The Insider’s Perspective series brings insight from higher ed professionals to the Eduventures Research Wake-Up Call. Opinions expressed within Insider Perspective posts do not necessarily reflect the opinions of Eduventures Research or NRCCUA.
College access is an ongoing source of concern in the media and on the political campaign trail, but the subject is usually simplified to a discussion of sticker price. A number of colleges and universities and some state legislatures are responding with tuition freezes, or even reductions.
Unfortunately, there is little data to indicate that freezing or cutting tuition increases access, and some good reasons to believe that instead it can contribute to disparities in higher education.
I certainly don’t want to minimize the potential impact of sticker price. In fact, Eduventures’ annual Prospective Student Survey indicates that affordability is the top factor for students likely to attend in-state public institutions (67%), and a top-three factor for those likely to attend private institutions (43%). In a recent study on the new tax law, almost three-quarters (71%) of respondents asserted that the threat of things like losing the ability to deduct college loan debt would make them rethink which school to attend.
Even so, a number of students also indicate that the calculus is more complicated than cost alone. Another Eduventures report (High Sticker Price: Is the chilling effect real or imagined?) shows that almost one-third (32%) are less price sensitive if they perceive greater comfort or fit. Another 30% are price insensitive if they perceive greater academic quality.
Further, as our recent national elections have taught us, behavior does not always correlate with survey results. Our decisions are often more emotional than rational—and of course, college affordability itself is a complex combination of pricing and discounting.
This leads to questions about the efficacy of cutting tuition as an access strategy. Over my career, my colleagues and I have conducted detailed price sensitivity studies for a wide variety of institutions—public and private, large and small, from top ranked to less so. Without revealing any proprietary information, in every case we found that there was some degree of price elasticity: that increasing price had little negative, and in some cases even positive, effect on inquiries, applications, and enrollment, when matched with a thoughtful discounting strategy.
This experience indicates that, for at least some students, a high cost with a large discount continues to bring a greater likelihood of enrollment than a lower sticker price. It’s difficult to say with any certainty, since few schools have maintained their tuition freezes or cuts, but lower sticker price has yet to demonstrate consistent positive impact on applications, yield, or retention.
There are some exceptions. Eduventures’ research demonstrates that first generation, minority, and low-income students have a much greater sensitivity to sticker price. And, anecdotally, select colleges and universities have seen an uptick in interest when very publicly cutting tuition—usually accompanied by an aggressive marketing and media campaign. It is unclear, however, that such gains are sustainable.
In the event that a tuition freeze or cut does attract more diverse students to apply, does it really increase access? That question may come down to resources, which can be seriously depleted with a tuition cut.
Under-pricing tuition to be perceived as a “low cost alternative,” may translate to “lower quality.” That same proprietary institution-level research also showed that, for many students (especially higher income students with competitive academic credentials), a higher price was associated with a more desirable institution. This shouldn’t be a surprise to anyone who studies market theory. Many consumers would rather get a discount for a high priced item then buy the comparable, lower-priced generic.
While a lower sticker price may (or may not) attract more lower-income, first generation, or minority students to apply, it is just as likely to deter high income, high academic profile students, further depleting revenue. If an institution’s increased enrollment has greater financial need, even if enrollment increases, cutting into sticker price risks decreasing net revenue. For schools already facing budget challenges, lowering net revenue often leads to a decreased investment in people, leading to larger class sizes, lower faculty-to-student ratios, and higher student-to-staff ratios. These are the very factors that may impact student success, particularly among student populations that need the most help persisting through college.
As a result, even if an institution gains new enrollment from price sensitive populations, there is a risk of decreasing retention and losing even more enrollment in the long run. As a result, a tuition freeze or cut may carry even larger negative revenue implications than are initially anticipated.
Rather than slashing tuition, it might be better to raise your price and invest in well-researched, data-driven discounting while maintaining or improving the faculty and staff ratios. One might even argue that such plans focus resources on the students that need it most.
For those student populations that are most price (and debt) sensitive, it may be more important to provide robust messaging about discount availability, rather than hoping a tuition cut would stir their interest. That messaging may even present an opportunity to improve the perception of the institution as worthy of a higher price.
Of course, there is great anxiety that we have reached a “tipping point” on college costs, leading to a great reduction in enrollment, especially among student populations who, we fear, may just decide not to enroll at all. Especially given the demographic trends, this only heightens the importance of making decisions based on thoughtful, institution-level research, and avoiding panicked knee-jerk reactions or broad sweeping assumptions that cuts or freezes are necessarily the best answer.
Administrators should exercise great caution in embracing the sound bite value of freezing or lowering tuition. Doing so may lose far more resources than the institution will gain—ultimately to the disadvantage of the very students the measure is intended to support.
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