Has a Revolution in College Affordability Begun in Philadelphia?
Some kids go to church to learn their virtues. I got the basics from watching Seinfeld reruns. Lessons like why it’s wrong to pee in the shower and why to never, ever trust a car dealer. (Episode 167: Jerry ventures to buy a convertible and is pummeled with hidden fees; he ends up with an “insider’s deal” because his friend is dating the salesman.) Part of being a good car salesman is making the buyers feel like they’re walking away with a steal (bonus cup holders!), whether or not it’s actually a good deal. That’s why car dealers offer discounts wherever possible. Sticker prices tend to be fickle.
The same ambiguity applies to college tuition. Everyone from Bernie Sanders to big banks has complained about the escalating cost of a bachelor’s degree. But lost in the uproar is the fact that financial aid has also reached an all-time high. Tuition prices at four-year private colleges have grown 166 percent since 1995, but the actual price students pay is up just 17 percent. That’s not to downplay the deleterious effects of student debt, but rather to say that the sticker price of college has become a farce. With fewer families able to pay anything close to these prices, colleges have to offer oodles of discounts in the form of grants and scholarships to keep the dorms full. Last year, first-time freshmen paid just 48.6 percent of the sticker price for private colleges. In other words, colleges are perpetually engaged in a fire sale.
In this context, two local colleges are experimenting with an Occam’s razor approach, cutting through the clutter of tuition discounts to reduce both their tuition and aid. The early returns suggest Higher Ed might be overthinking the tuition game.
In September 2015, Bryn Mawr’s Rosemont College announced it would cut tuition 43 percent and slash $1,900 from room and board, bringing the $46,000 sticker price down to $30,000. That’s on par with the in-state cost for Temple. “We went from a high published price and a high discount to a low published price and a low discount,” says school president Sharon Hirsh. “One of our goals was to take away the confusion about college pricing.”
Although the move sounds altruistic, it may have had more to do with marketing. In the year after the reset, Rosemont undergrads saved $815 on average. That’s a drop in the bucket for a cash-strapped college-bound family. And yet applications rose 64 percent at Rosemont the following year. First-year enrollment was up 31 percent. And Rosemont, which had well-publicized financial troubles as recently as 2008, is now projecting a larger operating budget, thanks to an expected rise in revenue.
The gambit has worked because people don’t always think rationally about sticker prices. A 2015 survey by Sallie Mae suggested that 56 percent of college-seeking students eliminate a school before applying based on the price point. “Over half of our potential applicant pool was not looking at us as soon as they read our listed price,” says Hirsh.
This September, La Salle University followed suit, cutting its tuition 29 percent, to $28,800. The goal was to boost enrollment, but the school also hopes the move will improve the economic diversity of applicants. “The middle class is getting squeezed on college access,” says president Colleen Hanycz. “Sometimes, having a sticker price that is extremely inflated is a deterrent.”
So, will more Philly colleges follow? Though a handful of schools are also testing the model nationally, the longstanding pricing practices of Higher Ed suggest not. Schools have traditionally operated with what some call the Chivas Regal effect in mind: Consumers associate higher-priced goods with superior quality or value. We find a $50,000 tuition offered at half price more desirable than a $25,000 tuition.
But the recession has upended the Chivas Regal paradigm. Families are more price-conscious than ever, and schools are desperate to gain and retain market share (a.k.a. students) due to myriad financial pressures, not least of which is the fact that national enrollment has declined every year since 2010. It all has several analysts using the B-word — bubble! — in assessing the future of Higher Ed. It’s now a zero-sum game for colleges to survive and thrive. There will undoubtedly be a lot of eyes on the fortunes of Rosemont and La Salle.
Published as “Bursting the Tuition Bubble” in the December 2016 issue of Philadelphia magazine.