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How to Get Off the Merry-Go-Round

December 3rd, 2012 by dfarish

A recent analysis showed that the median family income in America, adjusted for inflation, has fallen to levels not seen since 1995. The median inflation-adjusted tuition sticker price at America’s private colleges and universities, however, has grown by more than 50 percent since 1995. The consequence, even with increases in institutional aid, is that a substantially smaller fraction of the population is able to afford today’s prices than was true in 1994.

How have we arrived at this undesirable – and, I would suggest, unacceptable – outcome?

Well, there are several reasons. Higher education is an inherently costly enterprise, and there are few economies of scale: doubling class size, for example, would save money, but it would come at the expense of a personalized learning environment – the primary selling point of private higher education.

But why have the costs risen so much faster than the rate of inflation? Part of the answer is increased complexity, ranging from the growth of technology (equipment and personnel), to the need to provide more support staff in areas such as counseling, health, career services, financial aid, and environmental safety, among others, all of which come at a considerable cost.

However, those factors do not provide the complete answer. A more insidious, and troubling, driver of cost is institutions’ perceived need to “keep up with the Joneses.” In a society that believes “you get what you pay for,” colleges and universities pay close attention to what their competitors are charging, and tend to keep pace, for fear that a lower cost will be interpreted as an indicator of lower quality.

A second, and related, factor has been the widespread decision to discount prices, not only to create greater affordability for students with economic need, but also to attract high-achieving students who often do not demonstrate need, but whose high school GPA, class rank or SAT score will improve the institution’s profile – and thereby, its ranking in publications such as U.S. News.

The result is a vicious circle:

  • Institutions have fewer full-paying students (because the decision to provide merit awards, in addition to need-based awards, creates more awardees), and they need more award money to compete with what other schools are offering;
     
  • Therefore, they must devote a larger share of the tuition pool to fund these awards, but increasing the discount rate (the institutional national average is over 42 percent this year) leaves less money for instruction;
     
  • But the need to replace these lost instructional funds requires colleges to increase the sticker price to whatever they think the market will bear;
     
  • However, the larger sticker price requires larger awards in order for the institutions to remain affordable and attractive to prospective students (and to be competitive with their peer campuses).
     
  • The consequence is that sticker prices are rising far faster than inflation, with no easy way to get off this sticker price/discount merry-go-round.

It is obvious to almost everyone – campus administrators and the American public generally – that this entire process is unsustainable, especially since the economy took such a large nosedive in 2008 – a nosedive that remains largely in place to this day.

At Roger Williams University, we have decided enough is enough. Through the Affordable Excellence initiative launched this fall, we have frozen tuition at its current level ($29,900), and have guaranteed that it will not rise for students presently enrolled, or for students who arrive in the fall of 2013, during the four years of their undergraduate careers.

But we are also committed to growing the amount of money we now spend annually to educate each undergraduate ($28,600) at the rate of inflation (or greater).

Where will we get this money, since we are not raising our tuition price – or cutting our nearly $40 million in institutional financial aid? Look for the answer in my next blog post.