Cracking the Price Paradox

The price of higher education continues to dominate discussions about college choice. Coming out of COVID-19, many pandemic-smart institutions are considering altering their pricing models to meet student concerns about affordability.

Currently, price is a big part of the decision about which schools to even apply to: for 56% of students, it is a top decision driver, second only to strength of academics (59%).

But acting to reform and reframe price is not as simple as cutting the sticker price tuition. Years of training parents and students to understand the high-price, high-discount model of pricing make movements toward transparency and affordability challenging.

When it comes to price, the most recent national data on total cost of attendance and net tuition for students who receive financial aid show us one of the challenges that higher education faces. Figure 1 shows median listed tuition and median net price from 2010 to 2022 for both public, in-state and private institutions.

 

Total Cost of Attendance and Average Net Price from 2010 to 2021Figure 1.

 

This shows that both public and private institutions have seen considerable increases in the total cost of attendance between 2010 and 2019. Public institutions have seen a 25% increase while private institutions have seen a 30% increase.

This amounts to bad public relations given the constantly increasing total cost of attendance. Underneath these terrible numbers are slightly less terrible numbers regarding the actual net price to students in the same period.

On this metric, public institutions have seen a 21% increase while private institutions have seen an 18% increase. So, the increases in net price to students have slowed as compared to the advertised total cost of attendance. Still, the prices continue to climb. The fact that net tuition as a percentage of median household income has been stable (for in-state publics) or declining (for privates) is obscured by the rising prices – especially the listed sticker price.

From a parent perspective, our Eduventures Prospective Parent Research™ shows that nearly all (98%) consider their own price preferences when it comes to their children’s upcoming educations. In other words, students do not have free reign to range outside of what their families can afford.

Figure 2 shows us the limitations that parents would put on child or family spending on one-year’s total cost of attendance.

 

Child-Family Limitations on Total One-Year Cost of College by Type of Institution the Child is Most Likely to AttendFigure 2.

 

On average, parents with a child who is likely headed to an in-state public university are limited to $16,524 per year for the total cost of attendance. For a child headed to a private institution, this limitation is $25,053. Compare these numbers to the actual net cost of attendance in Figure 1 and you’ll see that parents are quite realistic about the possibilities as they navigate college choice.

But would a lower price be better? In reality, yes. We’re stretching families to within a few thousand dollars of what they can actually afford. But there is a problem.

Over decades, we’ve trained parents and students to expect the current high-price high-discount tuition model. Figure 3 shows in-state tuition pricing scenarios based on a conjoint pricing experiment we conducted in both our Prospective Student and Prospective Parent Research this year.

The simulation shows the percentage of parents and students that would choose one of three constant net cost scenarios. In all three cases, the net cost of this in-state public institution is equal to $12,000. But each scenario is comprised of different amounts of tuition and scholarship to arrive at the same net cost.

 

In-State Pricing Scenarios – Parent and Student Share of Preference

Figure 3.

 

Based on this experiment, we see two things:

  1. Parents and students are largely on the same page about their cost preferences.
  2. Net cost being equal, the high-price high-discount scenario is the most preferred – % of parents and % of students would opt for this scenario.

We can therefore hypothesize that students and their families see premium price as a signal of educational quality and the scholarship award as a special consideration for their talented children.

Should institutions then stay the course on pricing models?

It’s hard to definitively say “yes” with so many first-generation and low-income students dropping out of the college-bound pipeline during the COVID years. Our Prospective Student Research™ shows that there are 20% fewer first-generation college students in the enrollment pipeline from the start of the pandemic to today.

Similarly, there are 11% fewer underrepresented minorities and 4% low- and middle-income students in the college-bound pipeline. Affordable career-oriented education is the way to recapture these students.

The obstacle, as seen in our pricing scenarios above, shows us that students and their families are trained to see higher education pricing through the high-price, high-discount lens. Can we, or should we, even retrain them?

These are questions worth asking. Changes to higher education pricing in service of greater affordability could benefit all students instead of the few for whom college is affordable. Perhaps, the price premium that students have come to expect is something to overcome rather than to celebrate.

The Bottom Line

How then should institutions approach price? We believe it’s time for a considered rethink of pricing to secure affordability for those students in the college-bound pipeline and reconnect with those who have left the pipeline.

But a straight price cut may not have the effect on enrollment that is hoped for. The starting principle should always be to provide an exceptional educational product at a fair price.

With this frame in mind, here are four questions to ask to jump start your campus conversation on price.

  1. Why: Begin with an understanding of the critical goals of your pricing strategy. What are the reasons you are considering adjusting price? Affordability? Transparency? Competitive environment? Net revenue?
  2. Who: Consider which students are most impacted by affordability issues. What can you do for them and how can you balance these student needs with institutional needs?
  3. What: What is the best pricing program to accomplish your goals and meet the needs of your constituents? There are many levers you can use to alter pricing and affordability. Which ones are best suited to your scenario?
  4. How: Pricing is a hot topic for many schools. The impact of any changes you make will be amplified or dulled based on how you present your price to the market. A clear and meaningful communication strategy around price is as important as the model itself.

In the future, we’ll examine the institutions that have made inroads on developing a pricing model that works for their students and the institution.

 

 

 

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Kim Reid

Eduventures Principal Analyst at Encoura
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Defining the heterogeneous ways in which students think about their upcoming college experiences…

Over the past three years, Eduventures has developed a behaviorally and attitudinally-based market segmentation of college-bound high school students we call Student Mindsets™. This year, the sample of nearly 40,000 respondents was drawn from the myOptions® database of college-bound high school juniors and seniors as well as institutional inquiry lists, allowing us to refine and validate the Mindsets in a national sample of unprecedented breadth and depth.

These market “Mindsets” get at students’ imagined paths through college by assessing the desired outcomes of college, perceived importance of college experiences, and key decision criteria at time of application.

The fundamental purpose of the Eduventures Prospective Student Research is to help institutions better understand how college-bound high school students approach one of the most important decisions of their young lives. For a teenager, the college decision looms as a complex make-or-break moment, a pivotal turn on an imagined path to adulthood.

Also in Traditional Student Demand

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