Colleges Get Lesson on Buyer’s Markets
Had they looked down upon the tranquil scene, the tiny band of Yale men who founded Beloit College 150 years ago in what was then a frontier village on the banks of the Rock River would surely have been pleased.
The white columns and Roman portico of the “Middle College” building still bespoke the immutable values of New England schools. And the caps and gowns of the Class of 1997, arrayed on the front terrace for commencement, carried forward the picture of academic tradition that Beloit’s conservative founders admired.
Perhaps only Alan McIvor, seated on the dais in his own cap and gown though he was, fully understood how incomplete an image this was for Beloit and thousands of other U.S. colleges like it--how drastically their world has changed from what it was only a decade or so ago.
McIvor, vice president for enrollment services at Beloit, knows firsthand what some of his peers still find hard to accept: that the ivory-tower sanctuaries of yesteryear have been forced into the huggermugger combat of the marketplace.
Time was when administrators such as McIvor stood as stern guardians at the gates of higher learning. They examined would-be students with a merciless eye, rejecting all who fell short. Families saved for college. Any who dared ask for financial aid needed to be prepared to show extraordinary academic promise, exceptional financial need and a readiness to sacrifice till it hurt.
No more.
Today, except for a handful of elite schools, America’s private colleges--as well as many of its public institutions--must compete aggressively for good students, as well as for families ready to deal with their soaring costs. Thanks to unfavorable demographics--relatively few college-age students--and economic trends, private colleges--and many public schools as well--face a buyer’s market. And many of the customers display a disconcerting readiness to haggle.
One result is that the concept of financial aid has been transformed. Once an idealistic effort to help exceptionally talented and needy students, it is now largely a middle-class assistance program to attract students with more-moderate talent and families with less-moderate incomes.
The objectives of McIvor and his counterparts at other schools remain the same as those of Beloit’s founders--to produce broadly educated men and women who become good and prosperous citizens. But the tactics of many have become the methods of the salesman.
Bluntly put, McIvor’s job is, first, to fill all the beds every year; second, to fill them with as capable an assortment of late-adolescent boys and girls as he can attract; and third, to draw as many of those students as possible from families that will pay at least a sizable share of Beloit’s $18,300 annual tuition.
His approach has a lot in common with selling seats on a modern airliner. Instead of one price for all, there are dozens of prices and deals for different students, different families, different situations.
There are special discounts for almost everyone, flattering special offers for many. Costly recruiting campaigns and sophisticated market research pinpoint likely customers. High-tech computer programs track the competition and the potential revenue stream for each year’s freshman class.
Canny bargaining with individual families over what they’ll pay is commonplace, though Beloit’s staff tries to avoid it--in part by “prequalifying” families before things get that far.
“It’s not what most people think of as the academic environment. It’s very business-driven,” says Thomas P. Krieser, Beloit’s director of financial aid, who holds degrees from both business and divinity schools.
“The marketplace has come to education,” agrees Beloit President Victor E. Ferrell Jr., a Yale-trained economist and lawyer. “Are we selling education or buying students?”
Ferrell is justly proud of what Beloit offers. Classes average 15 students, taught by professors, not graduate students. The faculty is more committed to teaching than to publish-or-perish research. Innovative programs help students find their way, personally and academically.
What created the present situation is a combination of demographics and economics. The “baby bust” that followed the post-war baby boom has now become the smallest college-age cohort in 50 years. The result: excess capacity, especially among private colleges and universities.
Demographics alone gave buyers of college educations a strong hand and economic changes strengthened it. College tuitions exploded during the 1980s. In California’s public colleges and universities, for example, fees have quintupled in the last 15 years. Tuition at private schools also skyrocketed, commonly running three to five times higher than at public schools.
There were many reasons for the explosion, but with prices climbing even though buyers were in short supply, all but the most elite schools had to adjust.
Since costs at public institutions were heavily subsidized by taxpayers and their tuitions set by legislators instead of the market, state schools could keep their charges well below those of private schools. Even so, public schools need good students too, and many of the best have added special honors programs and taken other steps to make themselves more competitive.
Among private schools, the adjustment has most often taken the form of discounts--financial aid grants or scholarships that are ostensibly tied to merit but are really price reductions designed to make it easier for middle-class customers to foot the bills.
Nationally, 75% of private college freshmen get student aid--almost all a combination of discounts, loans and sometimes school jobs; the average freshman discount is a whopping 34%, according to one survey. That means families earning $70,000 or $100,00 a year can still qualify for grants. Denison University, a respected school in central Ohio, for instance, now offers $2,000 scholarships to all who finish in the top half of their high school classes--a not-excessive standard for most college-bound students. Only 15% of Beloit students pay the full sticker price. About 10% are offered a full ride on tuition.
