College at a Discount

For everyone out there who is frustrated by the annual onslaught of unreasonable college price hikes, a small university in the frozen environs of Minnesota recently did something worth celebrating.

In a highly unusual move, Concordia University in St. Paul, Minn., announced that it would slash tuition by 33 percent for all its students beginning in the 2013-2014 school year.

I don’t know of any other school that has done anything comparable. In 2011, Sewanee: The University of the South, a prestigious liberal arts college in Tennessee, received kudos and gushing press coverage for shrinking its tuition by 10 percent, but that cut looks like small compared to the hatchet job Concordia is doing to its sticker price.

Tuition at Concordia this year, before the tuition hair cut, is $29,700. Next year, tuition at the Lutheran university will drop to $19,700.

I’m not sharing this story because I believe that the children of your clients should all rush off to apply to Concordia. Rather I think, or at least I hope, that Concordia’s trailblazing ways will encourage others to follow.  

High Costs, High Discounts

Students will benefit from this price cut, but not necessarily in the way that you imagine. The price for Concordia students will only drop slightly. That’s because few if any students at this school were paying full price anyway.

Until the price change takes effect, Concordia can accurately be characterized as a high-cost/high-discount school. Countless other schools in this country fall into this same category. The published cost is high, but so are the discounts that come in the form of institutional scholarships.

One reason why tuition prices have defied inflation for at least a generation is because schools need to generate enough revenue for all the scholarships and grants that they must dispense to attract students.

If you listen to media accounts, you would assume that getting into good colleges has become nearly impossible, which would seem to negate the necessity for schools to offer merit scholarships to lure students to their campuses. But, in reality, most schools are not nearly as selective as the Ivy Leagues and other elite schools that hog the headlines. According to a College Board statistic, only two percent of colleges and universities in this country reject at least 75 percent of their applicants.

A Buyer’s Market

This reality helps explain why higher education institutions must generate so many scholarships. Every year administrators and boards of trustees fret that they won’t meet their admission goals. One way that they reduce their chances of starting the new school year with empty beds in their dorms is to entice students with scholarships. Parents and teenagers often don’t realize it, but they are in a buyer’s market.

The discounts that schools offer are significant. According to the latest figures from the National Association of College and University Business Officers, the average tuition discount that the typical student pockets at a private institution is 51 percent. So if a school’s published tuition is $38,000, the average student will only pay $18,620. These discounts, by the way, are not just going to the brainiacs. At private institutions, 85 percent of students are getting them.

The NACUBO doesn’t keep track of state university discounts, but they are common. In fact, two-thirds of students attending state or private schools end up getting some type of scholarship or grant. A significant portion of the grants/scholarships dispensed by public flagship universities (50 percent) and regional state universities (55 percent) are given to affluent students with no financial need.

One of the flaws with this arrangement is that parents are so intimidated by high-published collegiate prices that they don’t even bother to seriously consider schools with scary price tags. In fact, a study released by the College Board this fall suggested that slightly over half of families are striking schools from consideration based on price. According to the College Board survey, 58 percent of low-income families, 62 percent of middle-income families, and even 48 percent of affluent households said they would eliminate schools based on price tag.

A big reason why I applaud Concordia for what they are doing is because the new pricing will more accurately reflect what families will be paying. All students attending a college with a more realistic baseline price will benefit from a tuition rollback.  

“We are moving into a new model of how higher education operates,” Eric LaMott, Concordia’s chief operating officer, told me in an interview. “I don’t think it’s sustainable to continue to drive up the prices. I am confident that this is the right strategy.”

No one could possibly argue with the supposition that American families deserve to know what the real prices are when shopping for colleges. I hope what Concordia has done will become a trend.