Higher Education Watch
Is the College Business Model Unraveling?

The business model that the American higher education system has relied on to boost revenue and enrollment over the last few decades—steadily rising tuition, moderated by increasingly generous financial aid packages—may finally have run its course. The Wall Street Journal reports:

Private colleges are offering deeper tuition discounts than ever before, hoping to lure more students and boost overall revenue—and it appears the strategy isn’t working.

Tuition-discount rates for first-time, full-time freshmen hit a record 49.1% in the current school year, according to preliminary results from a National Association of College and University Business Officers survey of 411 schools. That 2016-2017 figure compares with 48% in the prior year. At schools with fewer than 4,000 students—those for whom just a small shift in enrollment can have a big impact—the freshman discount rate was 50.9%.

The hefty discounts in sticker prices signal how pricing power is shifting from schools to students and their families as some grow skeptical about the value of a costly college degree.

There is a bubble logic at work here. Marginal institutions are afraid to cut sticker prices, because many parents and students see high tuition as a mark of prestige. So colleges are forced to simply offer an increasing array of credits and scholarships to induce students to enroll, even as they keep jacking up tuition to keep pace with competitors.

But as the WSJ story suggests, it may be that pent up demand for higher education has already peaked. That could mean the whole industry is in for a disruptive adjustment.

What might this look like? Smaller, less-prestigious institutions could close. Others will be forced to roll back the administrative bloat that has accompanied rising tuitions. Vocational training programs might start to get more enrollees. Cost inflation and debt accumulation could slow down. All of this could be good for a higher education industry that costs too much and delivers too little and that seems to have contented itself with stagnation for quite some time. Expect the academic lobby to start pushing even harder for “free tuition” and other government crutches to postpone the reckoning for as long as possible.

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