Illustration by The Chronicle
By Craig Goebel
The health and economic crisis caused by the pandemic has required colleges across the country to reassess what they charge students for tuition. Many of the conversations center on the need to reduce price to stem enrollment losses, but Covid-19 has added new urgency to discussions about the appropriateness — even inevitability — of a more permanent tuition reset. Are we nearing the end of the high-price/high-aid model? Should your college reset its tuition? Research tells us definitively that, well, it kind of depends.
For most institutions, the appeal of a tuition reset rests primarily on the idea that a high sticker price creates a perceptual barrier among prospective students, especially those from less-affluent backgrounds. Many who would be eligible for high levels of aid don’t even bother applying to colleges that seem out of their financial reach. By providing greater price transparency, the argument goes, an institution will expand enrollment enough to offset the resulting drop in tuition revenue. In addition to the transparency and equity benefits, there is also, of course, the tantalizing possibility that a tuition reset will lead to positive publicity and a public-awareness boost.
And, in fact, a survey of college-bound high-school seniors lends some support to the idea that a tuition reset can yield these benefits. Conducted less than a year before the pandemic struck, the survey admittedly cannot take into account the effects of the crisis on perceptions of tuition resets. But it does offer a valuable snapshot that will probably be more relevant over the long term as institutions emerge from the Covid-19 era.
In the survey, conducted by the Art & Science Group, the consulting firm where I work, we defined a tuition reset as a plan in which institutions lower tuition by as much as 50 percent and reduce scholarships and grants by a similar proportion. Even with the caveat about cuts in scholarships and grants, between a half and two-thirds of prospective college students assume that an institution resets its tuition out of a desire to become “more affordable to students,” to “promote greater transparency” about cost, and to have the “students’ interests at heart.” Moreover, the survey’s findings suggest that resets can inspire greater interest in a substantial proportion of prospective students (40 percent) and, for some (33 percent), possibly tipping the balance toward application.
That’s encouraging news for institutions considering a tuition reset. But other findings highlight some limits and risks of the strategy.
For all the conversation that tuition resets have generated in the world of higher education, awareness among students is lacking. Only 10 percent of our survey respondents had heard of a tuition reset at any institution, and around 25 percent did not remember whether they had or not. That’s an inherent limitation, since prospective students can’t respond to something they don’t know about. This communications challenge should not be underestimated. At an even more basic level, research we have conducted with a broad range of institutions suggests that many prospective students, especially at earlier stages of their college search, often have only a tenuous grasp of what an education at a particular institution might cost.
Even assuming wide awareness among students that a college has reset its tuition, that institution still faces significant risks. Although many potential students would view a reset positively, our survey showed it would send a negative message to a substantial minority. A quarter to close to a third of respondents said they believed a tuition reset would indicate that the campus was “struggling to survive,” was “of low academic quality,” or offered a “diminish[ed] college experience.” The findings also leave unanswered a number of critical questions: How will a reset affect matriculation decisions? What magnitude of tuition reduction is required for an institution to increase net revenue through higher enrollment? And what is the right tuition price point and grant-aid amount needed for an institution to meet its net-revenue and enrollment goals?
Those questions resist resolution in broad national surveys (ours included) because the dynamics of tuition resets inevitably will affect each institution differently, based on idiosyncrasies such as reputation and, crucially, their position in their own markets. Many of the pricing studies we have conducted for colleges around the country have shown that sensitivity to price and aid vary widely by institution. Possible permutations for tuition-resetting institutions are many: A significantly lower sticker price may attract more applicants to one institution, but a commensurate drop in grant aid may drive away important groups of matriculants. Applications and matriculations may rise at another institution, but enrollment may not increase enough to make up for the loss in net revenue from the tuition and grant-aid cuts.
That phenomenon is nowhere better illustrated than in some work we did with two institutions, located within 50 miles of one another and serving essentially the same market. Both were considering a significant reduction in tuition. At the first institution the reset had no discernible impact on applications and enrollment. However, at the second, sensitivities were so much greater to cuts in grant aid than in sticker price that such a strategy could actually result in a decrease in applications of around two-fifths and a drop in matriculations of more than half. Combined, that could amount to a 70-percent plunge in enrollment. Despite some important similarities, including serving similar populations, those institutions clearly occupy very different positions in their markets, resulting in very different sensitivities to price and aid.
A final point: While there are very good reasons to consider a tuition reset as a way to draw students’ interest and maximize net-tuition revenue, for most institutions, it’s not price alone, but the value proposition — the academic, social, and career-immersive experiences an institution provides — that ultimately drives demand.
Research we have conducted has borne this out time and again. For example, we recently worked with a university considering a tuition reset with the goal of increasing net revenue through higher enrollment. As part of a broader study focused on institutional planning, we tested a 40-percent tuition decrease alongside varying drops in grant aid. While this institution’s would-be students demonstrated significant sensitivity to price and aid, at no level tested did our models suggest any possible net gain in enrollment or revenue.
At this same institution, however, we found that a number of substantive changes in the student experience could lead to significant increases in enrollment and net revenue. Developing an experience that would support student success at all levels of ability in concrete ways would, in itself, have a powerful impact on application and matriculation decisions. A similar opportunity existed for making specific changes in how students pursued their career interests, both within the curriculum and through co-curricular experiences and support. Within a broader rubric of supporting student success at this institution, models showed that, together, these initiatives add up to a value proposition powerful enough to increase applications and enrollment by 35 percent.
Examples like that make clear that it is imperative for higher-education leaders to resist the temptation to follow the pack on pricing strategy. Just because something worked to some extent at a similar institution, doesn’t mean it will work at yours. It’s absolutely essential to develop an empirically grounded understanding of your college’s particular market and your position in it before determining when or if a change in price will provide the boost needed to reach your enrollment and net-revenue goals.
Craig Goebel is a principal at the Art & Science Group, a higher-education strategy firm.