The Costs of College and Perceived Value

Commentator: 
Tom Shipka
Transcript: 

Most high school graduates apply for admission to several colleges, as they should, because today the average income of college graduates is twice as much as non-graduates. (1) Once admitted, these young people and their parents face the daunting task of meeting the ever-rising costs of college : room, board, tuition, and other fees. The price tag at most private institutions is especially high. The average room, board, and tuition at private, non-profit colleges stands today at $30,367, far more than at public institutions, and costs at private schools rose 81% from 1993 to 2004, more than double the rate of inflation. (2) One private institution, George Washington University, actually charged students over $49,000 last year. Although public institutions cost less as a rule, their fees also predictably go up each year. This is usually attributed to a steady decline across the nation in appropriations by states to public colleges as a percentage of their operating costs. Although scholarships, grants, loans, and student jobs are available to a great many students at both private and public institutions, many graduates and their families find themselves paying off college debts long after commencement.

A key question about fees is what drives them? How are they set? Although there are no doubt some cases where institutions struggle to keep costs as low as possible, they are few and far between according to a recent series on American higher education published by The New York Times. (3) The Times reports, remarkably, that the popularity of a college rises with its cost! (4) For instance, at one private college in Pennsylvania which was losing applicants, the chairman of the Board of Trustees promoted a 17.6% increase in tuition and within four years the size of the first year class rose 35%. "Applicants," the Times points out, "had apparently concluded that if the college costs more, it must be better." (5) The Times observes that consumer perceived value is a prime factor at countless institutions of higher education which have "sharply increased tuition to match colleges they consider their rivals, while also providing more financial aid" lest they lose potential revenue or be perceived by prospective students as inferior. (6) For instance, Notre Dame tracks fees at Chicago, Emory, Vanderbilt, and seventeen other schools when it sets fees. (7) Thus colleges exploit the perception of students and their families that there is a direct correlation between cost and quality. As a result, costs go up and up and up. When your customers believe that they get what they pay for, that more means better, charging them less, even if feasible, is institutionally self-defeating.

The research on college costs and types of colleges may surprise many of these families. On the one hand, there is no proven correlation between fees and actual quality. On the other hand, the type of college - public or private, large or small - has no significant effect on a college graduate's occupational achievements or income. (8) Despite this, I do not expect any change soon in consumer perceptions of value in higher education. The situation is somewhat similar to the world of motorcycles. Harley-Davidson cycles cost much more than comparable models of other manufacturers despite the fact that there is no proof that they are superior in design and performance. But this doesn't faze Harley owners and future owners.

1. Rudy Fenwick, "Report to the Ohio Faculty Council on the Effects of College Graduation on Individual Income: A Summary of Research Results in the Sociological Literature," February 2005.
2. The New York Times, December 12, 2006.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.
8. Fenwick, Op. Cit.

Copyright © 2006 by Tom Shipka