Has Private Higher Education Hit the Price Ceiling?

Is “college wasted on the young?”

When I was Admissions Director at Penn I remember dreading when the annual cost of attendance would begin with a “2.”  About twenty-five years ago, when Penn crested the $20,000 annual tariff, I hosted an admitted student reception in Chicago and, after the opening remarks pivoted to the meet-and-mingle, a dad accosted me by the podium.  His remarks presaged the ensuing, ongoing dialogue: “$20,000 a year!?  That’s ridiculous!  I’d never pay that much for Penn – Princeton maybe – never Penn!  This is ridiculous!” As ridiculous as a $20,000 per year price tag seemed, this dad did bring his son to the session (I do not remember where the boy ended up). 

Many have been wondering when higher education will “hit the ceiling,” what price point will roil the markets?  I may have some answers.

We hit the ceiling about 25 years ago but haven't been spanked hard yet because enough parents seem to continue to care more about educating their kids than insuring their own retirement.  But that has been changing, and it seems the pace of attitude change is accelerating.

I recently polled my Amherst College classmates.  Most have sent their kids to college and shared the refrain “I am glad that is over.”  When asked if college is worth $60,000/year the vast majority said “no,” unless 1) it is a truly resource-rich, prestigious institution and 2) their child was smart/ambitious enough to take full advantage of the experience.  Their replies suggest a new view of expensive colleges as an intellectual and cultural Disneyworld that turn Shaw’s suggestion that “youth is wasted on the young” on its head: “college is wasted on students!”

(That same group of Lord Jeff alums unequivocally said that they "hire performers not colleges names," so the residual value of the Old Boy/Girl Network has quickly waned.)

Taking a broader look I gathered information from the parents of students applying to expensive private colleges this spring.  The results would surprise anyone who has not spoken to a parent recently:  there are fewer wealthy families out there and those who are looking at pricey colleges agree with my classmates, they are willing to pay much less than stick price.  In fact, the most affluent indicated they would pay about a quarter (24% to be precise) of what the national financial needs-analysis suggests they can afford.  This data display was called “eye popping” at a recent gathering of college officials:



As good a job as colleges do identifying and articulating their Value Propositions, that won’t be enough.  One college president recently made the comparison to luxury car sales, and the audience appreciatively got the metaphor.  Walking home two things occurred to me: parents are “sold but not buying…” and almost 150 colleges charge as much as four luxury cars for a degree.

In addition to the job of recruiting and selecting a class, admissions directors are also a great source of market intel.  We have been watching the price ceiling for a long time, and have seen it is more elastic than brittle.  But that is changing and our message to our colleagues in the most senior leadership positions is “pay attention.”  Very soon a rebalancing of overhead expense and revenue will occur.  It is not too early to begin comprehensive examinations of ways that might most successfully work.