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Pricing Power In College Admissions

Middlebury College sign with building visible through tress in the background
Middlebury College, one of the schools the Justice Department has asked to preserve documents related to early decision admissions. Photo by Flickr user Ins1122.

In the next few weeks, college-bound students across the country will give their final answer to the schools that have extended admission offers. That is, except for those who said yes months ago, effectively forgoing any possible bargaining power.

Early decision, sometimes called early acceptance, is a common policy for many undergraduate programs in the United States. Typically, candidates submit an application by the end of October to receive a decision in December, with the understanding that the candidate will definitely enroll if offered admission. He or she is expected to withdraw any other applications if the school says yes. For those schools using the popular Common Application, this agreement comes in the form of a waiver signed by the student, the student’s parents and the student’s high school counselors. (Early action programs, while similar in some ways, typically do not require a binding commitment to enroll.)

In order to enforce early decision rules, some colleges share the names and high schools of admitted early deciders in order to ensure that other schools are not considering them. But the Justice Department may soon challenge this practice under antitrust rules.

Justice has asked at least seven colleges to preserve communications and documents related to early decision students. Some schools have been frank in admitting they share lists of such students with one another and have also said they are “cooperating fully” with the Justice Department in this matter. This investigation is not to be confused with the one opened in January examining the National Association for College Admission Counseling’s ethics code, which at this point appears to be unrelated, but regardless it seems clear that Justice has the college admissions process squarely in its sights.

Many students who apply early decision do so because the acceptance rate is often markedly higher than the rate for regular applicants, especially at Ivy League and other elite schools. And it is clear the schools benefit from such programs, both in increased ability to predict incoming class sizes and in students’ decreased ability to bargain over the school’s sticker price based on competing offers. But while antitrust concerns for early decision are relatively new, criticism of the process’s fairness is not. Whether the practice goes far enough to actually violate antitrust laws – and I think it might – it certainly does not benefit students and their families.

For many years, schools have held a lopsided share of the power in determining the price of an education. But there is evidence that this is beginning to change. Consider a recent article in The Wall Street Journal that reports more undergraduate programs are offering discounted tuition in the form of merit scholarships – that is, financial aid not based on student need. This trend is now noticeable on public as well as private campuses.

Much like setting a luxury item’s list price high and then offering a discount, merit scholarships are largely a marketing tactic. And while extending merit aid to students a school especially wants to attract is not a new strategy, a report from the National Association of College and University Business Officers found that one in every five dollars of financial aid at private colleges now goes to a student who doesn’t demonstrate financial need. The average discount from the listed tuition price at such institutions was 49.1 percent in the past academic year, compared to 38.6 percent ten years ago, the Journal reported.

I have always counseled people that unless the sticker price of college is not a big obstacle for their family (a condition that applies to fewer and fewer households), it is very important to shop around. Virtually every student is run-of-the-mill to School A but a desired commodity at School B. School A will accept the student if he or she pays full price, or close to it. School B may very well extend a discount. (And this does not even factor in other considerations, such as the potential that School B’s sticker price is already lower, or that it may be cheaper to live there than near School A.) If you get your heart set on School A in advance, you give away all your leverage. Even in the absence of antitrust misconduct, early decision is expressly designed to take away such leverage from prospective students.

You wouldn’t buy a car that way. Choosing a college is like buying a car, or several cars, every year for at least four consecutive years. Thanks to demographics as well as economics, the pricing power has finally shifted away from schools and toward students and their families. Students should make the most of it.

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