
Why falling demand hasn't brought down college sticker prices - jseliger
http://hechingerreport.org/why-falling-demand-for-college-hasnt-brought-down-sticker-prices/
======
brdd
I only read the article (and not the podcast, if it's different) but I think
their argument misrepresents how the economics of higher education work.

> "Economics 101 suggests that declining demand results in lower prices."

This isn't true for college sticker prices because colleges have perfect price
discrimination. Most students don't pay the sticker price; they pay exactly
what they "can".

In no other industry do we have such perfect incentives aligned on the
provider side to increase prices--

\- People who can't afford the higher prices can pay less, through financial
aid and scholarship programs.

\- To determine what is the "maximum" price you can pay, the student/parent
voluntarily provides literally every data point possible. Every tax record,
every loan, etc.

\- Because of this perfect price discrimination, an upward trend in college
costs (that outpaces inflation) is not only reasonable but expected. It's in
the interest of the institution to maximize its surplus/profit to the
student's upper limit.

~~~
oflannabhra
The point of the podcast, at least, is that despite all of your points,
colleges are taking on enormous amounts of debt, _while enrollment is
shrinking_. They are losing money.

~~~
onlyrealcuzzo
For established non-profit schools? Or new, mostly for-profit schools?

I find it hard to believe any reputable, 20+ year-old, non-profit schools are
losing money. They should own their assets outright, have extremely low
interest rates on any outstanding debt, pay close to 0 taxes. Wages for non-
executive staff are not keeping pace with inflation. How are they losing
money?

~~~
juliangoldsmith
In addition to large amounts of new construction, administrative staff has
expanded massively [0].

Between 1975 and 2011, the number of full-time, tenured faculty at
universities grew by 23%. The number of administrators grew by 369%. The trend
seems to be to hire part-time and untenured faculty to keep salaries down,
then hire more administrators.

[0]: See "Full-Time Nonfaculty Professional" at
[https://www.aaup.org/sites/default/files/files/2014%20salary...](https://www.aaup.org/sites/default/files/files/2014%20salary%20report/Figure%201.pdf)

~~~
onlyrealcuzzo
Wow, looks like the financialization of education is almost complete. That
graph literally looks like a nightmare.

~~~
winslow
Can you expand on what you mean by that?

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sp332
The article doesn't mention that middle management exploded at colleges in the
last few years, and those people are going to try to hold on to their jobs no
matter how low enrollment gets. [http://blogs.wgbh.org/on-
campus/2014/2/6/growth-nonacademic-...](http://blogs.wgbh.org/on-
campus/2014/2/6/growth-nonacademic-deanlets-outpaces-faculty-hires/)

Also I think the part about half of tuition at one school going to "discounts
and financial aid for freshmen" is misleading. That's not really costing the
college money, they're just charging less to begin with.

~~~
moorhosj
It’s costs the college revenue, just as tax cuts cost the government revenue.

~~~
gowld
That's like saying piracy costs $TICKET_PRICE * #viewings, or that the value
of donated software is its sticker price, or that buying a department store
shirt "on sale" costs the seller any money.

It completely ignores the possibility of non-purchase, which is the dominant
alternative among options. "Would have paid" is a tiny fraction.

------
jfasi
I wonder how this drop in demand is distributed between American students who
are eligible for financial aid and federally-backed student loans and foreign
students who almost always pay full price.

As an anecdote from my own engineering school experience, a staggeringly large
proportion of my classes were populated by foreign, usually Chinese and
Indian, students. My college has a pretty good brand, and I understand many of
these students were willing to pay to have its cachet on their resume. Also,
many of these students, especially the Chinese ones, seemed to be from very
well-off families (at least if the number of Canada Goose coats and Supreme
hoodies is any indication).

This _is_ an anecdote, so take it with a grain of salt, but it suggests a
hypothesis: maybe the drop in demand is among American students who are mostly
paying discounted prices anyway, while demand among foreign students who are
willing and able to pay the staggering sticker price remains high.

~~~
gowld
> (at least if the number of Canada Goose coats and Supreme hoodies is any
> indication).

Why crane your neck to check the outfits, when you can glance at their cars?

[http://www.mlive.com/lansing-
news/index.ssf/2014/04/michigan...](http://www.mlive.com/lansing-
news/index.ssf/2014/04/michigan_state_chinese_student.html)

"People who haven't visited Michigan State University's campus lately may be
surprised to find Maseratis, Lamborghinis and Bentleys driving around. ...:

~~~
lazyasciiart
In most class environments it's a lot easier to look at someone's clothing
than to follow them out to the parking lot and check their car.

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technologyvault
A few observations about this "will the traditional college survive"
situation, which I've been following for a long time.

The higher education market feels a bit like the healthcare market in that
it's somewhat difficult for the consumer to tell what the actual cost will be
prior to purchasing the product. Published tuition rates and other costs of
attending school feel like they're abstracted until a long-term commitment has
been made and it's too late to get a refund.

It may seem strange that, with the increasing debt being amassed by
universities, record-breaking new salaries are being offered by many of these
schools to football and basketball coaches. The 25 salaries for college
football coaches range from $3.5M to over $11M per year. I'd assume that in
each of those cases, the value received from the coaching hire contributes
overall to the school's bottom line.

As much of the same information that is taught in college becomes more
accessible for free on the internet, it's hard to see how colleges can compete
with smaller, more agile competitors who don't have nearly the overhead that
universities do. It feels a bit like retail stores trying to compete with
Amazon.

