pricing higher education
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Pricing Higher Education. Brooke Burnette,Brianna boub , Faybeyon Robinson, Jamall Thompson. Higher Education. Post-Secondary Education Occurs at Universities, Academies, Colleges, seminaries, and institutes of technology All but community colleges are included. Why Higher Education?. - PowerPoint PPT PresentationTRANSCRIPT
B R O O K E B U R N E TT E , B R I A N N A B O U B , FAY B E Y O N R O B I N S O N, J A M A L L T H O M P S O N
Pricing Higher Education
Higher Education
Post-Secondary EducationOccurs at Universities, Academies, Colleges,
seminaries, and institutes of technology All but community colleges are included
Why Higher Education?
Relevant to us as students Understand how our tuition is determined
Low concentration Over 7000 higher education institutions overall 2,774 4-year degree-granting institutions
$370.6bn in Annual Revenue Approximately $0.0 in profit
BACKGROUNDCOMPETITION
ORGANIZATIONMAJOR COMPANIES
Industry Structure
Background
Universities provide educational services to students, charge a price in the form of tuition, and produce human capital output
~1.4 million students earn a Bachelor’s Degree each year from a 4-year institution
~ 1.6 million people are employed by the higher education industry
Tuition Prices Have Been Steadily Rising
Competition
Highly competitive due to low concentration
Competition is hierarchical and not balanced Colleges can be
broken down into tiers based on endowments and prestige
Competition
Upper levels: barriers to entry in the form of access to funding
Lower levels: competitive pressures in the form of price discounting
More Resources
Improved Educational Quality
Attract Higher Quality Students
Raise Excellence/Prestige Relative to Competitors
How Colleges Compete
Government Funding
Government Funding
Organization: Example Inputs
Higher Education Institutions
ProfessorsHousing
FoodTextboo
ks Computers
Internally Supplied Externally Supplied
Major Companies
Low concentration, no major playersIBISworld lists top four:
Account for only 8.8% of total market share University of California State University of New York University of Pennsylvania Harvard University
University of California
4.8% market share.$29.7B in revenue in 2012.Tuition increased 7.6%/year on average.$6B in revenue came from it’s medical
centers.Public institution.10 campuses over California.
State University of New York
Public institution.64 campuses, and 465,000 students.52% attends community colleges.Comprised mostly of New York State
Residents.2.5% market share.
University of Pennsylvania
Private InstitutionLocated in Philadelphia, Pennsylvania.25,000 full/part-time students.4,000 academic staff.1 of 2 private universities with a vet school.Majority of income derives from its hospitals
and physician practices.
Harvard University
Private institution.Located in Cambridge, Massachusetts.Oldest university in the US.Roughly 20,000 enrolled students.$31B endowment.Endowment accounts for 35% of revenue.
Pricing Strategies
How Tuition is Determined
Sticker price or baseline tuition determined by calculations of: Projected enrollment Required resources (faculty, etc.) Available funding (state and federal, endowments) Grants and contracts
However, not every student pays the same price…
40%
11%11%
38%
Percent of Tuition Paid Out of Pocket By Cornell Students
0-25%26-50%51-75%76-100%
First Degree Price Discrimination
Charge each student the maximum amount they are willing to pay for education Capture as much of consumer surplus as possible
In pricing higher education, this is shown by financial aid offerings
FAFSA CSS Profile
Financial Aid Calculations
Example of Aid Package - Cornell
13.1
9.49.4
8.8
1.4
0.684 0.5940.524
Anuual Aid by Federal Aid Program (in Millions of Dol-lars)
Federal Aid ProgramFederal Education Tax BenefitsFederal Pell GrantSubsidized Stafford LoansUnsubsidized Stafford LoansFSEOGFederal Work StudyPost/911 GI Bill Veterans BenefitsPerkins Loan
$1,390
$3,685
$3,645
$4,247
$528 $1,422
$15,736
$1,852 Average Aid Per Recipient
Federal Education Tax BenefitsFederal Pell GrantSubsidized Stafford LoansUnsubsidized Stafford LoansFSEOGFederal Work StudyPost/911 GI Bill Veterans BenefitsPerkins Loan
Tuition “coupons”
How to attract students not eligible for financial aid (determined by need) “Merit” scholarships available Act as a “coupon” to attract customers – in this case
students – to “shop” somewhere they normally wouldn’t, or enroll in a college they otherwise may not have chosen
Often the only way for some colleges to sustain enrollment
Pricing High – Premium Pricing
Universities compare their prices to other similar institutions in the same state or surrounding states
Anticipate behavior of other universities – influences tuition prices
Tend to overestimate reputation and quality – price higher If one university does not price as high as another,
fear of being seen as lower-quality institution All price high!
