
The End of College Tuition Pricing as We Know It? - DarkContinent
https://www.washingtonpost.com/news/grade-point/wp/2015/09/01/are-we-nearing-the-end-of-college-tuition-pricing-as-we-know-it/
======
eranation
Georgia Tech's $7,000 Master of Science in Computer Science [0] (with
partnership with Udacity)

or the University of Illinois $20,000 iMBA [1] (at Coursera) is getting us
closer to "The End of College Tuition Pricing as We Know it".

A 50% discount from a $200,000 undergraduate degree at Harvard is not.

[0] - [http://www.omscs.gatech.edu/](http://www.omscs.gatech.edu/)

[1] -
[https://www.coursera.org/course/imba](https://www.coursera.org/course/imba)

~~~
rhino369
Thanks for linking to that GTech MSCS degree. That is perfect for my brother
who is disabled and is learning CS on his own via MOOCS.

The UIUC iMBA smells like a scam. MBA's are mostly about the networking.

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roymurdock
Here is the main point of the article:

 _Students at private colleges received an average 42 percent discount on
their tuition in 2014-2015. As recently as 2010, it was 36 percent.

There is another number that is perhaps even more important for students and
parents to consider. The same survey, from the national association of college
financial officers, found that the average discount for first-year students is
48 percent. That gap of six percentage points between the overall rate and the
discount for freshmen usually means that colleges are giving bigger grants to
first-year students than everyone else.

In other words, it’s a classic bait and switch. Colleges attract students with
a bigger discount and a boatload of financial aid the first year, and then
once the students like the campus and want to stay to actually finish their
degree, they give the students less aid for their remaining years._

The author never fully distinguishes between scholarships and financial aid.
He lumps them together in a "discount" category. The two forms of cost-saving
are very different and should have been addressed separately in the article.

It makes sense that merit scholarships pay our more on aggregate to freshmen
rather than seniors, as some percentage will lose their scholarships due to
poor grades (happened to a friend), social infractions, or some other merit
scholarship-ending action. Most scholarships in my experience are real (half
tuition, full tuition) rather than nominal ($25k per year).

I can't speak to financial aid, but I assume it's like any other contract
where you can see the terms and conditions and amount that the college is
willing to subsidize your education expenses every year, subject to certain
academic and social standing requirements. Again, some percentage of students
probably lose financial aid for not meeting these requirements from one year
to the next. Maybe it's easier to game financial aid as tuition rises and
students are offered a fixed nominal amount?

Is it fair to characterize financial aid as a bait and switch?

~~~
maratd
> the college is willing to subsidize your education expenses every year

The college isn't subsidizing anything.

It's called price discrimination. That's what the article is partially about.

If you look at the demand curve, you see that different people are willing to
pay different prices for the same service. Some people have more money, some
less. Some want it more, some less.

Ideally, what a service provider wants to do is charge everyone the maximum
price they're willing to pay. This maximizes their revenue at the expense of
everyone else.

They blow up their tuition to ridiculous levels and then discount all the way
down the demand curve to maximize intake. They discount using scholarships,
financial aid, and other programs. And then they sell you the bullshit that
they're helping you.

We don't tolerate this abuse from any other industry.

~~~
roymurdock
> They blow up their tuition to ridiculous levels and then discount all the
> way down the demand curve to maximize intake

Ridiculous for some, not ridiculous for others. Some parents don't even bat an
eyelash while writing the $200k check for their kid. If schools couldn't get
away with charging the $200k sticker price, they wouldn't.

First degree price discrimination would be an auction system. We would see
spots at Harvard, Stanford, and MIT going for tens of millions of dollars.
Merit would mean money. Thankfully, we aren't at that point yet.

I agree that the system is broken and extortionate, and that a lot of students
are getting much less out of a degree/attending school than what they are
paying for it.

But it's what we as a society are choosing to reinforce. Public education is
still seen (in most cases) as inferior to private education by parents and
employers. We are not enforcing a progressive tax system to reduce inequality
and generate revenues to pay for more investment in education and
infrastructure. Instead we are spending on war, social security, and
healthcare. We are transferring wealth away from the young and the middle
class to the old and the wealthy. As a democratic country, these decisions are
on all of us.

~~~
nilkn
> First degree price discrimination would be an auction system. We would see
> spots at Harvard, Stanford, and MIT going for tens of millions of dollars.
> Merit would mean money.

The problem with this is that if it were too rampant it would diminish the
value of the product being bought. Harvard/Stanford/MIT are valuable
institutions to attend partly because seats there can't just be outright
bought.

