Colleges are finally figuring out the tuition is too damn high

October 10, 2017, 12:01pm

The unthinkable has become thinkable: Some colleges are cutting tuition prices.

Not all of them. And not the highest-profile institutions. But across the country in recent years, a drumbeat of smaller, mostly private colleges have been taking the axe to sticker prices that have appeared increasingly detached from reality.

In 2015, Utica College in upstate New York chopped tuition by 42 percent from $34,000 to just under $20,000. Rosemont College outside Philadelphia also said it would cut tuition 43 percent, to less than $19,000. Last year, La Salle University in Philadelphia announced that it cut its sticker price 29 percent, from more than $40,000 to $28,800. This year the University of the Sciences in Philadelphia, Birmingham-Southern College, Sweet Briar College, and Drew University all announced significant cuts to published tuition prices.

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“We expect that there will be more small, private colleges following this strategy over the next several years as competition for students becomes even more fierce and colleges seek to improve transparency around college costs,” wrote analysts for Moody’s Investors Service, which analyzes the bonds issued by colleges and universities.

But don’t start celebrating yet. These are just cuts to the sticker price of college tuition. As with new cars, few people — just 14 percent — pay the full price for a four-year degree at a private school. When schools announce “tuition resets,” tuition cuts are almost always accompanied by decreases to the amount of aid offered to defray previously ludicrous sticker prices for the vast majority of students.

In other words, in terms of real costs for most students, it’s a wash: The average net cost is the roughly same.

Still, this tuition news matters. If only because it suggests a significant change in the dynamics that drove a decades-long surge in the cost of higher education—a surge that drove an explosion in student debt that now tops more than $1.3 trillion and weighs heavily on young Americans’ households.

READ: College tuition hikes are finally slowing down

In 1989, just 17 percent of households headed by those younger than 35 were carrying education debt. And the debt was relatively light, averaging $10,800, adjusted for inflation. Last year, 45 percent of such younger households had to pay off student loans averaging $33,000, according to data from the Federal Reserve.

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Now, there are indications that the pressure of those growing debts are pushing U.S. policy makers, parents and prospective students to rethink how it prices the single most important credential that determines entry to the U.S. middle class.

For example, college tuition and fee costs have slowed sharply in recent years. This year they are growing at less than 2 percent, close to their slowest rate on record, according to measurements made as part of the Consumer Price Index.

Much of that is due to sharp slowdown in tuition increases at public universities, where political pressure on state legislatures has resulted in a range of tuition freezes at state university systems across the country. A large majority of American college-goers—roughly 70 percent—attend public colleges.

A washout in the scandal-plagued, for-profit higher education sector also could be playing a role in the tuition and fee slowdown. The number of for-profit schools eligible to award federal student aid — the lifeblood of the industry — plummeted by 9.3 percent in 2016, amid a wave of closures prompted by lawsuits and a regulatory clampdown by the Obama administration.

If former students from schools shuttered by say Corinthian Colleges turned to much-cheaper community colleges — which typically serve similar types of students — that could also be putting downward pressure on official measures of tuition price increases at the margin, says Sandy Baum, an economist at the Urban Institute who studies higher education. She says we shouldn’t make too much of some private colleges have decided to cut sticker prices.

“It doesn’t mean that it’s going to spread to the whole of private education,” Baum said.

Still, it does suggest that administrators at some institutions are picking up a distinct shift in the cost-benefit calculus to sky-high sticker prices. Long thought to act as a sign of high quality and exclusivity to potential students, high published prices now are seen, at least by some, as turnoffs.

“The issue is affordability,” said Edith Behr, an analyst with Moody’s who studies the finances of colleges and universities. “Some colleges have found that certain students don’t even consider going to that college because they’re repelled by a higher sticker price.”