Sticker Shock

April 06, 1994|By RICHARD CHAIT

COLLEGE PARK — College Park. -- This is the month when the most prestigious colleges and universities mail out those letters that separate the winners from the losers, the accepted from the rejected. As admissions officers will diplomatically explain to the also-rans, there were far more applicants than spaces.

Parents of the chosen few will gleefully read the letter of admission and then nervously scan the invoice. Sticker shock will strike again. Facing an annual tab of some $25,000 for the next four years, these parents will gather together, like victims of a natural disaster, to console one another.

High-priced tuition, however, is not a natural disaster. It's man-made. And if the bill payers are the victims, then the financial wounds are largely self-inflicted.

Colleges and universities are increasingly urged to operate more like businesses. OK, how would a retailer, say, an automobile dealer, react to the following situation? For every car that the company has for sale, there are between two and six over-eager buyers lined up outside the showroom door. Many are ready to pay list price; some are even prepared to pay a premium; others will negotiate a discount.

That's the situation distinguished institutions -- places like Princeton, Duke, Williams and Amherst -- face every year. If the 50 or so most competitive colleges and universities invited the parents of high school seniors, who had already been admitted, to submit sealed bids for a space in next year's freshman class, the average bid would almost certainly exceed current tuition levels. (If the parents of students not admitted were allowed to participate, who knows how high the bidding would go.) In actuality, these institutions artificially suppress the prices that would be paid in an open market. After all, how much is too much for a four-year pass to Yale?

Let's consider another business: merchandising upscale perfumes and colognes. The retailer that carries these exclusive products, the ones with the designer labels, has instant allure and a magnet to draw customers. Rationally, consumers realize that every scent basically serves the same function, but emotionally the luxurious fragrances capture one's fancy in a way that White Shoulders or Aqua Velva never could. Under these circumstances, the manufacturer and the retailer can both charge a stiff premium. The higher the cost, the more elegant the perfume, almost by definition.

The same principle applies when colleges ''produce'' or graduate students, whether baccalaureates or, more dramatically, MBAs and lawyers. The Fortune 500, Wall Street investment houses and pre-eminent law and consulting firms scurry to recruit untested and often overinflated neophytes from the ''finest'' universities. The inducements include flattering rituals of courtship, lucrative contracts, handsome signing bonuses and perks aplenty.

Are there comparably talented individuals (if in lesser numbers) at state universities and less celebrated private colleges who could do the same work equally well and for less money? Sure there are. But who has the time or inclination to seek these treasures at Kansas or Kalamazoo? More important, how does one introduce an academic star from Rutgers or Richmond to a key client when tout le monde knows that the very best hail from Harvard and Stanford? And, not incidentally, how does one bill that client Harvard rates for Rutgers recruits? As with perfume, cachet does wonders for mark-up.

In other words, the marketplace sends powerful and positive signals to the highest-cost providers in higher education. These are the colleges and universities with the greatest imbalance between supply and demand. These are the institutions where, by and large, America's elite chooses to send their children, recruit their associates and bestow their philanthropy. This market response enables such schools to raise their prices, which then licenses lower-cost providers to increase their tuition proportionately.

Unless and until students, parents and employers change their behavior, why would anyone expect the price leaders to act differently? Consumer response overwhelmingly demonstrates that the nation's most expensive and most coveted institutions of higher education are doing something, if not everything, right. The market can't be wrong. Can it?

Richard Chait is professor of higher education and management at the University of Maryland.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.