~~~
lordCarbonFiber
Except that the raw "information" taught in colleges doesn't represent enough
value to even show up as a line item in a cost breakdown. Anyone can read a
book, or even watch a lecture; the value add is access to research, access to
professors, and perhaps most importantly, access to a community of
motivated(to a degree) students all in plus/minus the same point in their
lives.

MOOCs on the internet can't compete on any of these metrics.

~~~
akgoel
The only "value add" for colleges is the signaling provided by getting the
degree, i.e. going through the application process and committing to finishing
a 4 year degree.

This is most easily measured in the income data for college-grads vs non-
college-grads. This data is so easy to measure that you can measure the
"value" of a college degree, currently something like $17K per year more for
the graduates.

~~~
pessimizer
Don't underestimate the value of circulating amongst the children of the
wealthy. These are the connections that will get you work and investors,
especially if you manage to marry one of them, which has always historically
been the most common mode of class mobility.

Your wealth is directly related to the people who you associate with. If
you're any lower than upper-middle class, college will be your last
opportunity to associate with the rich through simple elbow grease and charm.

------
zamalek
The first university I went to was probably suffering from all of the
following:

> the number of students is actually down by 2.6 million

> they have struggled to reduce their costs

> they’ve borrowed billions of dollars to build amenities they think will
> attract students

After two years (2/3 of a degree in South Africa) I had been challenged by
precisely one subject - all the while I was hemorrhaging money. The amenities
were fantastic and _I never once used them._ Not realizing how the importance
of a degree and anger from learning sweet nothing resulted in me leaving. It
was an expensive degree printing press and nothing more.

Ten years later I need a degree to help with my visa. The experience is night
and day. In a course that I just completed, I had to submit an assignment, and
the feedback my lecturer provided was incredible: I honestly don't know how
she finds the time of day if she's working that hard for all of her students.
I walked away feeling as though I had learned something valuable, even though
it is one of those general courses that you usually question why you have to
take. These people seem to really care about furthering and imparting
knowledge. It shows. The entire experience is streamlined around learning. You
can't send your kids there (as they require a professional background), but I
hope this catches on by the time my kids have to go to college.

If these behemoths want to reduce costs while attracting more students, it's
all too easy; do less and focus on the product: learning. That approach saved
IT/CS from ballooning costs and deadlines, and I have first-hand experience
suggesting that it can also work in education.

~~~
chesimov
I'm not sure I understood your comment correctly - did you return to the same
institution 10 years later, or did you go to a new one?

~~~
zamalek
I should have clarified that: a new one.

------
larrik
"Many institutions boasted, in the admission season just ended, that they had
received record numbers of applications. What most very carefully didn’t say
was that record numbers of applicants are lining up to be accepted."

I read this like 3 times, then the article, then again, but I can't parse it.
What is it _really_ saying here?

~~~
lainga
I am guessing that total applications are up while total numbers of applicants
are down (and thus there are more applications submitted per person)?

~~~
jdeibele
Yes. One of the things that's different is that there's now
[https://www.commonapp.org/](https://www.commonapp.org/) which says "you can
apply to more than 700 colleges" using it.

To some degree, application fees (paid per college) are still a deterrent but
some people qualify for free application fees. There was an article about a
young woman who was accepted at more than 100 colleges.
[http://www.ibtimes.com/teen-gets-accepted-
more-100-colleges-...](http://www.ibtimes.com/teen-gets-accepted-
more-100-colleges-2677734)

Applying to X more colleges at $50 or $75 each where one of them may offer 10%
or 20% more in aid makes for an interesting decision.

~~~
gowld
Common App is at least 20 years old.

------
clarkevans
Perhaps student loans should be co-signed by the universities they get their
degree from?

At least this way, there may be a reasonable alignment of incentives for the
university to provide valuable, cost-effective education.

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drblast
Obviously they need larger football stadiums to bring in that TV money.

------
crb002
Federal Student Loan bubble sets a price floor screwing all the poor students
with debt they otherwise could avoid in a free market.

~~~
pessimizer
Sadly, they would also avoid college in a free market. The problem is that the
state should be setting a price floor of $0, which would limit the motivation
to compete on debt to private schools.

