A Section
Price Wars on Campus; Colleges Use Discounts to Draw Best Mix Of Top Students,
Paying Customers
Albert B. Crenshaw
Washington Post Staff Writer
10/15/2002
The Washington Post
FINAL
A01
Copyright 2002, The Washington Post Co. All Rights Reserved
When Brian Frye decided last winter to head for law school, he knew he'd need a
big scholarship to make ends meet. He had an excellent undergraduate record and
unusual work experience, but he wasn't sure how interested schools would be.
He was right. The offers he got were all over the lot. Tulane University's offer
was very generous -- but only if he'd wait until next year to start. Georgetown
University's not-so-generous offer would, he figured, leave him deeply in debt.
So last month found him in Lexington, Va., set to enroll at Washington and Lee
University, the school that offered him the most affordable deal.
But on a Friday a few days after he arrived, the phone rang. It was Georgetown.
Another student had dropped out, and more money was available. Did he want it? You
have an hour to decide, Georgetown said.
Today Frye is at Georgetown, in possession of a better scholarship and new
insight into the workings of American higher education.
The brutal struggle for admission to top U.S. colleges and professional schools is
widely publicized, but behind the scenes an equally brutal battle is being waged among
colleges to fill seats -- and with the best students possible.
Colleges are using every weapon at their disposal. They employ psychology
where they can, advertising such assets as their football team (or lack of one), their rural
(or urban) setting, their small (or large) size.
But the key ammunition in this fight is money. Call them scholarships, call them
grants -- or just call them discounts -- the vast majority of colleges are using these
reductions in their “sticker prices” to get the best blend of good students and paying
customers they can.
“The very wealthy [schools], the very top of the food chain, the Harvards and
Williamses and Amhersts -- there may be a total of 20 of these -- . . . price [their school
year] very simply. They've got a sticker price and everybody pays it -- unless they are
poor,” said Gordon C. Winston, a Williams College professor who has studied the
economics of higher education extensively.
“The moment you get below these terribly rich, terribly high-powered schools,
you get schools trying to upgrade the quality of their students by offering price
discounts,” he said.
These colleges of less wealth and less prestige “are in a different world,” he said.
“What they do is follow the rule of good ol' Econ 101 of trying to get the most money
they can out of the kid and still get him to come.”
Winston said “they modulate the discount,” offering less aid to students who are
either less desirable or more likely to come anyway, and more money to top prospects or
those who school officials believe might otherwise be swayed by a better offer.
“Universities are trying to find the people whose decisions will be changed by
these grants,” said Harvard economics professor Caroline M. Hoxby.
In some ways, American colleges and universities have become like airlines and
hotels, practicing “yield management” to try to maximize the revenue generated by every
seat or bed.
But in most cases, unlike hotels and airlines, colleges also care about who is in
those seats and beds, not merely how much they have paid.
“Twenty-five years ago, colleges really saw student aid as a charitable operation
run within the college. If the finance office took an interest, it was essentially to make
sure they kept their budget under control,” said Michael S. McPherson, president of
Macalester College in St. Paul, Minn., who has studied college finances.
“Over the last 15 years you could see the light bulb go on with a lot of financial
vice presidents who came to see that rather than a charitable operation, financial aid was,
at least in part, a strategic tool that could be used to manage both the quality of the class
and the net revenue of the class,” McPherson said.
The result, Williams's Winston has said, is that American higher education looks
like something that is half church and half used-car lot.
Last fall, according to a study of 331 colleges published by the National
Association of College and University Business Officers, 79.2 percent of undergraduate
college students received some form of aid. Among small colleges that charge relatively
low tuition anyway -- the least prestigious -- 89.7 percent of students got aid. “Low” is,
of course, a relative term when it comes to tuition. The average “list price” at these
schools was $19,880.
The average discount off the tuition sticker price for all schools was 38.2 percent,
the study found, and for the small schools with low tuition the average was 40.1 percent.
An official of one small midwestern college told recently of running into his
counterpart at a similar institution and asking him how many full-paying students he had
whose high school grade-point average had been over 3.5. The answer: “zero.”
“People expect to be rewarded these days, as everybody does. Unless you are in
the complete seller's market that the Ivys are in,” you have to offer deals to compete, this
official said.
