Friday, July 12, 2019

The Not Broken, But Seriously Bent Higher-Ed Business Model Part Two: Where Can We Go from Here?

The Not Broken, But Seriously Bent Higher-Ed Business Model
Part Two: Where Can We Go from Here?

Some critics point to what they label as administrative bloat as the source for the rising price tag of a college degree. Most expansions in professional staff at colleges are tied to complying with the expectations of external accrediting bodies, meeting ever-expanding reporting requirements, or supporting the persistence of a student population that is at a continually higher risk of not completing.

In spite of these challenges, according the College Board, when adjusted for inflation, the average net tuition revenue at private, not-for-profit, four-year colleges has increased by only $1,390 since 2010.

In my previous installment, I outlined how discount rates (the average percentage of the reduction of the amount families pay to attend college from the published price) have rapidly escalated in recent years.

The logical correction would seem to be a recalibration of the published price to more closely align with the average out-of-pocket expense. Over the past two decades, a number of institutions have attempted this. They have typically seen a decline in applications, because consumers associate price with quality. In some cases, they have seen a short-lived increase in applications and enrollment because of media exposure, but those increases have rarely been sustainable.

It is likely that the only way to effectively reset the published tuition price would be if a large portion of a particular sector of higher education were to do so together. During the past year, there have been members of congress who have encouraged university leaders to get together to formulate such an initiative. To their surprise, we have had to inform them that we are legally prohibited from such an effort.

In 1991, the Antitrust Division of the Justice Department charged the eight Ivy League schools and  MIT with price fixing. These institutions along with twenty-three of the nation’s leading liberal arts colleges had met as what came to be known as the Overlap Group. The convening institutions, which were all need blind, meaning that they would fund each accepted student’s complete unmet need with scholarships, were seeking to make the cost of attendance uniform for each student.

The justification for this effort was that the participating institutions wanted students to choose the school they believed was the best fit rather than the one offering the best deal. In theory, with all need met, aid packages should have been comparable, but without consistent tuition and fees, that was not the case.

The Ivies signed a consent decree, but MIT went to court armed with amicus briefs from sixteen national educational organizations. MIT ultimately prevailed in 1994, arguing that their efforts were not anticompetitive because they aimed to save students money rather than inflate their expenses.
This led to Congress passing the Improving America's Schools Act in 1994. Section 568 of the Act states that is not unlawful for two or more need-blind institutions to agree or attempt to agree to: 1) award financial aid only on the basis of need; 2) use common principles for making the need determination; 3) use a common aid form; and 4) share, on a one-time basis, certain aggregated data about their admitted student pools. Student-specific data may not be shared.
The 568 Group was formed in response to the Act. This group of need-blind institutions share the permitted data, but they and other institutions do not have the ability to meet to discuss pricing strategies.

For higher education to make industry-wide realignments of price, aid, and out-of-pocket cost, we will need to work with the federal government to create a provisional forum that allows us to collaborate on our pricing models. Such an effort could de-escalate pricing and lead to a more consistent financial model for universities that would also be more understandable to consumers.


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