US News Top 20 Colleges
College Ranking Name Total Avg Cost of Degree
1 Harvard $343,0042 Princeton $374,6203 Yale $502,7484 Columbia $226,2005 University of Chicago $267,275
6Massachusetts Institute of Technology $341,769
7 Stanford University $345,4408 Duke University $287,8509 University of Pennsylvania $264,80210 California Institute of Technology $618,68111 Dartmouth $292,75412 Northwestern $178,71613 Johns Hopkins $269,246
14Washington University in St. Louis $353,575
15 Brown University $202,21716 Cornell University $151,21117 Rice University $228,04318 University of Notre Dame $161,78019 Vanderbilt University $289,50620 Emory University $210,192
US News Bottom 20 Colleges
College Ranking Name
Total Avg Cost of Degree
199 University of South Dakota $61,550
199University of North Carolina - Charlotte $55,416
199 University of Montana $61,198199 South Dakota State University $59,243199 Louisiana Tech University $47,553199 East Carolina University $71,499189 Widener University $115,823189 Western Michigan University $60,130
189University of North Carolina - Greensboro $66,673
189 University of Nevada - Reno $108,292189 University of Colorado - Denver $113,536189 Northern Illinois University $54,683189 New Mexico State University $59,601189 Montana State University $64,831189 Ashland University189 Andrews University184 University of Houston $64,548184 University of Alabama - Hunstville $69,891184 North Dakota State University $65,464184 Bowling Green State University $58,640
Top 5 Bottom 5
University Acceptance Rate
Harvard 6.30%
Princeton 8.50%
Yale 7.70%
Columbia 7.00%
University of Chicago 16.30%
University Acceptance Rate
University of South Dakota 88.90%
University of North Carolina - Charlotte 69.60%
University of Montana 81.80%
South Dakota State University 92.30%
Louisiana Tech University 62.10%
But…how selective are they?
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%0
5000
10000
15000
20000
25000
30000
35000
40000
45000
R² = 0.311695890421333
Acceptance Rates vs. Tuition of Public Universities, 2012
Acceptance Rates (%)
Tuit
ion
($/y
ear)
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00%0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
R² = 0.144167726211306
Acceptance Rates vs. Tuition of Private Universities, 2012
Acceptance Rates (%)
Tuit
ion
($/y
ear)
More Resources
Improved Educational Quality
Attract Higher Quality Students
Raise Excellence/Prestige Relative to Competitors
How Colleges Compete
20 30 40 50 60 70 80 90 100 1100
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
R² = 0.0914156950929547
Tuition vs. Graduation Rates, Private Not-For-Profit Universities
Graduation Rates (%)
Tuti
tion
($/
year
)
30 40 50 60 70 80 90 1000
5000
10000
15000
20000
25000
30000
35000
40000
45000
R² = 0.495276725448645
Tuition vs. Graduation Rates, Public Universities
Graduation Rates (%)
Tuit
ion
($/y
ear)
0 100000 200000 300000 400000 500000 600000 700000 800000 900000 10000000
20
40
60
80
100
120
Endowments per Full-Time Equivalent vs. Graduation Rates
Endowment/FTE ($)
Gra
duat
ion
Rat
es (
%)
Competitive Pricing
Tacit collusion: Circumstance where two companies agree upon a certain strategy without putting it in writing or spelling out the strategy explicitly
Universities compare their prices to other similar institutions in the same state or surrounding states
Note: This is legal!
