The Answer To the High Cost of College: 42% Cut In Tuition

McGruber writes: Utica College, a small, private university in upstate NY, announced it is cutting its annual tuition by 42 percent. According to College President Todd Hutton, the change will reduce the sticker shock that many parents and students have when seeing the tuition price. Hutton says there are fewer than a dozen students who pay the full price. Currently, 61 percent of the tuition revenue coming from freshman is grants and subsidies directly from the college's pockets. Under the new tuition rate this number, called the "discount rate," would go down to 29 percent. Essentially, Utica College would spend less of its own money to pay the tuition of students who can't afford the full price. It expects to make up the lost revenue through increased enrollment, which would come as a result of the college appearing to be more affordable. Even though some of it sounds like a shell game, students will all make out better in the end, Hutton said. The least a student will save is $1,000. The most is more than $5,000, Hutton said.

Comments

Utica College's Tuition Reset

[McGruber]

There are more details posted on the college's website: A Bold Move For Tomorrow - Utica College Resets Tuition to a Better Price, Improving Our Affordability

On the FAQ page they explain:

Q. Why is Utica College doing this?

A. Colleges and universities all across America are dealing with affordability issues. Even though colleges like Utica provide high quality and great results to make the investment worth it, the pricing models used by most private colleges can result in published prices that give students and their families “sticker shock.” America’s colleges and universities are reaching a point where they can no longer keep raising their already high tuition amount year after year – at some point it starts to seem just too high, and not every family knows that the sticker price will most likely be discounted for them with scholarships, grants, and other financial aid. The overall result is that too many students and families are not even considering a private college as a realistic possibility.

So we are doing this because it needs to be done. And we are the right college to do it. Many private institutions are in the same position as Utica, with the ability to reset their tuition to a better price. But Utica is one of the few colleges in the nation – and the first among those we compete with for students – that has been bold enough to actually do it. There’s a reason UC’s brand signature is “Never stand still.” It captures the entire forward-moving spirit of Utica College. Ever since our post-WWII founding to serve area veterans on through to our early adoption of online learning and our development of cutting-edge programs like economic crime and cybersecurity, UC has remained flexible and innovative, growing and thriving specifically because we are always committed to meeting marketplace needs.

How it works?

[Michael Woodhams]

The explanation wasn't very clear, but I think this is how it works.
Student in 2015: "We charge you $34k tutition, but you are eligible for $20k grant, so you pay us $14k."
Same student in 2016: "We charge you $20k tuition, but you are eligible for $6k grant, so you pay us $14k"
(NOTE: $14k is just an example, number made up from top of my head.)
For that student, there is no financial impact on the university for the cut in tuition. There will be some loss because of students who were paying over $20k after grants, who will now be paying only $20k, but they say there are very few of these students. They anticipate getting more students because $34k tuition was scaring people off from applying, even those who in the end would only have been paying $14k (or whatever) after grants. This extra volume will supposedly offset their losses.

Problem: "We're losing money on every student, but we make up for it with volume". Unless that $14k after-grants payment is actually enough to cover the university's costs for that student, getting more of them won't help.

Re:How it works?

[AthanasiusKircher]

The explanation wasn't very clear, but I think this is how it works.
Student in 2015: "We charge you $34k tutition, but you are eligible for $20k grant, so you pay us $14k."
Same student in 2016: "We charge you $20k tuition, but you are eligible for $6k grant, so you pay us $14k"

Yes, that's the gist of it. But there's a lot of stuff that goes into that word "grant." College budgets are very complex, and there's a lot of reasons why those "grants" can be useful to move money around.

For one example, rich colleges with big endowments (over a billion dollars) generally pay at least 1/3 of that tuition "grant" money with endowment money.

Why would they do this? Sometimes because they have to. Endowment management often involves weird operations akin to money-laundering. Donors often give money that's earmarked for particular things, and for the college to actually make use of that money in their general budget, they need to find a way to funnel the money out of the endowment.

Tuition is an important factor for many richer colleges here. Let's say that you have a couple who has a decent amount of money that they want to give to the school. They're not rich enough to pay for a building or anything like that, but they'd like something smaller that they can put their name on.

So, they fund the "Jimmie and Maggie Stewart Scholarship in Basketweaving Studies," which can pay out $10,000 per year to some lucky undergraduate basketweaver (or perhaps a few of them, divvied up).

