2005 through 2015, based on State Council for Higher Education in Virginia data:
At state institutions push tuition & fees ever higher, the tab becomes ever more unaffordable to lower-income students. So colleges set aside more money for financial aid… most of which comes from tuition… which pushes tuition prices higher.
While the cost of attendance and price discounting are muted in comparison to private institutions, Virginia’s public colleges and universities are facing the same challenge: fighting for a shrinking number of applicants. With continued tuition increases, they are testing the outer bounds of what students will pay. George Mason University increased tuition 5.5% for in-state undergraduates this year, and Virginia Commonwealth University raised its tuition 3.8%. Will students continue to pay such elevated charges?
While elite Virginia institutions may have power to raise tuition with impunity, middle-tier institutions should heed what is happening to private colleges and universities where aggressive pricing combined with a shrinking demand has resulted in declining enrollment and stagnant revenues. This fall, when enrollment numbers are tallied, will tell the tale.
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