8 ms·

The End of College Tuition Pricing as We Know It?

60 points by DarkContinent 11y ago

Loughla 11y ago
The practice of guaranteeing the same price for four years is neither new nor groundbreaking. It's called tuition lock, and state institutions (at least in my state) have done that for decades. And to answer the headline's question. No. No this is not the end of tuition pricing as we know it. It's just a different sales pitch and marketing strategy.
- Vraxx 11y ago
  It's not just the same tuition for all 4 years though. For instance if you pay 10,000 for tuition with 48% "discount" through merit-scholarships or what have you. Then next year that discount is only 40%, but your tuition stays the same at 10,000. You're still paying 800 more in tuition, but your tuition didn't go up.
  - JonFish85 11y ago
    Which, to me, falls into the "It's just a different sales pitch and marketing strategy." category. It's a marketing stunt to make it sound good & reasonable at first glance, but the devil is in the details.
    - caseysoftware 11y ago
      Apartment complexes do a variation of this all the time. In your first year, they give you "one month free" and then amortize it over the life of the lease. In the second year, you don't get on the one month and there's an increase, so it becomes a huge increase all at once. For example (made up numbers): Year 1: $1k/month on a 12 month lease, 1 month free amortized -> $917/month Year 2: Year 1 + 5% -> $1050/month Removing the discount and increasing the base is a double whammy. And - like in the article - the switching costs (economic and emotional) are so high that many people will go along with it.
      - logfromblammo 11y ago
        Once, while living in a big city, I was paying about $625/mo for my apartment. When the lease neared expiration, they offered me a new lease at around $800/mo. I tossed that in the garbage, and moved before my last month was up, to a much worse place that was only $500/mo. (You can buy a lot of mousetraps and roach baits with an extra $125/mo.) The last week of the month, I got a call from the old landlords. They said they hadn't received a signed copy of their lease renewal. I asked why they thought I would accept such a huge increase in rent. They said they had just renovated the place before I moved in. I laughed at them, told them I'd give the keys back on the last day of my current lease, so please be prepared to return my security deposit, and hung up. I'd like to imagine that the apartment went vacant for a few months after that, and they cried into their pillows every night because of it, but that wasn't very likely. The apartment market had a pretty rapid turnover back then, so it was probably only empty a few weeks. In my view, that huge price hike was a clear GTFO/FOAD signal. But the university undergraduate education market is much less competitive than the apartment rental markets, and the cost to going to a competitor much higher, so it's no surprise that they can get away with higher and more frequent price hikes.
dumbmatter 11y ago
Tuition pricing should be based on demonstrated need and real merit, not just the desire of a college to steal a few smart students from a competitor down the street. What does "real merit" mean? I can't think of any definition that doesn't include trying to bring in more smart students...
- redblacktree 11y ago
  I think they mean the merit of the institution.
  - a3voices 11y ago
    I don't think so, because it's right after "real need" which is referring to students. If it is as you suggest then it's a badly formed sentence.
- rhino369 11y ago
  I'm not sure what the article means, but I'd say the way a lot of schools do merit aid is crazy. For example, in law school a few extra points on the LSAT will get you from being rejected to getting a full ride. And schools are doing that sort of thing entirely because the US News and World Report rankings take into account average LSAT scores. Its just pure gamesmanship. The school doesn't really benefit from having an extra 172 scorer verse a 169. But they'll throw 150k in scholarships at the later.
roymurdock 11y ago
Here is the main point of the article: Students at private colleges received an average 42 percent discount on their tuition in 2014-2015. As recently as 2010, it was 36 percent. There is another number that is perhaps even more important for students and parents to consider. The same survey, from the national association of college financial officers, found that the average discount for first-year students is 48 percent. That gap of six percentage points between the overall rate and the discount for freshmen usually means that colleges are giving bigger grants to first-year students than everyone else. In other words, it’s a classic bait and switch. Colleges attract students with a bigger discount and a boatload of financial aid the first year, and then once the students like the campus and want to stay to actually finish their degree, they give the students less aid for their remaining years. The author never fully distinguishes between scholarships and financial aid. He lumps them together in a "discount" category. The two forms of cost-saving are very different and should have been addressed separately in the article. It makes sense that merit scholarships pay our more on aggregate to freshmen rather than seniors, as some percentage will lose their scholarships due to poor grades (happened to a friend), social infractions, or some other merit scholarship-ending action. Most scholarships in my experience are real (half tuition, full tuition) rather than nominal ($25k per year). I can't speak to financial aid, but I assume it's like any other contract where you can see the terms and conditions and amount that the college is willing to subsidize your education expenses every year, subject to certain academic and social standing requirements. Again, some percentage of students probably lose financial aid for not meeting these requirements from one year to the next. Maybe it's easier to game financial aid as tuition rises and students are offered a fixed nominal amount? Is it fair to characterize financial aid as a bait and switch?
