The mystery of college costs

As students polish up their college essays, parents worry about how to pay college costs, which are rising much faster than inflation.

Colleges are jacking up tuition to attract applicants, reports the New York Times, which looks at Ursinus, a small liberal arts college in Pennsylvania.

So early in 2000 the board voted to raise tuition and fees 17.6 percent, to $23,460 (and to include a laptop for every incoming student to help soften the blow). Then it waited to see what would happen.

Ursinus received nearly 200 more applications than the year before. Within four years the size of the freshman class had risen 35 percent, to 454 students. Applicants had apparently concluded that if the college cost more, it must be better.

Other colleges have raised tuition sharply while also boosting financial aid.

Average tuition at private, nonprofit four-year colleges — the price leaders — rose 81 percent from 1993 to 2004, more than double the inflation rate, according to the College Board, while campus-based financial aid rose 135 percent.

As the gap widens between the sticker price of college and the real price, students who don’t know how to work the system lose out, reports Education Sector. Small colleges offer unadvertised tuition discounts to students.

By offering small discounts to relatively wealthy students who can pay close to the sticker price, colleges earn more revenue than they would by offering large discounts to lower-income students. This strategy also helps increase overall enrollments and further boosts the bottom line.

That leaves less money for aid to truly needy students.

In the San Francisco Chronicle, Leslie Carbone of the Lexington Institute suggests ways contain college costs., which have been rising faster than family income since the 1980s. Federal subsidies make it possible for colleges to charge more without driving away all non-wealthy students

“Once again, we are finding that no matter how much student aid rises from one year to the next, an equally dramatic spike in college costs follows,” said House Education Committee Chairman Howard P. “Buck” McKeon, R-Calif., on Oct. 24.

Carbone backs the College Affordability Index, which was passed by the House this year but hasn’t been voted on by the Senate.

The index would publicly identify federally funded institutions that repeatedly and excessively raise tuition, giving consumers data to track tuition increases and make informed decisions in their college spending. Institutions that increase tuition and fees by more than twice the rate of inflation over a three-year period would be asked to account for the reasons for these increases and to develop strategies to rein in future tuition rises.

Other ideas should be explored, such as limiting any increase in federal education aid to the rate of inflation.

Ursinus College’s sticker price is $33,350 this year, more than Notre Dame and Swarthmore and only a few hundred dollars less than Harvard. Throw in a free laptop and a financial aid package and it’s still an enormous amount of money for a school that is no more prestigious than Penn State ($11,646 for state residents).

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  1. Independent George says:

    I may be nitpicking, but I have a small problem with the education sector link:

    But for talented students from low-income families, discounting means that more and more of the financial aid they need to attend college is going to less needy students—students who are often pursued by budget-conscious colleges because they are less needy.

    This may be true, but the opposite seems just as likely. Consider:

    Suppose each undergrad costs the school $15,000 per year. Sticker price is $35,000.

    Student X is wealthy, and pays the full $35k in room and board. ($20k net gain)
    Student Y is upper-middle class, and can afford the full $35k, but gets a $10k tuition discount. ($10k net gain)
    Student Z is poor, and gets a full scholarship ($15k loss)

    However, enrollment is price elastic to Student Y – suppose that by offering that discount, three Student Ys will enroll instead of just one at sticker price – a $30k gain instead of $20k, allowing you to enroll 2 Student Zs instead of just one (since there’s no such thing as Theoretically, Student Z deserves that tuition discount more than Student Y; in fact, that tuition discount allows Student Z to get the full scholarship.

    Obviously, I made these numbers up in my head, and the situation may or may not reflect reality. But as long as schools try to enroll qualified students regardless of income, needy students will necessarily have to be subsidized by either the government, or by wealthier students. The point is, the total amount of the subsidy is exactly the same – the question is whether it’s better to distribute the costs across the whole of society (government subsidies), or just among those going to school (price discrimination). That issue is open to debate, and I honestly have no idea what the optimal solution is. I’m just saying that the tuition discounts for upper-middle class students is not quite the injustice it first appears to be.

    The main effect of federal price controls on tuition will be to dramatically reduce the total number of poor students going to college, for the reasons I detailed above.

  2. Walter E. Wallis says:

    Better just to give everyone a new car when they graduate high school, then tell them it is up to them to figure out how to pay for the gas and the next car.

  3. I agree with IG’s point. I also found the conclusions of the discounting article to be poorly supported. (I also tend to believe that private universities should be allowed a great deal of leeway in how they choose their students, since I’d prefer that these schools be diverse enough that unusual kids can find a school that they like.)

    I have a nephew who is waiting to hear from schools right now, and he’s had at least 2 offers of 100% tuition discounts (there may be a third, but I’m not sure that a formal offer was made in that case, or if it was a “we can get this deal for you if you are interested”, which can mean almost anything). He’s also had at least one offer of 50% aid from a top-tier university, but he’s most interested in Stanford, and his family income is such that he won’t get any aid from them. (He is a senior in high school who has enough AP credits to be a junior at his local state university, and has spent 2 summers working in a research lab in the medical school where his father teaches, so he’s not an average kid.)

    Hearing his stories makes me wonder what my eldest will decide to do. She’s even more unusual, and would certainly benefit from going to
    school at a place like Stanford, but I can’t help thinking that it matters much less where she is an undergraduate than where she gets a PhD, and if I just gave her the $200K and she went to school someplace that gave her a free ride, she could invest the money and probably end up being better off…

  4. —Once again, we are finding that no matter how much student aid rises from one year to the next, an equally dramatic spike in college costs follows,” said House Education Committee Chairman Howard P. “Buck” McKeon, R-Calif., on Oct. 24.

    Economics is really simple. too bad no one learned it in college.

    the more you subsidize college’s ability to raise tuition by giving out federal and state financial aid, the more they will raise tuition.