Considering a Reduction in the Price of Tuition?
John W. Dysart
The Dysart Group, Inc.
Much discussion has taken place over the last few years with regard to tuition pricing strategies, especially at private colleges and universities. Developments in the marketplace are stimulating new approaches.
– Some families are beginning to question the value of a college education and “return on investment” concerns have been fueled by the media.
– Pressure is growing from the federal government to slow the growth of college tuition.
– Some states are forcing public institutions to freeze tuition or are establishing caps on their future increases.
-Federal and state aid has stagnated and in some cases has been reduced.
– This period of economic decline and increased unemployment has created more financial need.
– The competition for students continues to increase as institutions often struggle to maintain enrollments and many are forced to deal with declining headcounts and net revenue.
A number of colleges and universities are making significant changes in their pricing strategies. This year alone at least 29 schools have frozen tuition and at least ten more have actually reduced tuition including Converse College, Concordia University, Belmont Abbey College, Ashland University and Alaska Pacific University. Should your institution consider reducing tuition to deal with the current market challenges? Frankly, it is not an approach I would recommend, as I fail to see any real advantage.
There can be a few benefits to a reduction in tuition.
– Tuition reductions coincide with reductions in institutional financial aid. It is likely that a significant drop in tuition and institutional aid will reduce the college or university’s discount rate.
– Tuition cuts tend to generate favorable publicity.
– Favorable publicity sometimes, but certainly not always, results in higher enrollments.
– Low tuition/low discount pricing makes the sticker price more realistic for prospective students and their families.
There are also risks associated with significant reduction in tuition.
– A tuition reduction can make an institution appear desperate in the market.
– Students and families may question the quality of a private institution that charges significantly less than its competitors.
– Scholarship offers will appear to be less generous compared to other colleges and universities.
While tuition reductions tend to generate a lot of press they do little to change the net cost of education. A University that reduces tuition by $10,000 is likely reducing institutional scholarship dollars by at least the same amount. For the vast majority of families, tuition reductions have no impact on out-of-pocket expense. Despite the claims that the move addresses the growing cost of higher education, it really makes no net difference for most families.
Notice how announcements regarding reductions in tuition don’t include corresponding announcements regarding staff layoffs, program elimination, salary cuts and such. It is because colleges and universities do not expect the tuition cut to result in a reduction in net revenue. The only families likely to realize a cut in net cost are those with little financial need and little or no institutional scholarships and grants.
It is not unusual for schools that cut tuition to revert back to high tuition rates.
– A college in North Carolina that cut tuition by 23% in 1996 now charges $26,632 for tuition and fees.
– A college in West Virginia that cut tuition by 42% in 2002 now charges $25,736 for tuition and fees.
– A college in New York that cut tuition by 30% in 1999 now charges $35,900 for tuition and fees.
– A college in Pennsylvania that cut tuition by 27% in 1998 now charges $25,852 for tuition and fees.
I think there are a number of other options available for colleges and universities to increase net revenue, compete
in the marketplace and address the escalating cost of higher education.
– For institutions with excess capacity, there are likely opportunities for enrollment growth.
– Incorporating on-line opportunities for students enrolled in traditional programs can create economies of scale and reduce costs.
– Consider making changes in academic programs to better focus institutional educational efforts. Offering under-enrolled majors is expensive.
– While it is critically important to maintain the physical plant, it is not necessary to engage in facility arms races.
– Making progress in decreasing attrition rates will likely result in reduced institutional expenditures.
– Consider creating opportunities for students to graduate in less than four years or create programs where students can earn baccalaureate and master’s degrees in five years.
– Invest in placement initiatives to improve employment opportunities for students.
– Eliminate viewbooks, brochures and catalogues to reduce costs. Take the plunge and move to paperless admission, registrar and financial aid offices.
– Evaluate your current financial aid practices to ensure that you are spending institutional financial aid funds wisely.
– Review parameters of endowed scholarship funds to ensure that the award rules support general goals with regard to academic quality and access. Many institutions have been able to work with donors to update the parameters based on new market realities.
– Look to increase the size of classes where possible.
– Create partnerships with other colleges and universities.
– Review current academic employment practices, including tenure.
– Carefully consider your cost for college athletics. It may make more sense to participate in NCAA Division III rather than Division II or NAIA.
– Increase teaching loads.
– Conduct a review to examine the opportunities to better utilize technology to reduce costs.
– Formerly review your textbook policies with an eye toward encouraging faculty to utilize electronic versions or less expensive textbooks.
– Make better use of facilities by examining course scheduling. Class can be scheduled in the afternoon and all day, even on Friday.
– Ensure that your library is maximizing use of digital delivery to reduce the cost of storing tens of thousands of books.
– Increase fund-raising efforts to provide more financial aid to students. Targeting successful graduates who personally benefitted from institutionally funded scholarships and grants during their enrollment periods would be a good place to start.
– Consider making greater use of adjunct faculty.
– Consolidate or eliminate offices with outdated or duplicate functions. For example, there is not need for separate Financial Aid and Scholarship offices.
– Research opportunities to outsource services.
– Examine travel by admission officers to reduce costs.
There is certainly nothing inherently wrong with the strategy of reducing tuition. I just do not believe that it serves a useful purpose and it is not really addressing concerns regarding net college costs.