Tuesday, September 15, 2009

Tuition and Price Elasticity...How High Can It Go and at What Cost?

For those of you who have studied microeconomics, you probably remember the concept of price elasticity: how closely a change in demand correlates to a change in price. When demand falls as a result of a price increase, the goods or services are said to exhibit price elasticity of demand.

Up until now it has been fair to say that the price of a college education has exhibited low elasticity. While tuition has steadily increased, the number of applicants and students enrolling has also continued to rise. This has given college administrators little reason to try to put the breaks on the escalating price of attending college since they have been able to pass on these additional costs through upward adjustments to tuition. As journalist Ron Lieber noted in a September 5 New York Times article (“Why College Costs Rise, Even in a Recession”), the ability to increase tuition and fees without triggering a corresponding slowdown in demand has meant that colleges have been immune to pressures to behave like for-profit corporations which regularly seek ways to cut the fat out of budgets in order to control costs.

Some predict that the rising tide of college tuition is finally turning, though probably not for all higher education institutions. The most selective schools with strong name recognition will, no doubt, still draw many more applicants than they can possibly accommodate. However, crossing the $50,000 threshold and maintaining enrollment, especially in difficult economic times, may no longer be a realistic scenario for schools that are not in the top tier of selectivity.

Lieber goes on to say that holding tuition steady and opting instead to make unpopular cuts to a budget may be easier said than done. One of his key arguments is that colleges, especially liberal arts institutions, don’t insist that all academic departments be profit centers. Hoping to appeal to students with varied interests, they choose to provide a full range of majors regardless of whether the economics of doing so makes sense. Schools regularly allow the more popular majors to subsidize those that fail to breakeven. A thriving English department which generates ample income allows a college to rationalize offering majors in other departments that attract only 3-4 candidates a year.

After reading Lieber’s article I started to think about the future of the liberal arts education, especially given that many colleges have already reached the $50,000 mark and will, if you believe Lieber, be limited in their ability to continually raise their price. As colleges begin to take a hard look at how to reduce their budgets, some may start to rethink the feasibility of offering the full panoply of liberal arts subjects. Specialization may become more the norm than the rule, at least at colleges that don’t have the Ivy or quasi-Ivy League draw.

Some schools have already begun to re-think how they attract and retain students with broader academic interests, without having to incur additional costs or raise tuition. In August of this year, three Boston area colleges: Wellesley, Babson and Olin College of Engineering, announced a partnership to develop and offer joint programs which will expand the educational opportunities to students at their respective schools. The three institutions, possessing very distinct missions and few overlap academic departments, will now be able to collectively provide courses that had not previously been offered to their students, and at very little additional cost. I think it is reasonable to speculate that other schools will decide to take this one step further in the future, and may actually eliminate departments while partnering with neighboring colleges that have similar majors. Haverford and Bryn Mawr, within a short drive from each other in neighboring Philadelphia suburbs, in fact already do this. Are we likely to see more specialization and sharing of curriculum and faculty in the future? Sheer economics may become the overriding factor prompting such decisions for other colleges as they cross the $50,000 cost of attendance threshold. The implication for prospective students: if you plan to pursue a course of study that is less popular, try to get a sense for a college's commitment to that program before you commit the next 4 years to the school.

Monday, September 7, 2009

Score Choice...Misnomer?

What’s so great about Score Choice, the new College Board reporting policy that allows high school seniors to choose which of their SAT standardized test scores to send to colleges? After the initial excitement and fanfare many have concluded: perhaps not much.

Last year the College Board announced its plan to introduce the concept of Score Choice, allowing students for the first time to be selective about which SAT scores to send to colleges. The new reporting rules became effective beginning with the senior class graduating in 2010. The reason for the change in policy, according to the College Board, was an effort to “reduce student stress and improve the test day experience.” In actual practice, Score Choice is not as simple as originally hoped,and therefore, is not working exactly as initially planned. Individual colleges, it turns out, will still determine their own requirements that trump anything dictated by the College Board, suggesting that simplification and stress reduction could not be further from the truth.

And right from the start the program has had its critics. Is Score Choice just a ploy to increase fees to the College Board as students feel the need to take the tests multiple times in an effort to maximize their scores? Does the new policy further discriminate against less economically fortunate students who can afford neither test prep nor the registration fee for multiple test sittings?

Shortly after the initial announcement colleges started weighing in too. One by one many highly selective schools quickly made clear that regardless of the College Board directive, they would still require that applicants submit all scores. After all, most colleges state that they super score anyway, meaning they take the highest SAT section score from all test sittings. Why then would a student not want to submit all scores, especially if the highest math score was achieved in May and the best critical reading score happened to be from the September test date? Isn’t submitting all scores really to the student’s advantage?

If you are looking for the simplest way to track down different colleges’ requirements, you can go to http://professionals.collegeboard.com/profdownload/sat-score-use-practices-list.pdf where you will also find explanations of the 6 score reporting options from which colleges and universities must choose. For the student who can readily grasp the nuances of each of these Score-Use Practices based upon the written explanation (the word “obtuse” comes to mind), automatic admission to the college of choice might be a reasonable prize. One caveat: the best source for determining an individual college's requirement is the college itself. If its policy is not posted on the website, do not hesitate to give the admission office a call.

I am not trying to intentionally bash the College Board. Rather, I want to point out that the complicated new policy has actually raised the stress level as students and families try to figure it out, especially when kids are applying to multiple schools that don't follow the same Score-Use Practice. So what is the solution? My advice to all students is to forget that Score Choice was ever offered as an option. Give it your best shot each time you take the SAT and send all of your scores!