Some full-tuition grants go to the very needy, but others are used to attract the outstanding freshmen that every school counts on to spark its classes and its extracurricular activities. David Moehning, director of student financial aid at Vanderbilt University, says such awards are necessary to attract “the academic quarterbacks of an institution.”
Vanderbilt, which can draw on income from a relatively large endowment to bolster its financial aid grants, limits merit scholarships to students with exceptional talent. But its need-based aid program covers a very wide range of family incomes, including many with $75,000 or more in annual earnings.
Although the rate of increase in college tuitions is slowing and the pool of college-age kids is growing, much of the growth comes from families of very modest means. Also, admissions officers see few families that have managed to save significant amounts for college.
Moreover, price is only half of the equation. Too much discounting can hurt a school as much as too little. Along with a good price, consumers want what they perceive as good value. They want schools whose diplomas enhance opportunities for successful careers, including admission to desirable professional schools.
Discounting is a two-edged sword: It appeals to cost-conscious parents, but it robs schools of money to improve their programs. Better programs can translate into better reputations, and greater ability to attract paying customers.
One way to deal with this is “leveraging.” Schools such as Beloit search hard for families that want what they offer and can afford to pay a good share of the tuition. Focusing relatively moderate discounts on such families can fill classes with qualified students without giving away too much potential revenue.
Bill Hall, president of Applied Policy Research Inc., a Minneapolis-based firm that helps colleges with enrollment strategies, calls it targeting “the can-afford-to-pay-more population.”
“If $18,000 is the full tuition and you add 20 families that can pay $9,000” instead of $5,000, he notes, “that’s a substantial chunk of change those families are bringing in.”
As a result, the bulk of discounts tends to go to middle-income and upper-middle-income families.
Hall’s firm urges clients to take a realistic approach to financial aid, to recognize that it can no longer be viewed as social welfare. Marketing and aid strategies emphasize such issues as what kinds of students to seek out and how to apportion discounts. Hall also monitors clients’ financial aid offers and acceptances in great detail as the admissions year progresses. His comparisons with past-year data and projections help schools stick to their strategies and avoid such pitfalls as giving away too much tuition revenue early in the process.
In all of this, California runs fairly true to the national pattern. Its best public and private schools rank among the best in the country; less-prestigious schools, public and private, must and do compete along with everybody else.
Spring was not kind to Alan McIvor’s blood pressure. It brought good news perfumed with the possibility of disaster.
As always, he had spent three solid years fishing for the next freshman class. Starting with high school sophomores, he had orchestrated a carefully calibrated series of mailings and personal contacts for his target audience.
While each contact was different, all followed a common strategy: try to convey what is special about Beloit, without pushing too hard too soon.
To prospective students, Beloit stresses that its freedom of choice makes it special.
“At Beloit, you can invent yourself. Other schools try to fit you into their mold. Beloit isn’t like that,” school brochures quote a recent graduate as saying.
Beloit does indeed offer wide freedom of choice; that’s its educational philosophy.
To parents, on the other hand, the “invent yourself” line may sound a bit risky. So every piece of literature and each of Beloit’s many sales presentations quickly adds the second point: Beloit has a safety net, an elaborate system for guiding and safeguarding the self-invention process.
What’s more, Beloit--like other such schools--makes sure parents get a hefty dose of the “outcomes” message: what a high percentage of seniors go to graduate school; how well the school does in producing future business, professional and civic leaders.
Such recruiting is expensive. But this spring it seemed to be paying off.
Applications were up to 1,300--200 more than last year--for a class of something more than 300 freshmen. An unusually large number of good students had come to the campus to compete for Presidential Scholarships--$6,000-a-year merit stipends awarded to 130 incoming freshmen. The caliber of applicants was higher overall.
There was a downside to all this, however. These were also the students most sought after by Beloit’s competition. They would get the biggest discount offers from everyone. Beloit would be under pressure to give away more money or risk coming up short on students next fall.
As March dragged on, computer charts showed that net deposits, the checks sent in by students who had decided to come to Beloit, were running behind. “McIvor was sweating bullets,” a friend of his recalled.
Then came a gut-wrenching rumor: A competitor had hit the street with 100 offers of special merit scholarships worth more than $10,000 each. Some of Beloit’s better applicants were sure to get such offers and find them irresistible.
Still, McIvor and his team stuck to their plan. They put out their offers to prospective students and tried to ignore the competition.
“There can be no panics,” he said.
At the beginning of April, news from the computer began to brighten; deposits were nosing up.
And by May, the line was climbing for the sky. Next year’s freshman class could hit a seams-straining 350, with a strong proportion of can-afford-to-pay-mores.
“Two weeks before graduation,” McIvor said, “I was able to tell the faculty we had hit a home run.”