If Harvard abolished its admissions system and replaced it with a $10,000,000
price tag per seat, the school would lose the majority of its prestige rather
quickly, the quality of the student base would deteriorate even more rapidly,
and it wouldn't be too long before even wealthy parents wouldn't be willing to
pay that price tag.

The current strategy is probably reasonably close to the optimal long-term
profit-maximizing strategy with the property that the school's prestige and
reputation are maintained (or even enhanced) each year.

~~~
roymurdock
Right, it will never get to the point of an open auction. Then it altogether
stops being functional (learning skills & networking) and starts being solely
art (aesthetics and marketing). Currently, it's a mixture of the two, with
aesthetics pulling ahead rather quickly - is what you learned or who you met
in Philosophy 101 $100k more important to you today than it would have been to
you 10 years ago?

There is some behind-closed-doors deal making going on, but that has always
happened and will always happen.

------
Loughla
The practice of guaranteeing the same price for four years is neither new nor
groundbreaking. It's called tuition lock, and state institutions (at least in
my state) have done that for decades.

And to answer the headline's question. No. No this is not the end of tuition
pricing as we know it. It's just a different sales pitch and marketing
strategy.

~~~
Vraxx
It's not just the same tuition for all 4 years though. For instance if you pay
10,000 for tuition with 48% "discount" through merit-scholarships or what have
you. Then next year that discount is only 40%, but your tuition stays the same
at 10,000. You're still paying 800 more in tuition, but your tuition didn't go
up.

~~~
JonFish85
Which, to me, falls into the "It's just a different sales pitch and marketing
strategy." category. It's a marketing stunt to make it sound good & reasonable
at first glance, but the devil is in the details.

~~~
caseysoftware
Apartment complexes do a variation of this all the time.

In your first year, they give you "one month free" and then amortize it over
the life of the lease. In the second year, you don't get on the one month
_and_ there's an increase, so it becomes a huge increase all at once.

For example (made up numbers):

Year 1: $1k/month on a 12 month lease, 1 month free amortized -> $917/month

Year 2: Year 1 + 5% -> $1050/month

Removing the discount and increasing the base is a double whammy. And - like
in the article - the switching costs (economic and emotional) are so high that
many people will go along with it.

~~~
logfromblammo
Once, while living in a big city, I was paying about $625/mo for my apartment.
When the lease neared expiration, they offered me a new lease at around
$800/mo. I tossed that in the garbage, and moved before my last month was up,
to a much worse place that was only $500/mo. (You can buy a lot of mousetraps
and roach baits with an extra $125/mo.)

The last week of the month, I got a call from the old landlords. They said
they hadn't received a signed copy of their lease renewal. I asked why they
thought I would accept such a huge increase in rent. They said they had just
renovated the place before I moved in. I laughed at them, told them I'd give
the keys back on the last day of my current lease, so please be prepared to
return my security deposit, and hung up.

I'd like to imagine that the apartment went vacant for a few months after
that, and they cried into their pillows every night because of it, but that
wasn't very likely. The apartment market had a pretty rapid turnover back
then, so it was probably only empty a few weeks.

In my view, that huge price hike was a clear GTFO/FOAD signal. But the
university undergraduate education market is much less competitive than the
apartment rental markets, and the cost to going to a competitor much higher,
so it's no surprise that they can get away with higher and more frequent price
hikes.

------
dumbmatter
_Tuition pricing should be based on demonstrated need and real merit, not just
the desire of a college to steal a few smart students from a competitor down
the street._

What does "real merit" mean? I can't think of any definition that doesn't
include trying to bring in more smart students...

~~~
redblacktree
I think they mean the merit of the institution.

~~~
a3voices
I don't think so, because it's right after "real need" which is referring to
students. If it is as you suggest then it's a badly formed sentence.

------
derekp7
Just out of curiosity, does anyone have a link to an example breakdown of the
costs per student in a typical university?

A full course load is about 12 hours total spent in class per week, for 16
weeks. Let's bump this number up to 20 hours, to account for overhead
(homework grading, office hours, course design, etc). And given a class size
of 25 students, that means 1 instructor can handle 50 full time students. If
that instructor gets paid 100K a year, that works out to be 2K of instructor
time per student. So what other overhead is involved that brings the cost of
college up to 20 - 50K per year? You have the building, administration,
potentially lab equipment, and teaching supplies (chalk/markers/copy
paper/etc). But I still can't see that bumping the price up that much. Is the
per-student share of the building cost really that high? Or are there 10
administrative staff for every one instructor?

