By Peter Sacks
Jeffrey Selingo, the editor of The Chronicle of Higher Education, should have known better. He told ABC News: “students that maybe 10 or 15 years ago came from families who can easily afford to pay for their son’s or daughter’s education are now being forced to apply for financial aid.” That sounds like an obvious statement on college costs, but it’s wrong. The published prices of higher education are virtually meaningless. The far more important number is net price, which is the cost of attendance (tuition sticker price plus expenses) less federal, state and, especially, institutional grants.
Despite the water-cooler lamentations about the skyrocketing cost of college, both public and private universities have lower net prices today than they did in 1994. And the less money your family makes, the larger the discount is likely to be.
If your annual family income is less than $30,000, you can go to Harvard for $2,170 per year, and to Williams for $1,679. If family income is between $48,001 and $75,000 and you have your eye on Dartmouth, you are eligible for a discount there of almost $44,000 and may pay only $6,565 a year. And some discounts diverge wildly. Even with a discount of nearly $34,000 from sticker price, a Washington University of St. Louis student from an under-$30,000 family would pay more than ten times the amount than a similar student attending Williams.
The Top Ten Liberal Arts Colleges
Among U.S. News’ top ten liberal arts colleges, net prices range from a low of $13,789 at Williams to a high of $25,548 at Carleton. Among U.S. News‘ top ten universities, Princeton maintains the lowest net price for students from affluent families. Duke charges the most. Colleges and universities deploy their financial war chests as marketing and recruitment tools: to attract the most attractive students possible — as defined by the average SAT scores of entering freshmen — colleges offer some students hefty discounts from the advertised sticker prices, under the guise of a nebulous combination of “merit”-based and “need”-based grants.
The net price that a given student and his or her parents actually pays the college is negotiable, varying from student to student, depending on how much money a student needs for college and how well his or her SAT profile matches the long-term goals of the university.
Since colleges compete with other institutions for prestige and high rankings in college guides such as U.S. News & World Report, the strategic use of tuition discounts – if the colleges can afford to play this costly game — can lead to more applications, lower admission rates ( a good thing in this business), higher enrollment yields and wealthier students. If all goes according to plan, an institution’s strategic deployment of resources to fund lower net prices could serve the institution well in building prestige, sustaining it, and ultimately, in growing the endowment.
Rather than families being “forced” to apply for financial aid, as Jeffrey Seligno claimed, many students and their families are treated more like star athletes, with offers of admission and generous financial aid packages that lop off thousands of dollars from published sticker prices.
Indeed, the pricing policies of many colleges seem to borrow from Thorstein Veblen’s theory of conspicuous consumption: the heftier the advertised price, the more desirable the institution in the eyes of students and families, and therefore the more value students perceive for a given dollar knocked off the sticker price. In other words, a dollar discount by Harvard from the sticker price might be worth $1.50 discounted from the tuition price of a less prestigious competitor.
To illustrate the extent to which the rhetoric about rising tuitions costs departs from reality, consider how published prices and net prices have diverged since the mid-1990s at private four-year colleges and universities. In 1994-1995, the average net price at these institutions was $10,400 compared to the average sticker price of more than $17,000 — a gap of $6,600 in constant dollars.
By 2010, the sticker price at private universities had jumped to $26,270, but these institutions charged net prices averaging just $11,870 – a difference of $14,400. Thus, sticker prices grew significantly during that period, as widely reported in the media, but net prices fell (not so widely reported), and the gap between sticker prices and net prices grew even more.
The same trend held at public universities. Between 1994 and 2010, average published prices rose from about $3,900 to more than $7,000. But the average net price at public universities fell from $2100 to about $1,600, and the gap between the sticker price and the net price ballooned from $1,800 to $5,400.
Reaching Out to Low-Income Families
While net price is largely ignored in the common conversation about college costs, another overlooked and perhaps more vital benchmark is the net price a student pays relative to one’s family income. That number says volumes about a college’s priorities, the sorts of students it wants to serve, how it chooses to spend its wealth, and, ultimately, what kind of college it wants to be.
At a time when policymakers and education experts are suggesting that America’s best colleges and universities, as the training grounds for the nation’s future leaders, should be doing more to make their campuses more diverse along class lines, these seemingly obscure financial statistics are already a factor in admissions and are bound to play a more prominent role in the national dialogue about access and affordability.
