Everybody loves a discount, especially when big-ticket items are involved. There are fewer items bigger than those attached to funding a four-year college education. Most savvy retail shoppers know that regardless of the list price in the store or online, it is always a good idea to ask for a discount. Surprisingly enough, the same concept applies when approaching your college institution of choice. Beyond the standard in-state vs. out-of-state tuition discounts, there are many more levels of institutional aid available that will help parents/students make better higher education fiscal choices, as well as help the average university to level the competitive student recruitment playing field. College costs, student costs, and available subsidies are the three primary elements that will determine the level of financial assistance you can reasonably expect from the school of your choice.
College costs include the amount of time and money allocated to providing educational services to students. If a student can be considered a raw material, the amount of money it takes to bring this product to market (i.e., graduate) would be the total cost of goods sold. In 2009, community colleges educated over 6.5 million students—the single biggest sector nationwide, serving over a third of all students—yet spent about $10,000 per FTE student annually, an amount less than any other type of college or university. Nationally, state and local spending per college student, adjusted for inflation, reached a 25-year low in 2011, jeopardizing the long-held conviction that state-subsidized higher education is an affordable steppingstone for the lower and middle classes. “I readily admit it,” said E. Gordon Gee, the president of Ohio State University, who has also served as president of Vanderbilt and Brown, among others. “I didn’t think a lot about costs. I do not think we have given significant thought to the impact of college costs on families.”
You should think of college cost as wholesale, student prices as retail, and subsidies as the coupons in your Sunday newspaper. As in any retail transaction, knowing what an item costs is the first step in determining what you should be paying for it.
Price is synonymous with “cost of attendance” and usually refers to the university list price paid by students. It typically includes tuition, room/board, books and supplies, plus similar costs for personal expenses and transportation. In the retail world an increase in price would normally lead to an increase in net profit, but things work a little differently for the average educational institution. Increases in price do not always translate into increases in student spending. Most public institutions increase prices to cover revenue lost from state and local budget shortfalls. However, with the exception of for-profit institutions, these increases often cover less than half of the revenue lost.
Among public community colleges, revenues from state and local appropriations declined an average of $488 per student between 2008 and 2009, whereas tuition increases generated new net tuition revenues of only $113 per student. There is an obvious gap between the costs colleges bear and the price students pay that must be closed. This brings us to the subject of subsidies.
Subsidies are institutional financial aid offered to students to help defray the cost of attendance by leveraging financial sources such as state appropriations, gifts, and endowments. The cost/price/subsidy relationship is the major financial difference between public/nonprofit and profit-making institutions. If profit is the goal, an institution charges more than it costs to provide a service or deliver a product, and the difference is profit. In a public or nonprofit institution, price is less than cost. In public higher education, prices are increasing, costs are remaining fairly steady, and subsidies are declining.
All of this brings us to the central point of this article. The more informed consumers (students) are about how retailers (institutions) go about setting prices, the easier it will be for everyone to achieve their desired outcomes. Students/parents will be able to take a more fiscal approach to making higher education school choices, and will be better positioned to negotiate desirable financial aid packages. College institutions will be able to increase their competitiveness by offering compelling and competitive recruitment packages to prospective students.
How well do you think students/parents are prepared to effectively negotiate their financial aid packages? As an institution, are colleges doing enough to close the gaps between costs and price? Tell me what you think.
- Tuition Discounting: Not Just a Private College Practice, by Sandy Baum of Skidmore College and The College Board, and education consultant Lucie Lapovsky of Mercy College, The College Board, New York, 2006.
- The College Board’s Annual Survey of Colleges.
- The New York Times: “A Generation Hobbled by the Soaring Cost of College,” by Andrew Martin and Andrew W. Lehren, May 12, 2012.