When College Rankings Fall, Tuition Rises, According to New Research
Posted By Eliana Osborn on March 22, 2016 at 12:56 pm
Today’s higher education marketplace is competitive. Schools rely on “best of” lists and other measures of standing as part of their recruitment efforts, and placement on these lists helps them get top students to apply and enroll. However, research just published in the Administrative Science Quarterly finds that lower rankings can have negative impacts – not only on colleges, but on students, too.
There are different factors – including selectivity, affordability, and all sorts of other factors – that go into ranking colleges. Dozens of different lists come out each year, all giving schools and opportunity to tout their numbers. As Jeffrey Selingo wrote for the Washington Post, “The concept of quality in American higher education remains an ambiguous and ill-defined term. It’s mostly a matter of perception. We tend to judge quality not by any standardized test or any other measure of a student’s success after four years of college, but instead by three historical standards that really have nothing to do with quality.”
Status-Aspirational Pricing: The ‘Chivas Regal’ Strategy in Higher Education examined what happens when colleges and universities lose ground in ranking. The authors predicted that “a status decline prompts certain organizations to charge higher prices.” They looked at schools from 2006 to 2012 based on their ranking according to US News & World Report.
You may expect that a lower ranked school would charge lower tuition. That’s what happens with other types of businesses, where there’s a premium because of status. But in the case of higher education, things seem to work a bit differently. “When a producer’s status falls below its aspirations, it may use price as an ‘adaptive device’ in an effort to recover lost ground,” write the authors. “Organizations [are] prone to increase prices after a drop in status in order to send a quality signal conducive to status recovery.” They want perception of their status to stay high, so they charge even more.
In an environment with seemingly uncontrolled tuition increases, the idea that schools are raising prices to make themselves look more elite is worrisome. But one of the authors of the study, Noah Askin, says that students are not very focused on school rankings, which is a positive: “More than anything, I think calling attention to these kinds of trends and behaviors is important, as it makes for more fully informed applicants and parents. They should be aware of the ways that schools are raising tuition. It’s important to be aware that schools are doing this as they compete for rankings. The more informed applicants can be—and this includes knowledge of rankings and tuition as well as net costs, not to mention all of the other factors that applicants consider—the better off they will be.”
Richard Vedder, director of the Center for College Affordability and Productivity, echoes Askin’s takeaway—that research and information are the only protections students and families have when choosing a college. “The phenomenon of producers of something raising prices in order to enhance demand is rare, but not unheard of – a diamond ring might sell better at $20,000 than at $10,000. The problem is the customer has insufficient knowledge to evaluate quality, so is guided by price – higher price is perceived to mean higher quality. Potential customers, on average, get a much more accurate assessment of the quality of cars or refrigerators than they do of colleges, because vital information (chances of success, probable post-graduate earnings, etc.) is not well known by most college applicants.”
Vedder is hopeful about the new College Scorecard, which makes comparing schools significantly easier. Looking at graduation rates, post-college earnings, and even student satisfaction scores will give applicants an idea if a school is worth the price it charges.
The key for all higher education decisions is to remember that different schools have different strengths. Institutions may care deeply about being top 10 in the nation, but for most students, that holds little importance. Finding a college tailored to individual needs may have nothing to do with what news outlets consider important. And when tuition dollars are concerned, it is worth the time it takes to understand the factors involved in setting prices.