Take discounts for students from low-income families. Statistics show that Duke, Kenyon and Washington University of St. Louis are tight-fisted, while Harvard, Williams and Stanford are quite generous, and Pomona is simply extraordinary in its discounts. Let’s look closely at a handful of colleges and universities that often show up on various lists of highly ranked institutions. In the following table, using National Center for Education Statistics data, I compiled the average net prices that students from different family income brackets paid in 2008-09 at Dartmouth, Williams, Kenyon, Amherst and Washington University of St. Louis. I’ve also listed the full cost that only the most affluent students would pay without any tuition discounts or grants.
Despite the equivalence of the sticker prices at these colleges, roughly $50,000 per year, the differences in net prices paid by low-income students at different colleges are staggering. For example, a student whose family earned no more than $30,000 would face a net price of just $1,679 at Williams, but the same family would pay more than $18,600 at Washington University. Instead of offering the steepest discount to the lowest-income group, Washington University provides its biggest price break to students from families earning between $30,001 and $48,000, who paid net prices averaging $12,208. Washington University is matched only by Kenyon College in the net price it charges students from families with modest incomes: Such students, from families earning between $30,001 and $48,000, would pay a net price of more than $12,000 at Kenyon. At Williams or Dartmouth, however, such a student would pay less than half what he or she would pay at either Washington University or Kenyon.
To put it mildly, neither Washington University nor Kenyon College can be considered a friendly place for students from families with low or modest incomes. Put more bluntly, Washington University’s cost structure, and to a lesser extent Kenyon as well, says to such students: “We don’t want you here. Go elsewhere.”
It’s no surprise, then, that just 5 percent of undergraduates at Washington University received Pell Grants in 2008-08. At Kenyon, just 8 percent received Pell Grants, the federal grants program for students from low-income families. At Williams College, by contrast, 16 percent of undergraduates received Pell Grants, while 17 percent of students at Amherst received the federal grants for low-income students.
Thus, net prices drive the higher education market, and the richest colleges and universities are able use their wealth to drive down net prices for students from all income groups.
End Part One of Two–Tomorrow: Generous Princeton, Stingy Duke
Yes, higher income families subsidize the costs for lower income families. Digging into the numbers at one Minnesota private college, the school could lower the list price by 40%, offer no aid (ignoring loans that need to be paid back) to anyone and still net the same revenue. Everyone who pays more than 60% of list is subsidizing the rest.
Neat insight, but you need to take it to the next level and factor in completion rates. I read somewhere (sorry, no reference) that the single best predictor for college dropouts is whether the student has received a Pell grant. A low price isn’t a good deal if a student ends up with thousands in student loans, no degree, and no job.
Well, I make 100 grand and am a family of six. I pretty much get nothing. I bust my butt to do the right thing and I get robbed for people that mostly make really bad decisions. Why is that? I have no problem “helping” people overcome their poor decision making skills so they can work their way out of the hole they made (drug counseling, psychologists, GED… not college!), but why in the hell should I work my butt off so they can have the good things in life? My daughter worked two jobs as a full time student to pay her way through 4 years of college to learn 2 years worth of stuff. My daughter figured out if she was pregnant, unmarried, and a minority, she would have had it made. People need to realize the most colleges are screwing the students and their parents. Suckers all.
dinky hit the nail on the head
socialism in action
if you are the ” right diverse profile” not only do you get in easier but you get subsidised by the ” wealthy kids”
Agreed. I’ve read the financial aid formulas. It’s pretty easy to have saved enough or earn enough now for the formula to declare that you can “afford” to spend 30, 40, or 50,000 on your child’s education. And either one rationalizes that the entirety of the endowment funds/state subsidies fund the financial aid for low/moderate income kids, or indeed the middle/upper-middle income families are overpaying to subsidize them, which I have a hard time stomaching.
Yeah, I’ve seen a version of that “send us your complete financial statement and we’ll tell you how much you owe.” It was at a Ren Faire, twenty years ago at the mud show, where the performer wanted people to give him money for sticking mud up his nose. “How much for you to stick mud up your nose?” “For you, special sliding scale. How much you got?”
Interesting but doesn’t tell the whole story. At upper income levels, the parents are approached for donation which can really raise the cost. Not crying over it, but factoring that into the chart for incomes over, say, $2 million then the cost may increase from 50% or more.
This is just another progressive tax in my view. I have two children at top universities. My wife and I earned valuable graduate degrees, worked 80 plus hour weeks, delayed children and now, because our income is well into six figures we are expected to pay “full price” and subsidize other families. I wouldn’t mind if those other families had two parents working for 3 decades, but for many the mother chose to stay home, or the parents took jobs with less hours or they had children in their early 20’s – all resulting in us paying for their kid’s tuition. But of course the universities don’t weigh any of that; like any good liberal they look at the now and decide we can afford to help carry the other families’ kids – they never look at the sacrifice made by us versus that made by the “needy”. I made it clear to a development officer that met with me to solicit a donation that I viewed about $14,000 of the annual tuition and fees as a donation. She noted that she had heard that position before.
