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The Price Isn't Right:

Market Pricing Dynamics To Kill The Small Private College
University Business, Dec 2007

Not long ago, while touring a rural, tree-lined campus in Ohio, the president of a small, under-endowed liberal arts college asked me what new facility would turn around their dwindling admissions. Did they need a new airy atrium in the student union, with wireless internet and cappuccino? Or would a state-of-the-art fitness center attract more prospects?

The three basic pillars that guide the strategic planning for an institution are student acquisition, academics, and campus atmosphere (facilities and recreation). In the tuition-dependent institution, enrollment drives everything else. Without students, there can be no college. If you are a small college missing its enrollment numbers, then you likely have aging facilities, a small endowment, and, even if the quality of your academic programs has managed to keep up with the demands of the job market you are going to need more than just a nice looking student union to turn things around. Besides, a new building would take several years, and the president of the college I was speaking with needed results much sooner.

As we strolled the campus we discussed their options through the lens of facilities and architecture, but it disturbed me that this administrator and the hundreds of others I've talked to didn't consider how their basic pricing structure was hurting their efforts to attract and retain students. Why, I wondered, don't these multi-million dollar institutions see that if they don't innovate within their business operations, and quickly, they are going to be in the same crisis year after year?

A love of education, and dedication to learning will not be enough to save the growing number of these institutions that cannot meet the "real world" needs of students, in a way that the job market values, at a price that the student can afford given life's other demands. If an institution's longterm future equals revenues minus expenses, then colleges that don't have large capital endowments for protection, who rely on tuition as a main source of revenue, need to pay close attention to how they are managing the structure of the tuition offer. Administrators need a more strategic approach to pricing, or many of these schools will simply fade away.

Without a better answer small college presidents risk closing doors on rich history. Couldn't happen? In June 2007, the 155-year-old Antioch College announced it was closing its doors. With an endowment of only $36 million, tuition and fees at $27,212, a campus designed for 2,700, enrollment of 464 and a fall class at 125, the college could no longer support itself. Each year we hear of one or two others on the verge.

If your admissions are dropping, your customers may be telling you that your pricing structure is ineffectual by design. A graduating B.A. in liberal arts was offered a starting salary of $30,212 in 2006, while business administration graduates fared slightly better at $38,254 (according to a survey by the National Association of Colleges and Employers). Since chemical engineering graduates earn $52,539 a year on average and computer science majors earn $42,375, is it fair to ask them to pay the same price (tuition) for two products (their degrees) that perform very differently?

The beginning teacher earning $28,000 will barely be able to pay off $20,000 in loans over 10 years at 6.8 percent, yet many today are carrying debts of $40,000 or more. For many young graduates living in America with a family, home and car while struggling to pay off these loans, life is becoming ever more difficult. When seeking a way to earn more income, the answer they are given is of course more school - and hence more loans.

While the premier institutions can make grants available and subsidize selected honor students, smaller, less well-endowed colleges must choose a new direction.

What if small colleges structured their tuition based on one's ability to pay the loan, which would be tied to their selected major and expected employment? Colleges use sliding scales today with gifted students getting a free ride, a kid with a jump shot getting $10,000 off and the millionaire's son paying full rate. Look at the different rates charged to in-state and out-of-state students for the same education - pricing by zipcode?

Why not charge lower tuition to the education major, and more to the computer science or business major? Why not charge tuition based on the ability to pay resulting debt and make up the recruitment from the large pool of capable students who are not now considering a four-year private college education?

It is not that the student who majored in English or education would not need a loan; it is just that the burden they feel to pay it off after graduation would be relatively equal to the Science major. However, from the institution's point of view, because they are charging more for seats that were underpriced and less for seats that were overpriced, but now actually hitting enrollment targets, the overall picture is much more profitable.

Colleges with limited means must win more transparency and control over the data and information in their business operations so that they can re-invent tuition pricing, recruit further out and seek the untapped markets. Gather in students who are capable of high-level work but choosing community colleges for economic reasons. Go after students attending a large state university who are capable and attracted to more intellectual discourse. Retention rates will increase if students know they can afford four years and ultimately resolve their debt.

Though a tuition scale based on probable earnings may sound unusual to small, liberal arts colleges, they must change if they are to survive. What would a premier institution do if it expected a freshmen class of 800 and only 600 showed up?

I don't believe that the answer lies in across the board tuition increases or decreases. I believe the answer will be found in studying what the appropriate value of a degree is, and establishing tuition within an acceptable range from there based on the other attributes of a college's academic reputation or facilities. I am not promoting cheaper tuitions. I am challenging college business administrators to develop a new structure that would make education affordable based on what the job market values.

The average cost of a four-year private college jumped to $30,367 in 2006, according to the College Board. Some of the highest are over $40,000. Even public universities in Pennsylvania are charging between $5,800 (in state) and $15,700 (out of state). Let us consider creeping costs from a family's point of view.

Recently I attended a scholarship ceremony at a local community college. Five full ride scholarships were awarded to students who finished in the top 10 percent of their high school class. I was surprised that such scholars had chosen a community college in Pennsylvania, a state with 82 private institutions of higher learning.

At Lebanon Valley College, a four-year baccalaureate institution, for instance, any student finishing in the top 10 percent of their high school class is immediately given a 50 percent tuition discount with no regard to family finances. At other Pennsylvania colleges with very large endowments students are offered financial aid packages that can reduce annual costs from $38,000 to approximately $6,000 per year.

When I asked the community college president why these scholars had chosen his institution, he said, "To these families $6,000 might as well be $100,000. They can't afford either." He went on to say that some of these students will probably finish their education at a four-year state system campus.

Buyers are giving critical feedback about the product you are selling. Let us assume that your promise - that your degrees that will guide students to good careers - and your product - the quality of your academic degrees and campus atmosphere - are solid. If you are not filling your seats, then your challenge must lie in your pricing and distribution, not in a new dormitory or women's hockey program. By not showing up, prospective students are telling you that you are not reaching enough of them at a price they can afford.

Here are some other trends of higher education that are keeping administrators from seeing a true picture of their customers' needs.

Marketing higher degrees as a way to earn higher salary minimizes undergraduate accomplishments. Along with MBA programs that promise to boost a starting salary, universities have established masters programs for teaching, nursing, math and science in order to garner five or six years of tuition rather than four. Today, an advanced degree is needed for greater earning power. The net effect is that these institutions have "cannibalized their own distribution channels." Today, a B.A. or B.S. degree is becoming valued in the job market as a high school diploma was forty years ago. But students and their families are being asked to pay a premium for it.

Capable students dissuaded from private colleges because of cost are backing a tremendous increase in community college and state university and online enrollment.

Students see these schools as smart pricing decisions, having learned on Priceline and eBay that what they need can be found at a price that they can afford -- if they only look in the right place. Is this a market smaller private colleges are missing?

Training may replace traditional education. If a private computer training school teaching C++ programming can practically guarantee an income of $60,000 (with only two years tuition of $28,000), what student wouldn't think about it?

Only a bold strategy will overcome the perception of a college education as overpriced and outmoded, resulting in limited earning power. We must listen to the students who say, "Give me an education. Give me my shot at the American dream. But give it to me with a debt that I can afford."

Thomas C. Celli is president of Celli-Flynn Brennan Architects and Planners in Pittsburgh, specializing in architecture, campus and strategic planning for college and universities. Michelangelo Celli is president of The Cornucopia Group, a marketing advisory company based in Pittsburgh.

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