State Universities Raise Prices, Making Private College A Bargain

An article in today’s Inside Higher Ed reports on tuition hikes at public universities around the country, with many states raising tuition by 10%, 15%, 25%, or even 35% in order to make up for budget shortfalls in our bad economy.
This is sort of old news.  The interesting aspect to the story is that as public universities raise their prices, private universities are actually digging deeper to offer bigger discounts.  The price gap between public and private colleges, therefore, is narrowing.
What do I mean?
Start with the fact that virtually no one pays the tuition sticker price at a private college.  Or at least no one really has to.  Private colleges routinely discount their tuition.  Put another way, colleges artificially jack up the price of tuition to double what the real cost of providing the educational services.  Then they discount for the students who are the most attractive, who meet the needs of the institution.
Think of it like the airline industry:  everyone is on the same plane (campus) going to the same place (a Bachelor’s degree) but everyone on the plane paid a different price for their ticket.
Public colleges already have pricing systems that more closely reflect the true cost of the education.  So they cannot discount in the bad economy:  they instead have to raise tuition as state legislatures cut their subsidies.  Private colleges can also raise their nominal tuition price–but then discount an average of 55%.
To give a concrete example,
University of Colorado-Boulder tuition for the coming year is $11,220 for in-state students and $26,500 for out-of-state students. The list price for the University of Denver, a private school down the pike a piece, is $34,596.
Based on sticker price, one would assume that the in-state student would get the cheapest price at CU-Boulder, and even the out-of-state student would find CU a relative bargain. However, if  you figure that DU discounts tuition for students it finds attractive by an average of 55% (this is the national average), then the real price of DU is$15,730.
Thus CU-Boulder seems like a ridiculous play for the out-of-state student who is academically talented.  CU offers virtually no discounts to out-of-state students, because the demand for Boulder’s beauty is high, and they have to make up for those budget shortfalls in some way.  Roughly a third of CU-Boulder’s students come from out-of-state, and most of those are very talented, academically: the competition for admission to CU from out-of-state is tougher than it is for in-state students. On economic terms, out-of-state students seem like suckers, when they could potentially save $11k per year by going to DU–an equally beautiful campus situated as close to the slopes as Boulder (maybe even closer).
But more interesting is that the gap between DU and CU for in-state students is not nearly as wide as most families would believe:  only about $5500 per year at today’s prices.  This is not chump change.  But it is more manageable for more families than sticker prices seem to suggest.
If we were to run the numbers for University of California system schools–which implemented a tuition hike of over 30% this year, we would also see that private universities in California suddenly don’t seem quite so expensive, once you consider discounts.
One word of caution, however:  not all kids will receive discounts at all schools.  DU will discounts for kids with excellent grades, strong talents, and otherwise excellent records.  If you’ve been a slacker in high school, don’t expect lots of discounts.
Just one more reason to keep up your grades, kids:  they can directly translated into money.
Mark Montgomery
Educational Consultant