~~~
chongli
The goal of most colleges is to grow without bound, consuming entire cities in
the process. Administrative staff make up a big part of costs and instructors
are paid far less on average than 100k. The real costs are in the construction
of huge, fancy new buildings and luxury facilities designed to entice parents
and students alike.

~~~
hijinks
new construction is the main reason I don't donate any money to my college.
When I went there 15 years ago the tuition was around 18k and when I left 4
years later it was 23k and they were just starting to put up new buildings
right and left.

Now its 55k

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a-dub
Rolling back the Bush-era provisions that make private student loans non-
dischargable in bankruptcy would do wonders in putting downward pressure on
tuition. Federal loans are capped at around $50k which seems to me like a
perfectly reasonable number for educational debt, especially considering the
wealth of options available for adjusting terms when there's trouble making
payments. (as opposed to private loans, which just sail right on into default)

~~~
dragonwriter
> Rolling back the Bush-era provisions that make private student loans non-
> dischargable in bankruptcy would do wonders in putting downward pressure on
> tuition.

Would it? I was under the impression that private student loan lending
collapsed shortly after the 2009 crash and hadn't really recovered, though its
risen slightly since the crash. If private student loans were the main driver
of tuition, it should have collapsed after the 2009 crash as well.

~~~
a-dub
Interesting. You're right. It halved in 2009 and dropped even further to about
40% of its previous high, although it appears to be growing again... [1]

I still think that it would be wise to structure the marketplace such that
there is even less private lending. I think this ultimately gives the Federal
government more policy levers that can be used to push back on tuition.

I do agree with the original piece that the peek-a-boo games that college's
play with their financial aid packages are silly. The pricing should be clear
and simple, discounts for low-income students should be stated up front.
Today's "Let's make a deal" games are just dumb...

[1] [http://trends.collegeboard.org/student-aid/figures-
tables/to...](http://trends.collegeboard.org/student-aid/figures-tables/total-
federa-nonfederal-loans-time)

------
imglorp
Can someone with a micro-econ background explain what is going wrong with the
free market model and how to fix it?

It used to be that goods and services would compete on price and quality. If
someone could offer the same quality for less, buyers would go there. It was
self regulating to some point: predation was limited by the system.

Now, however, there are dozens of markets where this is no longer true. There
are geographically region-locked prices: pharmaceuticals, textbooks, dvd's,
etc. There are opaque and arbitrary prices like healthcare, software (hello
oracle), and per the article, airlines and tuition.

Some of this is due to artificial protections like patents and copyrights. But
not all of it. What's up?

~~~
pjc50
(1) Akerloff's paper "Market for Lemons": ability to assess quality depends on
information. Adequate information may not be available to all parties equally
and may be costly to acquire.

It may not be realistic for private individuals to assess the quality of their
healthcare or tuition, even after the event. See also VW: it's easy to lie
about details which affect the quality.

(2) Increasing perfection of price discrimination: market participants
charging different prices to different customers. Airlines can do this because
of the ID requirements and non-resaleable tickets. Private healthcare can do
this too.

(3) Switching costs: Oracle win at lockin. Big problem in the software world,
but also for tuition (incomplete courses not portable).

(4) Regulatory capture & paid lobbying: applies to pharmaceuticals, textbooks,
DVDs, healthcare.

~~~
rm999
The information issue with healthcare and education is even more perverse than
in "Market for Lemons" \- it's not that the quality of the product is unknown
(although it often arguably is), it's that the price is unknown. As the
article says, incoming freshman have no idea how much their 2nd through 4th
years will cost, just an upper ceiling. They are usually misled to believe
their final tuition will be lower than it actually is, skewing their value
judgement. Likewise with healthcare, I often get surprise bills from my
insurance company for just doing what my doctor instructs me to do. There's a
lot of incentive for doctors to do unnecessary procedures without explaining
the costs.

------
ikeboy
_But every good strategy eventually runs its course, and there is increasing
evidence that the days of tuition discounting are coming to an end._

Yet the only evidence offered is that tuition discounting has gotten greater
recently.

It's ... kind of _interesting_ how the article manages to spin "X is going
higher" as evidence for "X is going to go way down".

------
Qwertious
No.

Betteridge's law of headlines is an adage that states: "Any headline that ends
in a question mark can be answered by the word no." It is named after Ian
Betteridge, a British technology journalist,[1][2] although the principle is
much older.

