College Pete

Price Elasticity, Tuition Discounts, and College Admissions

Price Elasticity, Tuition Discounts, and College Admissions

Any parent trying to decipher the new rules of college pricing should check out Jon Marcus’ recent article about tuition subsidies. College is a business — how they set and then discount prices is deliberate and strategic — and it is intended to accomplish two things: 1) to build the most impressive ‘class’ and 2) to meet a pre-set net tuition objective for that class. The business office is far more concerned with tuition revenue as an aggregrate; and less concerned with what each individual student is paying. And therein lie the potential landmines (e.g., need-aware admissions practices that may disadvantage a pre-paid, in-state student) and the opportunities (as in the proclivity of schools to use ‘discounts’ to incent desirable students – applicants who will ’round out’ their class).

Notice the intersect of admissions, price and what you’ll actually pay for your kid’s college education. Sticker price is merely an opening bid, a relative amount that is often higher (sometimes much higher) than most students will wind up paying. The College Board estimates that more than 80% of incoming freshmen will actually pay less than the full sticker price for their education. The difference is made up by the 20% of students who subsidize the cost for everyone else.

Out-of-state students at public universities are one example. The Marcus article centers around a Washington State resident who is a sophomore at a California public university — she pays more than 2-1/2 times the tuition most of her in-state classmates pay (for the same education). By the way, that’s why I always caution families that an out-of-state public university might be the most expensive option for your student. This should not surprise you. It’s no secret that public universities aggressively recruit out-of-state students and quietly covet international students – it’s the most oft-whispered explanation for the hyper (and unwarranted) competitiveness among in-state applicants at our own public universities! Out of state and international students often pay full price in today’s dollars. Most in-state students don’t. Makes sense (from a business perspective) to fill as many spots with full-price students as they can — without hurting the prestige of the class (that’s the academic perspective). It’s a balance. Once a school has met its aggregate revenue targets with full-paying students, they can be more aggressive about using financial incentives (financial aid and merit scholarships) to entice those students whom they really want (academically, artistically, geographically, gender specific, athletically,etc.).

Clearly today’s college process is different than it was — not better, not worse, just different. More complex. Adapting your admissions and funding strategy to today’s rules will assure that you avoid the landmines and leverage the opportunities of the new reality. In the old days, funding was only considered AFTER the acceptance letter arrived. Today that’s the absolute wrong thing to do. Today, a good admissions strategy is one that identifies schools where your child will have a good academic experience, become prepared for her future, and will be affordable. Knowing which schools will likely be generous to you BEFORE your child applies (or if price is not an object, which schools will find favor with you), will make for a much less stressful fall and a far more enjoyable spring!

Now, if, despite my best efforts to convince you otherwise, you still don’t believe that college is big business and that the ‘college process’ has dramatically changed since you applied, the article I referenced earlier should do the trick. And if you’re already on board with that, then the Marcus article might be helpful in assessing where your child’s admissions prospects and your savings opportunities cross paths (the perfect college storm, so to speak).

These are the kinds of trends that I talk about in my public workshops and the kinds of strategies that I use to help my clients find, prepare for, gain admissions to and pay less out of pocket for college. If you’re the parent of a high school 10th or 11th grader (in particular) it’s important that you understand these nuances before your child falls in love with the ‘wrong’ school. And if you’re the parent of a 12th grader with applications due soon, you have just a few weeks left to ensure that you will be able to afford the schools on your child’s list. I’m holding two workshops in September — They’re free to attend, but your registration is highly recommended at this time of the year.

Some of the topics I’ll be covering include:

  • The biggest mistake parents make with FL Prepaid and other 529 plans
  • The crucial questions parents should ask of every school on a student’s college list
  • How a ‘pricey’ private college can cost less than a state school, even considering Bright Futures and FL Prepaid
  • Why it’s taking, on average, 5+ years to graduate from college today and how to buck this trend
  • How to compile a list of schools that maximize chances at both admissions and financial aid
  • More!

You can register from my website – Hope to see you there!


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