I went to a private college—Augustana College, in Rock Island, Illinois—and am grateful for having been able to do so. Doing so back then wasn’t all that daunting: The tuition and room and board 30 years ago was just under $8,000, and with a $3,000 scholarship my parents found it a manageable burden.
Augustana’s posted price for tuition, room, and board today is around $50,000. This is just a sticker price—paid by about as many people as pay the full list price for their new cars. In fact it’s a negotiable price for all but the wealthy: The typical applicant pays a small fraction of that amount—the average figure at a college like Augustana is roughly $22,000. That’s markedly more than in my day but not terribly different from what it costs to attend public colleges in Illinois—and in many instances it is cheaper than attending a public university in another state.
The market for secondary education is very competitive for the non-elite schools. Students considering Augustana have many options, public and private, and Augustana can’t expect to get enough students and revenue without discounting its tuition. But the practice raises a question: Why have a high tuition in the first place if few people pay that amount?
The reason is to extract a few extra grand from the people who can afford $50,000 in annual tuition without much trouble: Augustana probably has about a dozen such students. Most schools practice a form of price discrimination where the parents show their income and the school recommends a price for them to pay. Some haggling ensues and the two parties eventually arrive at a price they can both live with.
The downside to having a high posted tuition is that many prospective college students do not understand (and are not informed by their college counselors or anyone else) how the discount game is played, and they don’t even consider Augustana or any other private school because of the high posted prices. Thus, by reducing posted tuition it may very well be possible that an Augustana could make up the money lost from a few wealthy families by boosting demand and enrollment across the board.
It’s not quite that simple, though. A college that unilaterally reduces its tuition may get a one-year boost in applications and enrollment, but it quickly disappears—and then some. The problem is that people perceive a college’s posted tuition to be analogous to its quality, and after the attendant hoopla from the initial tuition drop disappears, the markedly lower tuition invariably results in a decrease in applications the second year and even more the third year. University administrators refer to this as a “death spiral,” and it’s a common phenomenon. Hence, no one dares to cut tuition unilaterally.
The solution is simple: Private colleges should form a consortium and cut their tuitions en masse. This way, the inferiority perceptions would not arise and demand would grow across all private colleges.
There’s one tiny problem with college presidents doing this: The Justice Department will try to put them in jail if they do so.
It turns out that price collusion doesn’t apply only to agreements to jointly raise prices. As federal prosecutors read the law, it also prohibits agreements to reduce prices, even though in this instance it would do nothing but help prospective students. In fact, when the topic was broached at a meeting of university presidents the Department of Justice took it upon itself to interview the attendees of the meeting in question and threaten them with prosecution. The discussion had taken place at a public conference and was widely reported in the media—as far as one could get from a smoke-filled room.
While the Justice Department may not allow this, Congress can. Why hasn’t it? It’s a little complicated, of course. While it would be a natural provision to be included in the next reauthorization of the Higher Education Act, there’s not a lot of urgency to get that done (or anything, really) at the moment. And this particular provision isn’t a high priority for the committees charged with writing the legislation: The private schools with the most pull (and money) are those of the Ivy League, and Congress already gave them this power long ago. There’s a somnolent trade group that ostensibly works at the behest of the private colleges but it ceased being relevant long ago. Some private college presidents make a point of talking to their local member of Congress about it when they come to Washington, but there’s not much of a concerted effort to advance the cause, and that’s what it usually takes to get a good idea—even one with little opposition—enacted into law.
And it’s worth pointing out that public universities don’t necessarily want the increase in competition that this would engender. They haven’t had to weigh in on this yet but rest assured they will if it ever gets traction—and public colleges have a much bigger presence in Washington than smaller private colleges. It’s tough to oppose on its merits, but little in Washington is decided on merits.
That a simple provision that would reduce the cost of college for tens of thousands of students—at no cost to the government—languishes for no good reason is a shame. In a world where Congress has little flexibility to boost spending on anything, it ought to jump at a chance to increase access to college any way it can.
Ike Brannon is president of Capital Policy Analytics, a consulting firm in Washington.
