Archive for August 23rd, 2012

August 23, 2012

What will happen to second-tier private colleges that charge premium prices?

by Grace

What does the future hold for second-tier private colleges that charge premium prices?

In the evolving landscape of higher education, which parents will want to send their kids to a second-tier private college?  Richard Vedder asks Elite College ($50,000 a Year) or Good State School ($20,000)? in Minding the Campus.

Students who face little chance of getting into an Ivy League school or select liberal arts college (Williams or Amherst in the East, Pomona in the West) are increasingly asking: why should my family pay $30,000 to $50,000 a year (the exact amount unknown at the time of application because of uncertainties arising from  massive price discrimination in the form of so-called “scholarship” aid) to go to a mid-quality private school when for somewhat less, say $20,000 to $30,000 a year, I can go to a top public flagship school of roughly equal quality?

Wealthy families who can easily afford to give their children the full college campus experience may still pay the big bucks, but more alternatives are becoming available for others.

Amongst students who are still poorer academically as well as financially, the lure of borrowing huge amounts to finance an otherwise financially unsustainable college education is declining. Too many college students are ending up with relatively low-paying jobs unrelated to their field of study. Benefits of attending college are falling, costs are rising. For some, the decision may be to “just say no” to college altogether. For others, demand has become highly price elastic: the substitution may be to go to a community college or a for profit school’s certificate program rather than the mid to low quality four year state school.

Elite colleges will continue to  hold their value.

That is why I feel pretty safe in predicting that Harvard, Stanford, Duke and Northwestern will be doing fine 10-20 years from now, cushioned also by their large endowments. But I am far less sanguine about the poorly endowed liberal arts college and state university with a so-so national reputation. The Law of Demand is going to hit these schools with a vengeance as increasingly price sensitive customers look for cheaper substitutes.

A big question is how employers will view these new alternatives.  Will they value a certificate from an online school the same as a four-year degree from a mediocre private college?  But yeah, elite colleges and good affordable state schools will continue to do well.


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