Among the many changes of the COVID-19 pandemic era is one that may come as a surprise: College tuitions are falling across America. While this trend is great news for families, it has worrisome implications for colleges confronting a post-pandemic landscape.
Colleges are losing pricing power and a lot of this is due to their own tuition strategy. Colleges pushed tuitions up year after year until they pushed applicants away. Two reasons are to blame. First, there are simply not enough students to go around and low-birth rates are probably here to stay for the foreseeable future. Just as important government subsidies in the form of student loans, all going to colleges, with no obligation to repay, have lulled them into thinking they can raise tuition with impunity. Well, they can’t — not anymore.
Over the last year, average tuition and fees have actually declined across the board for the first time in years, after adjusting for inflation. And despite their best efforts, many colleges lost the fight to defend their discount rates. The 2020 NACUBO Tuition Discounting Study found that private, nonprofit colleges and universities reported a record-high 48.1 percent average institutional tuition discount rate.
Bucking these trends are the alpha colleges, the top 100 prestigious private universities that attract thousands of applicants no matter what they charge. These alphas of higher education are not immune to the pressures facing other colleges, as they have the resources to mitigate them. Their prestige attracts families with the prospect of bright futures for their children and luxurious bragging rights. As a group, they received 1,561,675 applications for an incoming class of just 103,672 in 2020.
Alphas compete on the basis of prestige, not price. They have formed an oligopoly, increasing tuition in unison by about 3 percent a year, every year, while filling their campuses with the recreation centers, dining halls and high-rise apartments that dazzle students, parents and donors alike. As a result, they are also able to maintain their discounts in a safe range.
In 1965, President Johnson created the present student financial aid system to make colleges accessible to all. He unleashed massive government subsidies in the form of loans and grants on which colleges have grown dependent. Ironically, this spigot of money has left many colleges out on a financial limb with students paying the bill. Colleges must rethink their role in a post-industrial economy that has grown impatient with a four-year model that produces generalists. Today’s new institutions, often for-profits and trade schools, able to teach in short time periods specific skills to students filling their bellies if not so much their minds, compete with colleges at lower prices. Even the Alphas may soon find their leadership challenged.
Robert Hildreth is the founder of the Hildreth Institute, a nonprofit research and policy center dedicated to restoring the promise of higher education as an engine of upward mobility for all. He also founded college access nonprofit Inversant and other organizations with complementary missions to get low-income students to college.