Tuition Junction: What's Your Function?

The New York Times has Higher Ed Watch reconsidering our thinking on why college tuition is going up. Our hypothesis had been that skyrocketing tuition is driven by the combination of: (1) declining state support for higher education, and (2) an arms race among colleges for visible infrastructure that is better than their competitors, particularly when it comes to student life and athletic facilities.

Yesterdays trenchant New York Times article offers a more disparaging hypothesis on consumer misperception. Skyrocketing tution is being driven by colleges "pricing up" to competitor tuition levels irrespective of individual institutional costs. Its expensive, so it must be good.

The Times spotlights Ursinus College, which raised tuition and fees by almost 18 percent in 2000, and in turn received almost 200 more applications than the previous year. It took only four years for Ursinus' freshman class to increase by 35% in size. By raising tuition and manipulating consumer misperception as opposed to improving its academic program, Ursinus drew applicants away from competitors, even though Ursinus costs remained relatively unchanged over the same period of time.

We at Higher Ed Watch still believe that public colleges and universities are back filling cuts in state aid with higher tuition charges. Its not disputed that since the economic downturn beginning in 2001, states have cut funding for higher education. And it's not disputed that over the last five years, public college tuition has increased 35% percent in inflation-adjusted terms. The research says thats not a coincidence.

We also still believe that colleges and universities, particularly private institutions, have engaged in an academic arms race for visible infrastructure that is better than their competitors, particularly when it comes to student life and athletic facilities. In comparing college quality, consumers cant really compare things that matter like institution teaching and learning, so they compare proxies, even though those proxies dont indicate much about college quality. Because consumers cant compare institutions according to levels of student academic competence at graduation, growth in student learning over time, or student success in the workforce, they look to things that are much easier to compare (and much more expensive to provide) like the quality of residence life, student unions, dining halls, and athletic facilities. Consumers then make application and enrollment decisions based on these proxies.

Its called the Flutie-effect, named after Boston Colleges mid-1980s spike in applications after the success of its football program in the early-1980s led by Doug Flutie. Competing colleges invest in expensive infrastructure and athletic programs, leading to an arms race and not incidentally much, much higher tuition for students and families. Average tuition at private, four-year colleges rose 81 percent between 1993 and 2004, more than twice the rate of inflation.

Higher Ed Watch and the New York Times agree that the choice of a college is often more about perception than quality. Current consumer perceptions compel colleges simply to raise tution or spend more on big-ticket amenities in order to compete with their rivals for student applications and enrollment.

It doesn't have to be this way. There are a number responses to the spiraling tuition problem. A key one though is to provide consumers with more information on actual college quality and give consumers and institutions incentives to use that information. Then the misperceptions with respect to tuition and amenities, now acting as proxies for quality, will be diminished. And colleges will have more incentive to provide consumers with what actually mattersan affordable, high-quality education.