- maratd 11y ago
  > the college is willing to subsidize your education expenses every year The college isn't subsidizing anything. It's called price discrimination. That's what the article is partially about. If you look at the demand curve, you see that different people are willing to pay different prices for the same service. Some people have more money, some less. Some want it more, some less. Ideally, what a service provider wants to do is charge everyone the maximum price they're willing to pay. This maximizes their revenue at the expense of everyone else. They blow up their tuition to ridiculous levels and then discount all the way down the demand curve to maximize intake. They discount using scholarships, financial aid, and other programs. And then they sell you the bullshit that they're helping you. We don't tolerate this abuse from any other industry.
ikeboy 11y ago
But every good strategy eventually runs its course, and there is increasing evidence that the days of tuition discounting are coming to an end. Yet the only evidence offered is that tuition discounting has gotten greater recently. It's ... kind of interesting how the article manages to spin "X is going higher" as evidence for "X is going to go way down".
imglorp 11y ago
Can someone with a micro-econ background explain what is going wrong with the free market model and how to fix it? It used to be that goods and services would compete on price and quality. If someone could offer the same quality for less, buyers would go there. It was self regulating to some point: predation was limited by the system. Now, however, there are dozens of markets where this is no longer true. There are geographically region-locked prices: pharmaceuticals, textbooks, dvd's, etc. There are opaque and arbitrary prices like healthcare, software (hello oracle), and per the article, airlines and tuition. Some of this is due to artificial protections like patents and copyrights. But not all of it. What's up?
- pjc50 11y ago
  (1) Akerloff's paper "Market for Lemons": ability to assess quality depends on information. Adequate information may not be available to all parties equally and may be costly to acquire. It may not be realistic for private individuals to assess the quality of their healthcare or tuition, even after the event. See also VW: it's easy to lie about details which affect the quality. (2) Increasing perfection of price discrimination: market participants charging different prices to different customers. Airlines can do this because of the ID requirements and non-resaleable tickets. Private healthcare can do this too. (3) Switching costs: Oracle win at lockin. Big problem in the software world, but also for tuition (incomplete courses not portable). (4) Regulatory capture & paid lobbying: applies to pharmaceuticals, textbooks, DVDs, healthcare.
  - roymurdock 11y ago
    In summary: frictions (informational, capital, & regulatory) that distort the efficiency of free markets, which technology can help solve. In the context of the college discussion, it's largely informational and regulatory. How can you judge the value of a huge intangible such as a college education? How is the government structuring loans and the public school system to provide alternatives to the price of education on the free market?
  - rm999 11y ago
    The information issue with healthcare and education is even more perverse than in "Market for Lemons" - it's not that the quality of the product is unknown (although it often arguably is), it's that the price is unknown. As the article says, incoming freshman have no idea how much their 2nd through 4th years will cost, just an upper ceiling. They are usually misled to believe their final tuition will be lower than it actually is, skewing their value judgement. Likewise with healthcare, I often get surprise bills from my insurance company for just doing what my doctor instructs me to do. There's a lot of incentive for doctors to do unnecessary procedures without explaining the costs.
eranation 11y ago
Georgia Tech's $7,000 Master of Science in Computer Science [0] (with partnership with Udacity) or the University of Illinois $20,000 iMBA [1] (at Coursera) is getting us closer to "The End of College Tuition Pricing as We Know it". A 50% discount from a $200,000 undergraduate degree at Harvard is not. [0] - http://www.omscs.gatech.edu/ http://www.omscs.gatech.edu/ [1] - https://www.coursera.org/course/imba https://www.coursera.org/course/imba
- rhino369 11y ago
  Thanks for linking to that GTech MSCS degree. That is perfect for my brother who is disabled and is learning CS on his own via MOOCS. The UIUC iMBA smells like a scam. MBA's are mostly about the networking.