Jimmie and Maggie get a lot of "bang for their buck" here -- they get to feel good about funding undergraduate education, and often colleges will ask students who receive scholarships to write a letter of thanks or at least information to the donors periodically and/or host some "donor cocktail hours" or whatever where the donors get to mingle with the happy undergraduates and see where their money is going.

But now the college needs to get that money into its general funds to use it. So it has an incentive to "award the scholarship." On the other hand, the college can "double-dip" here by increasing tuition at the same time. Before the student paid $20k or whatever with no grant, but now the tuition can be $30k with a $10k scholarship, so the student gets a "scholarship" and is happy because they think they are getting a "deal" (and something to put on a resume), the donors are happy because they think they are helping students succeed in this era of high tuition, and the college actually increased its effective annual revenue by 50% for this student.

Most of the situations with endowments aren't that direct -- donors give money that's not earmarked for individual scholarships, but perhaps it's meant to go toward "undergraduate education" or whatever. (And many alumni often tend to feel the best about their undergrad experience, so they might donate toward that.)

Again, the school could try to use that money for direct expenses, like building a new gym or whatever, but then they have to justify it to endowment managers as directly relevant to "undergraduate education" -- is the new gym really necessary? Maybe... maybe not. But "tuition" really is considered "necessary" for undergraduate education, so if you give that money as a "grant" to a student to lower tuition, then the money flows directly from the endowment and back to the general college funds... where it can used to pay for the new climbing gym or another administrator's salary or whatever.

And that's just one type of "shell game" that goes on... but it's an important one for richer schools. Tuition hikes at smaller schools may have other pools of money or grants or whatever involved that having a "higher tuition" allows them to use more freely. Meanwhile, schools obviously have incentives to charge higher "official" tuition, since they can squeeze that money out of richer families and thus actually increase income.

What's going on in this case is a smaller schoo

Re:Just go to Germany!

[epyT-R]

It's not free. Someone's paying for it: the German taxpayer.

Re: They cynic in me

[kenh]

Fire professors? Why? The school is simply reducing the published tuition rate to better reflect what students actually pay. The school had been acting like a 'rich uncle' and paying 61% of the tuition bills for their students, by changing the number printed in the catalog the school is still paying the difference between what students pay and what the school actually costs - just like always.

Re:not enough rich people, unless you mean teacher

[phantomfive]

2010 wealth distribution: ucsc.edu/whorulesamerica/power/wealth.html

Note that is wealth, not income, so changing the tax rates will get almost none of that.

So why don't you do nothing and be rich?

[raymorris]

> How do the rich actually produce anything? They simply tell others what to do. Not how to do it, they just crack whips. Can't we produce things without their oversight? Do we really need them to pay us for us to do anything?

Let's suppose that's true. Rich people get rich by sitting there doing nothing, while companies magically spring up around them. "Can't we produce things without their oversight?", you ask. If you can, do it. If you can make a software company appear, why not do it rather than sit there complaining while working for the rich guy's company?

You don't need that damn idiot who built the company, you can build your own, right? So DO it, unless you'd RATHER stay up until well after midnight posting on Slashdot, then slog into your office half awake and watch YouTube videos while he makes sure you get paid on time. If you're working for the guy who built the company rather than building your own, that's your choice. Apparently you're getting something out of it, the rich guy is doing something for you that you can;t do for yourself.

Personally, I've done both. I've built and sold a couple of companies. I've been a lazy government worker, and right now I'm working for the rich guy who built this company. Right now, I choose not to be the rich guy running the company, but to be an employee because a) I don't want to work 80 hours per week, b) I want financial security - I don't want to risk what I have, but rather have a stable pay check and c) I want to spend my time doing the work I enjoy, not trying to take care of anything and everything a company has to do each day.

Maybe in a few years I'll decide I want to be the rich guy working 80 hours growing a company again. Maybe you'll want to work for me during the time. Maybe I'll keep doing this 8-5 thing, which is also pretty cool. You have the same choices. If you don't like the choices you've made so far, quit complaining and make different choices. I (and many others) wrote down the instructions for you on how to start a company. If you want a company without "that rich guy" and think you can do it without him, go do it. I did.