Colleges Must Change
April 05, 2021
This article is from Inside Higher Ed
Colleges need to become more consumer-friendly -- fast -- if they want to survive. My company, Edmit, published research that indicates many colleges could face financial hardship in the coming years, and that hundreds might not survive. I don’t know how our predictions will play out, but I do know that college has become incredibly expensive, students and parents are stuck with staggering amounts of student debt, and many students are still struggling to get a high-paying job after graduating. Consumer sentiment has become so negative that over half (51 percent) of college students agree with the statement that “my institution only cares about the money it can get from me,” according to a recent survey by Third Way, a think tank.
CNBC reports that a recent survey of high school students by ECMC Group, a nonprofit aimed at helping student borrowers, found that the likelihood of attending a four-year school sank nearly 20 percent in the last eight months -- down to 53 percent. These survey results are consistent with enrollment data from the National Student Clearinghouse Research Center that found last fall’s incoming freshman class declined 13 percent from a year earlier, and they could mean this downward trend in college enrollment might continue.
Gen Z has been shaped by the economic challenges of the Great Recession and COVID-19, which occurred during their childhood and teenage years, and they have watched their parents and communities struggle with employment and finances. This generation tends to be more focused on long-term value and smart investments, so it isn’t surprising that a majority of students and parents now say affordability and dealing with the debt burden that often comes with a degree is their top concern, according to the Princeton Review’s 2021 College Hopes & Worries survey. In that survey, a majority of high school students said they are now applying to colleges with lower sticker prices. When even the savers can’t afford college (the average 529 college savings account has only $27,785, enough to barely cover a single year at a public four-year college, and just a semester at a private one), how can we expect the middle class to mortgage their future for an uncertain outcome?
Third Way recently looked at price-to-quality ratios of colleges and found that 72 percent of private nonprofit four-year institutions are high price and high quality, and just 12 percent are high price and low quality. The problem is that while the vast majority of colleges that are high price are also high quality, student perception is different. Eighty percent of students say they are concerned about “getting any type of job once I graduate,” according to the previously cited Third Way study. Why would students pay a high price for college if they don’t think they’ll get a job after graduating? In fact, just one-fourth believe a four-year degree is the only route to a good job, according to ECMC. Austin Allred, the founder of coding boot camp Lambda School, sums it up nicely: “There are a lot of schools that shouldn't exist and there are a whole bunch of schools that should exist. The problem is the average 18-year-old has no idea which is which, and there's nothing there to help them. Until you start to align incentives financially in some way, we'll continue to have crazy surplus and crazy shortages.”
Grove City College in Pennsylvania cites Scripture (Proverbs 11:1) while sharing its commitment to dealing truthfully in their pricing, avoiding the “problematic practice of unfunded tuition discounting.” Grove City further claims to set its tuition at what it actually costs to educate a student. DePauw University in Indiana makes a different promise to students. Its “Gold Commitment” assures alumni that their DePauw degree maintains its value. Grove City is an example of cost-based pricing, while DePauw is an example of value-based pricing. Many colleges simply charge as much as they can or try to match their competitors, without justifying their price at all.
The New York Times reporter Ron Lieber artfully details how things got this way in his new book, The Price You Pay for College. He also notes that the return on investment of college, received in the form of college graduates’ higher wages, is 14 percent, or nearly twice the typical stock market return. There are a number of ways to measure the return on investment of college, which I’ve written about for Inside Higher Ed and EdSurge, though none are widely accepted or well understood, which makes it difficult for students and families to weigh the trade-offs of attending college.
The unfortunate reality for students is that there aren’t many great substitutes for higher education if they want to earn higher wages, Lieber notes in his book, but students are increasingly dissatisfied with the status quo, and some colleges are taking a cue from coding boot camps that are better aligning cost with outcomes. Purdue University is among a small set of trailblazing colleges that offers income-share agreements as an alternative to student loans. Their Back a Boiler program enables students to receive education funding in exchange for an agreed-upon percentage of their postgraduation income over a defined number of years, with payments adjusted based on their salary. If they earn more, they pay more, and if they earn less, they pay less.
Now’s an opportunity for colleges to innovate and create new ways to support students in achieving their educational goals while protecting their downside in the event that life just doesn’t work out as planned, which seems to happen all too often. I’d like to imagine a future where students are empowered to choose a great school for them to thrive … without financial worry. I think this could come sooner than many realize.