- rms25 11y ago
  Wow never heard of that 7k MS in CS from Georgia Tech, really thinking of signing up checked the requirements and looks good.
derekp7 11y ago
Just out of curiosity, does anyone have a link to an example breakdown of the costs per student in a typical university? A full course load is about 12 hours total spent in class per week, for 16 weeks. Let's bump this number up to 20 hours, to account for overhead (homework grading, office hours, course design, etc). And given a class size of 25 students, that means 1 instructor can handle 50 full time students. If that instructor gets paid 100K a year, that works out to be 2K of instructor time per student. So what other overhead is involved that brings the cost of college up to 20 - 50K per year? You have the building, administration, potentially lab equipment, and teaching supplies (chalk/markers/copy paper/etc). But I still can't see that bumping the price up that much. Is the per-student share of the building cost really that high? Or are there 10 administrative staff for every one instructor?
- chongli 11y ago
  The goal of most colleges is to grow without bound, consuming entire cities in the process. Administrative staff make up a big part of costs and instructors are paid far less on average than 100k. The real costs are in the construction of huge, fancy new buildings and luxury facilities designed to entice parents and students alike.
  - hijinks 11y ago
    new construction is the main reason I don't donate any money to my college. When I went there 15 years ago the tuition was around 18k and when I left 4 years later it was 23k and they were just starting to put up new buildings right and left. Now its 55k
- cellar_door 11y ago
  Maybe it's just my university, but I spend 21 hours a week in class, even though I am officially taking 15 "units"). Most STEM classes are a 6 hour/week time commitment even though they are only listed as 4 units officially. Also, class time is split about 60/40 between professors and graduate (sometimes undergraduate) student instructors. Class size for the student instructors is 25-30 and class size for the professors is anywhere from 100-1400, depending on the class. Some upper div classes are notably smaller, depending on the department. It's my understanding that this setup is pretty common at large public universities.
a-dub 11y ago
Rolling back the Bush-era provisions that make private student loans non-dischargable in bankruptcy would do wonders in putting downward pressure on tuition. Federal loans are capped at around $50k which seems to me like a perfectly reasonable number for educational debt, especially considering the wealth of options available for adjusting terms when there's trouble making payments. (as opposed to private loans, which just sail right on into default)
- Shivetya 11y ago
  the loans should not be able to be discharged in bankruptcy court. what the government needs to do is what it did to the medical industry, assign costs to books, classes, and such, that it will reimburse through the loan process and no more. Then require the same costs to be offered to those who are not using government loads. school costs are not high because you cannot discharge your loans, they are high because colleges know you will try to get the loans and its not the schools responsibility to deliver affordable classes. simply make it part of federal law, if you accept any federal funds you will adopt the a federally prescribed costs structure for an education. if you want your students to have access to federal funds the same rules also apply
- rhino369 11y ago
  You can go well over 50k on Federal loans with graduate programs. I had about 264k in all federal loans before I refi'd with SOFI.
- dragonwriter 11y ago
  > Rolling back the Bush-era provisions that make private student loans non-dischargable in bankruptcy would do wonders in putting downward pressure on tuition. Would it? I was under the impression that private student loan lending collapsed shortly after the 2009 crash and hadn't really recovered, though its risen slightly since the crash. If private student loans were the main driver of tuition, it should have collapsed after the 2009 crash as well.
  - a-dub 11y ago
    Interesting. You're right. It halved in 2009 and dropped even further to about 40% of its previous high, although it appears to be growing again... [1] I still think that it would be wise to structure the marketplace such that there is even less private lending. I think this ultimately gives the Federal government more policy levers that can be used to push back on tuition. I do agree with the original piece that the peek-a-boo games that college's play with their financial aid packages are silly. The pricing should be clear and simple, discounts for low-income students should be stated up front. Today's "Let's make a deal" games are just dumb... [1] http://trends.collegeboard.org/student-aid/figures-tables/total-federa-nonfederal-loans-time http://trends.collegeboard.org/student-aid/figures-tables/to...
Qwertious 11y ago
No. Betteridge's law of headlines is an adage that states: "Any headline that ends in a question mark can be answered by the word no." It is named after Ian Betteridge, a British technology journalist,[1][2] although the principle is much older.

