IHE: Rising Tuition: Richer Students Subsidizing Poorer Students

[Wahoo Redux]

IHE: Income Inequality Drives Up Tuition, Study Argues

[marshwiggle]

IHE: Income Inequality Drives Up Tuition, Study Argues

From the article:

An institution's educational quality is closely correlated to the average ability of its students, the authors argue.

Well, duh.

As a result, all colleges and universities are motivated to admit "high-ability" students, regardless of their income, in order to better the quality of the education they offer. As income inequality grows, institutions must offer steeper discounts for high-ability, low-income students.

This pricing strategy, called tuition discounting, is widely used by private institutions. It allows institutions to set high sticker prices for their wealthiest students and to subsidize those prices for lower-income students. Most private colleges discount tuition to some degree, and very few students actually pay the listed price.

Since private institutions, and this whole dynamic, are literally foreign to me, this seems pretty unsustainable. Once effectively no-one pays the "list price", it can't increase anymore. (Or any increases are completely irrelevant.)

[dismalist]

...

As a result, all colleges and universities are motivated to admit "high-ability" students, regardless of their income, in order to better the quality of the education they offer. As income inequality grows, institutions must offer steeper discounts for high-ability, low-income students.

This pricing strategy, called tuition discounting, is widely used by private institutions. It allows institutions to set high sticker prices for their wealthiest students and to subsidize those prices for lower-income students. Most private colleges discount tuition to some degree, and very few students actually pay the listed price.


Since private institutions, and this whole dynamic, are literally foreign to me, this seems pretty unsustainable. Once effectively no-one pays the "list price", it can't increase anymore. (Or any increases are completely irrelevant.)

Oh, it's sustainable alright! It's called price discrimination, and any non-perfect competitor will try to use it. There are people who pay list price. It is adjusted to such. List price cannot be arbitrary, if that's what's meant.

Since Uni's are not profit maximizers, they spend the dough on the poor:

Rising income inequality also increases the wealth of high-income students, incentivizing colleges to charge those students more money, the study authors write. Doing so allows institutions to offset the greater tuition scholarships paid to high-ability, low-income students.

All this is well understood. The authors are clever in relating this to higher quality.

Makes sense in the short run, i.e. until lower quality institutions become higher quality institutions.

And let's not forget about Baumol's Cost Disease. We wouldn't have the problem if Beethoven symphonies could be played faster for equal enjoyment. :-)

[Oh, and let's not call this a subsidy. The low tuition guys are paying the extra cost they impose on the university.]

[Hibush]

Since private institutions, and this whole dynamic, are literally foreign to me, this seems pretty unsustainable. Once effectively no-one pays the "list price", it can't increase anymore. (Or any increases are completely irrelevant.)

Oh, it's sustainable alright! It's called price discrimination, and any non-perfect competitor will try to use it. There are people who pay list price. It is adjusted to such. List price cannot be arbitrary, if that's what's meant.

Since Uni's are not profit maximizers, they spend the dough on the poor:

Rising income inequality also increases the wealth of high-income students, incentivizing colleges to charge those students more money, the study authors write. Doing so allows institutions to offset the greater tuition scholarships paid to high-ability, low-income students.

It doesn't take a study to discover the pricing mechanism, the institutions tell you that is what they are doing. The powerful financial incentive is to set the list price at the highest value any one student is willing to pay. Everyone else gets a discount that reflects what the family thinks the education/degree is worth, and you hope the discounts stay above break-even until the class is filled. If the list price is any less, the school is leaving money on the table. And undercharging the wealthiest to boot.

In the end, the cost as a proportion of family resources ends up being highest for those in the middle. In the quality private SLAC business, a student from a familily with an annual income of a few million will pay the $75,000 list, but one from a family income of $200K might pay 30 or 40K. The financial burden is greater for the second family, but the school is still making money. A student from a low income family might pay no tuition, generally less of a burden though losing a wage earner can be a hit to the family finances.

[dismalist]

We wanna keep those smart poor people from paying too little!

Then there'll be fewer of them, and we'll get more stupid rich kids instead.

Put the surplus into whatever, not quality.

Some name colleges are so stupid they've got an anti-trust suit going against them.

"In addition to Yale, Georgetown and Northwestern, other named defendants in the suit are: Brown University, the California Institute of Technology, the University of Chicago, Columbia University, Cornell University, Dartmouth College, Duke University, Emory University, the Massachusetts Institute of Technology, the University of Notre Dame, the University of Pennsylvania, Rice University and Vanderbilt University."


https://www.wsj.com/articles/yale-georgetown-other-top-schools-illegally-collude-to-limit-student-financial-aid-lawsuit-alleges-11641829659

[Hibush]

We wanna keep those smart poor people from paying too little!

Then there'll be fewer of them, and we'll get more stupid rich kids instead.

Put the surplus into whatever, not quality.

Some name colleges are so stupid they've got an anti-trust suit going against them.

"In addition to Yale, Georgetown and Northwestern, other named defendants in the suit are: Brown University, the California Institute of Technology, the University of Chicago, Columbia University, Cornell University, Dartmouth College, Duke University, Emory University, the Massachusetts Institute of Technology, the University of Notre Dame, the University of Pennsylvania, Rice University and Vanderbilt University."


https://www.wsj.com/articles/yale-georgetown-other-top-schools-illegally-collude-to-limit-student-financial-aid-lawsuit-alleges-11641829659

A number of those schools were in the 1991 lawsuit and subsequent consent order, so I imagine they know exactly where the legal line is and cross it only when they know they can hide the transgression.