Thursday, October 29, 2015

How Are Colleges And Universities Like Nightclubs?

Is College Tuition Really Too High? The answer depends on what you mean by college by ADAM DAVIDSON of the NY Times.
"But probably the single most important factor behind the rise in tuition is one that few other businesses share: Students are not just customers; they are also an integral part of the core product. When considering a school, potential students and their parents often look first at the characteristics of past classes: test scores, grade-point averages, post-college earnings, as well as ethnic and gender mixes. School admissions officers call the process through which they put together their classes the ‘‘shaping’’ of the student body. Kevin Crockett is a consultant with Ruffalo Noel Levitz, a firm that helps colleges and universities set prices. He says that the higher the prices that schools charge, the more options they have in recruiting exactly the students they want.

‘‘I’ve got to have enough room under the top-line sticker price,’’ he says. A school that charges $50,000 is able to offer a huge range of inducements to different sorts of students: some could pay $10,000, others $30,000 or $40,000. And a handful can pay the full price.

There’s a provocative analogy to be made with how another industry does its pricing. I called Paul Norman, who owns a company that promotes high-end dance clubs in London, and he agrees that his clubs have much the same challenge as colleges and universities. Their appeal to new customers is based, in large part, on the mix of customers who are already there. The biggest spenders are wealthy men from Russia and the Middle East. But they won’t spend a lot of money in a club filled with people just like themselves. Women who have the right look — posh in Chelsea, a bit more flash in Mayfair — are admitted free and are offered free drinks, but only if they arrive early in the evening and happily mingle and dance. He said that clubs do their own version of enrollment shaping. ‘‘It’s good for the crowds if you have a mix of ethnicities,’’ Norman told me. On any given night, he said, about a quarter of the clubs’ guests get in free. It’s an odd model: giving your most valuable product away to some and charging a lot to others. But, Norman said, if everybody paid the same price, nobody would want to come, and in a few weeks clubs wouldn’t be able to charge anyone anything.

Similarly, if an elite school like Harvard or Princeton insisted on admitting only students willing to pay the full freight, they would soon find they weren’t so elite. Many of the best teachers would rather go elsewhere than stay in a gated, rich community. The most accomplished rich kids could be lured away to other schools by the prospect of studying with the best students and teachers. So, a school with the same high sticker price for everyone would be unlikely to have the attributes — high test scores, Nobel Prize-winning faculty, a lively culture — that draw national or international attention.

While blue-chip schools charge the most, their economic fundamentals suggest that they are, if anything, underpricing their product. According to the National Center for Education Statistics, the average bill at the top-tier schools is just over $50,000 a year. Yet these schools spend considerably more than $100,000 a year educating each student, with the difference made up from government funds, grants, alumni gifts and their often-huge endowments. Fewer than half of their students pay even that discounted amount. Most of the top-tier private schools say they won’t factor in an applicant’s ability to pay when considering admission and promise that everyone admitted will be given the financial aid necessary to attend. Generally, parents pay no more than 10 percent of their income. Students whose parents make less than $65,000 (or, at Stanford, $125,000) usually pay no tuition. And there are generous aid packages available to all but the very wealthiest students."

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