60 points by DarkContinent 11y ago

The practice of guaranteeing the same price for four years is neither new nor groundbreaking. It's called tuition lock, and state institutions (at least in my state) have done that for decades. And to answer the headline's question. No. No this is not the end of tuition pricing as we know it. It's just a different sales pitch and marketing strategy.

Vraxx 11y ago
It's not just the same tuition for all 4 years though. For instance if you pay 10,000 for tuition with 48% "discount" through merit-scholarships or what have you. Then next year that discount is only 40%, but your tuition stays the same at 10,000. You're still paying 800 more in tuition, but your tuition didn't go up.
- JonFish85 11y ago
  Which, to me, falls into the "It's just a different sales pitch and marketing strategy." category. It's a marketing stunt to make it sound good & reasonable at first glance, but the devil is in the details.
  - caseysoftware 11y ago
    Apartment complexes do a variation of this all the time. In your first year, they give you "one month free" and then amortize it over the life of the lease. In the second year, you don't get on the one month and there's an increase, so it becomes a huge increase all at once. For example (made up numbers): Year 1: $1k/month on a 12 month lease, 1 month free amortized -> $917/month Year 2: Year 1 + 5% -> $1050/month Removing the discount and increasing the base is a double whammy. And - like in the article - the switching costs (economic and emotional) are so high that many people will go along with it.
    - logfromblammo 11y ago
      Once, while living in a big city, I was paying about $625/mo for my apartment. When the lease neared expiration, they offered me a new lease at around $800/mo. I tossed that in the garbage, and moved before my last month was up, to a much worse place that was only $500/mo. (You can buy a lot of mousetraps and roach baits with an extra $125/mo.) The last week of the month, I got a call from the old landlords. They said they hadn't received a signed copy of their lease renewal. I asked why they thought I would accept such a huge increase in rent. They said they had just renovated the place before I moved in. I laughed at them, told them I'd give the keys back on the last day of my current lease, so please be prepared to return my security deposit, and hung up. I'd like to imagine that the apartment went vacant for a few months after that, and they cried into their pillows every night because of it, but that wasn't very likely. The apartment market had a pretty rapid turnover back then, so it was probably only empty a few weeks. In my view, that huge price hike was a clear GTFO/FOAD signal. But the university undergraduate education market is much less competitive than the apartment rental markets, and the cost to going to a competitor much higher, so it's no surprise that they can get away with higher and more frequent price hikes.

dumbmatter 11y ago

Tuition pricing should be based on demonstrated need and real merit, not just the desire of a college to steal a few smart students from a competitor down the street. What does "real merit" mean? I can't think of any definition that doesn't include trying to bring in more smart students...

redblacktree 11y ago
I think they mean the merit of the institution.
- a3voices 11y ago
  I don't think so, because it's right after "real need" which is referring to students. If it is as you suggest then it's a badly formed sentence.
rhino369 11y ago
I'm not sure what the article means, but I'd say the way a lot of schools do merit aid is crazy. For example, in law school a few extra points on the LSAT will get you from being rejected to getting a full ride. And schools are doing that sort of thing entirely because the US News and World Report rankings take into account average LSAT scores. Its just pure gamesmanship. The school doesn't really benefit from having an extra 172 scorer verse a 169. But they'll throw 150k in scholarships at the later.

roymurdock 11y ago

Here is the main point of the article: Students at private colleges received an average 42 percent discount on their tuition in 2014-2015. As recently as 2010, it was 36 percent. There is another number that is perhaps even more important for students and parents to consider. The same survey, from the national association of college financial officers, found that the average discount for first-year students is 48 percent. That gap of six percentage points between the overall rate and the discount for freshmen usually means that colleges are giving bigger grants to first-year students than everyone else. In other words, it’s a classic bait and switch. Colleges attract students with a bigger discount and a boatload of financial aid the first year, and then once the students like the campus and want to stay to actually finish their degree, they give the students less aid for their remaining years. The author never fully distinguishes between scholarships and financial aid. He lumps them together in a "discount" category. The two forms of cost-saving are very different and should have been addressed separately in the article. It makes sense that merit scholarships pay our more on aggregate to freshmen rather than seniors, as some percentage will lose their scholarships due to poor grades (happened to a friend), social infractions, or some other merit scholarship-ending action. Most scholarships in my experience are real (half tuition, full tuition) rather than nominal ($25k per year). I can't speak to financial aid, but I assume it's like any other contract where you can see the terms and conditions and amount that the college is willing to subsidize your education expenses every year, subject to certain academic and social standing requirements. Again, some percentage of students probably lose financial aid for not meeting these requirements from one year to the next. Maybe it's easier to game financial aid as tuition rises and students are offered a fixed nominal amount? Is it fair to characterize financial aid as a bait and switch?