Brown Yale Dartmouth Penn Harvard Princeton Cornell Columbia$32,000
$34,000
$36,000
$38,000
$40,000
$42,000
$44,000
Ivy League Tuitions
Institution
"Sti
cker
" Tu
itio
n Pr
icin
g
Public School Pricing
Receive funding from state governments
Two-tier pricing system (in-state and out-of-state)
Diversity of prices between schools
Each state often has one main “flagship” school
Discrimination Based on Residency
Third Degree Price Discrimination – Tuition rates vary for different consumer segments depending on in-state or out-of-state status.
Some colleges offer students a discounted rate if the student is a resident of the respective state.
Public Four-Year In-State Public Four-Year Out-of-State $0
$5,000
$10,000
$15,000
$20,000
$25,000
Average Tuition and Fees for Full-Time Undergrad-uate Students (2012-13)
Student Based on Residency
Tota
l Tui
tion
and
Fee
s
NYS Resident Non-NYS Resident0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
CALS Tuition and Student Fees Based on Residency
Student Based on Residency
Tuit
ion
Plus
Stu
dent
Fee
s ($
)
Two-Part Tariffs
The practice of selling one product or service as a mandatory addition to the purchase of an additional product or service
Examples: Mandatory student fees Mandatory campus residency
“Fees”
Brown Yale Dartmouth Penn Harvard Princeton Cornell Columbia$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
Tuition and Fees for Ivy League Institutions
FeesTuition
Institution
Cost
Freshman Residency Requirement
In addition to tuition, some institutions require students to live on campus during their Freshman year or longer.
Easte
rn Ill
inois
Univer
sity
Arizo
n Stat
e Univ
ersit
y
Mississ
ippi S
tate U
niver
sity
William
s Coll
ege
Milwalk
ee U
niver
sity
Emer
son C
olleg
e
Wester
n Car
olina
Univ
ersit
y
Saint
Louis
Univer
sity
Salsi
bury
Univer
sity
Stan
ford U
niver
sity
05000
100001500020000250003000035000400004500050000
College/University Expenses
Room and BoardTuition
Institution
Tota
l Cos
t ($
)
Easte
rn Ill
inois
Univer
sity
Arizo
n Stat
e Univ
ersit
y
Mississ
ippi S
tate U
niver
sity
William
s Coll
ege
Milwalk
ee U
niver
sity
Emer
son C
olleg
e
Wester
n Car
olina
Univ
ersit
y
Saint
Louis
Univer
sity
Salsi
bury
Univer
sity
Stan
ford U
niver
sity
0%10%20%30%40%50%60%70%80%90%
100%
Percent of Expenses to Room and Board
TuitionRoom and Board
Institution
Perc
enta
ge o
f R
oom
and
Boa
rd P
lus
Tuit
ion
Confusion Pricing – Stanford University Example
• Stanford University Freshmen have the option to live in any of the 10 dormitories or any 3 of the apartments or suites
• After this is done, students then need to choose a meal plan, healthcare coverage, gym memberships, transportation options, etc.
• Allows Stanford University to get close to 1st degree price discrimination
Meal Plans
Health Coverage
INVESTMENTPRICING STRATEGIES
Reccommendations
Demand For College-Educated Workers
Return on Investment
Future Pricing Strategies
Costs rising for both public and private universities, while simultaneously losing funding
Capture even more profit: Credit-hour pricing Upper-level vs. lower-level pricing Department or program-based pricing
Credit-Hour Pricing
Currently, each student is charged the same full-time tuition rate (before financial aid is applied) Students taking 12 credits charged the same base
rate as students taking 18 credits
Can capture more profits if charge per credit-hour Higher tuition for students who choose to take more
credits
Upper vs. Lower-level Pricing
Upper-level classes require senior professors, often have much lower enrollment Cost of teaching them is higher, yet colleges currently
charge the same price for upper-level as lower-level, large lecture-style classes
Decision to charge more for these classes would mostly affect upperclassmen Less price-sensitive than first- or second-year students
because they have already invested more in their education
Department or Program Pricing
Certain programs are in higher demand or are more prestigious Higher demand for these programs
Charge more for high-demand programs than for low-demand programs Higher demand less price sensitive