The result is intellegent middle class families avoid these schools and find ways to get their children through college without incurring debt.
We did it twice. The oldest has a debt free master’s in genetics.
Boycott this stuff, people.
What business wouldn’t want to employ first-degree price discrimination? Armed with your financial disclosures and a public policy that not only permits or encourages but actually applauds it, universities are free to charge each customer’s full reservation price.
Yes, that means that the university soaks up the entire consumer surplus. But don’t worry, theoretically there’s no deadweight loss to society. So there’s absolutely no need to change anything. I know it’s true: a university professor told me so!
I don’t know enough about the others, but I wonder if Wash U limits its lower income acceptance intentionally to limit low income St. Louisans from applying. Students get plenty of exposure to an urban environment at WU. Perhaps the others are more suburban or small town and feel the need to import a little poverty for diversity sake. Regardless shame of WU I say.
Are you absolutely sure that the “College Navigator’s” meaning of “net cost” is “actual net cost”?
The CN site (http://nces.ed.gov/collegenavigator/?q=williams&s=all&id=168342#netprc) says this:
“Title IV aid to students includes grant aid, work study aid, and *loan aid*…For those Title IV recipients, net price is reported by income category and includes students who received federal aid *even if none of that aid was provided in the form of grants*.
While Title IV status defines the cohort of student for which the data are reported, the definition of net price remains the same ? total cost of attendance minus grant aid.”
This doesn’t seem perfectly clear to me – I think there is room to interpret “net cost” as meaning “net cost after deducting *federal loans to the student*”.
If so, then all your “net cost” figures are highly, highly misleading – “net cost” being purchased at the cost of higher student indebtedness.
Which is *not* in keeping with the gist of your article.
I checked this out because the “net cost” figures that you reported seem absurdly low based on my personal experience.
Please confirm your data.
You have been picked up by Instapundit and if you are wrong on this – many people are going to be massively misled.
Please pick up the phone with someone at NCES to confirm the meaning of the data.
Each of the grants listed, with the possible exception of grants from the colleges themselves, come from tax payers. This article is a great example of the folly of focusing on the price paid as appose to the cost.
Setting up mechanisms to force costs upon others does not lower cost. It is easy and politically convenient to come up with solutions that amount to spending other people’s money. The problem faced today, is we are running out of other people’s money to spend.
There are colleges that offer no merit aid whatsoever e.g. Notre Dame. So the upper middle class ( we certainly don’t feel “wealthy”) does indeed subsidize low income families at some schools. Though my son got a 2320 on the SATs with a perfect 800 in math, we took a pass on Notre Dame. He’s worked hard and deserves to be recognized for his efforts, so he’s now at a school that’s willing to do just that.
So, by requiring full disclosure of all financial assets in order to come up with a “net” price, do the price-discriminating colleges open themselves up to claims of violating fiduciary duties when they “cook the books” regarding job placement statistics?
Here’s the path:
1) Colleges advertise an essentially false “gross” price in order to facilitate price discrimination (allowing colleges to capture the “consumer surplus”).
2) Colleges then compel the full disclosure of private financial data if any information concerning the true, “net” price is going to be made available.
3) Colleges use this information to price discriminate, capturing the maximum possible revenue (“consumer surplus”) from students.
4) Having obtained privileged private financial information concerning the student, the colleges nevertheless fail to disclose that the college’s placement statistics (employment, median salary) are materially false or misleading.
I think there are some massive, massive lawsuits waiting to made that will hopefully ruin the fraudulent enterprises that many colleges have become.
cc: Law School Transparency
Yes the “price” to students in tuition may be magically lower but the true cost of attending isn’t. That price is paid nonetheless.
It’s be fascinating to see the income admissions crosstabbed with race/ethnicity. I pretty much guarantee that the majority of the kids in the nearly free category are black or Hispanic.
I cannot reproduce Peter’s results with respect to the real net price of attendance. Using tables 334 and 344 from the 2009 Digest of Education Statistics I find that real net price of attendance has increased for public universities, public four year institutions, private universities, and private four year institutions.
The only way you can get a decline in the net price of attendance for these institutions is if you deduct loans from the total price of attendance. Obviously, loans are not a reduction in price. They have to be repaid with interest.
So the students from wealthy families subsidize students from “low income” families? Or “Who makes up the difference between sticker price and net price for “low income” families?