maratd 11y ago
> the college is willing to subsidize your education expenses every year The college isn't subsidizing anything. It's called price discrimination. That's what the article is partially about. If you look at the demand curve, you see that different people are willing to pay different prices for the same service. Some people have more money, some less. Some want it more, some less. Ideally, what a service provider wants to do is charge everyone the maximum price they're willing to pay. This maximizes their revenue at the expense of everyone else. They blow up their tuition to ridiculous levels and then discount all the way down the demand curve to maximize intake. They discount using scholarships, financial aid, and other programs. And then they sell you the bullshit that they're helping you. We don't tolerate this abuse from any other industry.

ikeboy 11y ago

But every good strategy eventually runs its course, and there is increasing evidence that the days of tuition discounting are coming to an end. Yet the only evidence offered is that tuition discounting has gotten greater recently. It's ... kind of interesting how the article manages to spin "X is going higher" as evidence for "X is going to go way down".

imglorp 11y ago

Can someone with a micro-econ background explain what is going wrong with the free market model and how to fix it? It used to be that goods and services would compete on price and quality. If someone could offer the same quality for less, buyers would go there. It was self regulating to some point: predation was limited by the system. Now, however, there are dozens of markets where this is no longer true. There are geographically region-locked prices: pharmaceuticals, textbooks, dvd's, etc. There are opaque and arbitrary prices like healthcare, software (hello oracle), and per the article, airlines and tuition. Some of this is due to artificial protections like patents and copyrights. But not all of it. What's up?

pjc50 11y ago
(1) Akerloff's paper "Market for Lemons": ability to assess quality depends on information. Adequate information may not be available to all parties equally and may be costly to acquire. It may not be realistic for private individuals to assess the quality of their healthcare or tuition, even after the event. See also VW: it's easy to lie about details which affect the quality. (2) Increasing perfection of price discrimination: market participants charging different prices to different customers. Airlines can do this because of the ID requirements and non-resaleable tickets. Private healthcare can do this too. (3) Switching costs: Oracle win at lockin. Big problem in the software world, but also for tuition (incomplete courses not portable). (4) Regulatory capture & paid lobbying: applies to pharmaceuticals, textbooks, DVDs, healthcare.
- roymurdock 11y ago
  In summary: frictions (informational, capital, & regulatory) that distort the efficiency of free markets, which technology can help solve. In the context of the college discussion, it's largely informational and regulatory. How can you judge the value of a huge intangible such as a college education? How is the government structuring loans and the public school system to provide alternatives to the price of education on the free market?
- rm999 11y ago
  The information issue with healthcare and education is even more perverse than in "Market for Lemons" - it's not that the quality of the product is unknown (although it often arguably is), it's that the price is unknown. As the article says, incoming freshman have no idea how much their 2nd through 4th years will cost, just an upper ceiling. They are usually misled to believe their final tuition will be lower than it actually is, skewing their value judgement. Likewise with healthcare, I often get surprise bills from my insurance company for just doing what my doctor instructs me to do. There's a lot of incentive for doctors to do unnecessary procedures without explaining the costs.

eranation 11y ago

Georgia Tech's $7,000 Master of Science in Computer Science [0] (with partnership with Udacity) or the University of Illinois $20,000 iMBA [1] (at Coursera) is getting us closer to "The End of College Tuition Pricing as We Know it". A 50% discount from a $200,000 undergraduate degree at Harvard is not. [0] - http://www.omscs.gatech.edu/ http://www.omscs.gatech.edu/ [1] - https://www.coursera.org/course/imba https://www.coursera.org/course/imba

rhino369 11y ago
Thanks for linking to that GTech MSCS degree. That is perfect for my brother who is disabled and is learning CS on his own via MOOCS. The UIUC iMBA smells like a scam. MBA's are mostly about the networking.
rms25 11y ago
Wow never heard of that 7k MS in CS from Georgia Tech, really thinking of signing up checked the requirements and looks good.