State-supported public colleges got into this game later than private schools, but
today they are playing enthusiastically.
An increasingly popular approach is to create an “honors college” within the
school and use it to offer special attention and a small-college atmosphere to top high
school seniors.
This is often combined with some form of scholarship, to create a double
discount: offering a more expensive (from the college's point of view) education at a
lower-than-normal price.
For some schools these decisions are life-or-death matters. Since 1997 about 30
colleges have closed their doors, the majority of them small, private institutions unable to
generate enough endowment and tuition revenue to maintain their facilities and meet their
payrolls.
But for most, decisions are driven by a combination of factors, including a desire
to have a more prestigious institution along with the belief that students really do benefit
from having brighter, more engaged classmates.
Hoxby said colleges realize that the presence of top students “makes possible the
whole experience” other students have. Not only do students learn directly from one
another, but the presence of a sort of critical mass of them makes possible excellence in
organized activities, such as political forums, theater groups and orchestras.
All this makes it easier for the college to attract good faculty members and may
even make it possible to pay them less, she said.
Students may also benefit in other ways, Hoxby said. And though she said these
are not benefits the colleges ought to care about, she put her finger on what matters to
many families: Even if I were a student who didn't care what I learned, Hoxby said, I
would “want to send a signal to other people for the rest of my life that I'm a really smart
person. I would want the university to do a lot of selecting of students. I want them to vet
me,” thus improving the likelihood of social and economic success later on.
This makes for a highly imperfect market in which the buyers of higher education
have trouble determining who is offering them the best deal. Unlike air travel, in which,
assuming a minimum level of safety, a ticket to Cincinnati is a ticket to Cincinnati, higher
education's benefits are difficult to assess. And the consequences of a bad decision (a)
may not show up for years and (b) could be dire and irremediable.
All of which makes families reluctant to choose a college strictly on price for the
same reason they would be reluctant to choose a heart surgeon strictly on price.
In this environment the enrollment dance has grown increasingly elaborate.
There is now an industry called “student enrollment management” that advises
schools on how to offer aid “to get the best quality for the least reduction in price,”
Williams's Winston said.
On their side, students and their families are far more conscious of the range of
colleges and are more willing to consider schools far from home, studies show. Thus,
state universities and regional private schools can no longer count on getting a certain
number of the top local high school graduates simply because of proximity.
The result is more opportunity for students and more competition among colleges
for desirable applicants.
“What's happening is that colleges and universities are highly motivated to enroll
more and more really smart kids and more and more diverse kids and to do so in ways
that don't break the bank,” said David W. Strauss of Art & Science Group, a Baltimorebased consulting firm.
In addition to discounts, schools are employing tactics such as “preferential
packaging,” in which more-desirable applicants get aid offers that contain more in the
way of grants and less in loans and term-time employment.
They also employ “need conscious” admissions, in which some applicants,
typically more marginal ones, are given an edge if they can pay full price.
And some colleges will match other offers that applicants get -- or at least match
offers from schools they regard as competitors. Relatively few, though, simply cut the list
price.
In part, Strauss said, that is because they run the risk of losing revenue. “Just
because 95 percent of the students are receiving aid doesn't mean that all 95 are receiving
the same” amount, he said. With a higher sticker price, the students who get less aid still
pay more, and “that advantage remains more powerful than the added buzz would be
from being able to claim that the cost of attendance is lower than you thought.”
One school that has cut the price, though, is Muskingum College in southeastern
Ohio.
The decision was made in the mid-'90s, said Jeff Zellers, dean of enrollment.
“The situation in enrollment wasn't bad . . . but we were seeing a slowing down of net
revenue with each succeeding class,” he said. “We had lost over three decades all of our
fuller-paying students. They had just disappeared out of our market.”
So Muskingum “did a lot of research, mostly on our own, and took the big jump”
in fall 1996. “It's worked beyond what we thought it would. Although I don't want to
emphasize that too much . . . I don't think anything else would explain the increase” the
school saw in enrollment, he said.
But he added that the credit for sustaining the trend “goes to the people on
campus producing the product of education. If [the students] weren't experiencing good
things here, they would go back home and say 'That place is no good.' “
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