derekp7 11y ago

Just out of curiosity, does anyone have a link to an example breakdown of the costs per student in a typical university? A full course load is about 12 hours total spent in class per week, for 16 weeks. Let's bump this number up to 20 hours, to account for overhead (homework grading, office hours, course design, etc). And given a class size of 25 students, that means 1 instructor can handle 50 full time students. If that instructor gets paid 100K a year, that works out to be 2K of instructor time per student. So what other overhead is involved that brings the cost of college up to 20 - 50K per year? You have the building, administration, potentially lab equipment, and teaching supplies (chalk/markers/copy paper/etc). But I still can't see that bumping the price up that much. Is the per-student share of the building cost really that high? Or are there 10 administrative staff for every one instructor?

chongli 11y ago
The goal of most colleges is to grow without bound, consuming entire cities in the process. Administrative staff make up a big part of costs and instructors are paid far less on average than 100k. The real costs are in the construction of huge, fancy new buildings and luxury facilities designed to entice parents and students alike.
- hijinks 11y ago
  new construction is the main reason I don't donate any money to my college. When I went there 15 years ago the tuition was around 18k and when I left 4 years later it was 23k and they were just starting to put up new buildings right and left. Now its 55k
cellar_door 11y ago
Maybe it's just my university, but I spend 21 hours a week in class, even though I am officially taking 15 "units"). Most STEM classes are a 6 hour/week time commitment even though they are only listed as 4 units officially. Also, class time is split about 60/40 between professors and graduate (sometimes undergraduate) student instructors. Class size for the student instructors is 25-30 and class size for the professors is anywhere from 100-1400, depending on the class. Some upper div classes are notably smaller, depending on the department. It's my understanding that this setup is pretty common at large public universities.

a-dub 11y ago

Rolling back the Bush-era provisions that make private student loans non-dischargable in bankruptcy would do wonders in putting downward pressure on tuition. Federal loans are capped at around $50k which seems to me like a perfectly reasonable number for educational debt, especially considering the wealth of options available for adjusting terms when there's trouble making payments. (as opposed to private loans, which just sail right on into default)

Shivetya 11y ago
the loans should not be able to be discharged in bankruptcy court. what the government needs to do is what it did to the medical industry, assign costs to books, classes, and such, that it will reimburse through the loan process and no more. Then require the same costs to be offered to those who are not using government loads. school costs are not high because you cannot discharge your loans, they are high because colleges know you will try to get the loans and its not the schools responsibility to deliver affordable classes. simply make it part of federal law, if you accept any federal funds you will adopt the a federally prescribed costs structure for an education. if you want your students to have access to federal funds the same rules also apply
rhino369 11y ago
You can go well over 50k on Federal loans with graduate programs. I had about 264k in all federal loans before I refi'd with SOFI.
dragonwriter 11y ago
> Rolling back the Bush-era provisions that make private student loans non-dischargable in bankruptcy would do wonders in putting downward pressure on tuition. Would it? I was under the impression that private student loan lending collapsed shortly after the 2009 crash and hadn't really recovered, though its risen slightly since the crash. If private student loans were the main driver of tuition, it should have collapsed after the 2009 crash as well.
- a-dub 11y ago
  Interesting. You're right. It halved in 2009 and dropped even further to about 40% of its previous high, although it appears to be growing again... [1] I still think that it would be wise to structure the marketplace such that there is even less private lending. I think this ultimately gives the Federal government more policy levers that can be used to push back on tuition. I do agree with the original piece that the peek-a-boo games that college's play with their financial aid packages are silly. The pricing should be clear and simple, discounts for low-income students should be stated up front. Today's "Let's make a deal" games are just dumb... [1] http://trends.collegeboard.org/student-aid/figures-tables/total-federa-nonfederal-loans-time http://trends.collegeboard.org/student-aid/figures-tables/to...

Qwertious 11y ago

No. Betteridge's law of headlines is an adage that states: "Any headline that ends in a question mark can be answered by the word no." It is named after Ian Betteridge, a British technology journalist,[1][2] although the principle is much older.