8.14.2015

When Charging Different Prices for the Same Product is the Right Thing to Do

http://www.entrepreneurship.org/~/media/Entrepreneurship/Images/e360%20Blog/The%20High%20Cost%20of%20College.jpg?w=300&h=201&as=1Charging different prices for the same product would seem to be the height of unfairness.  How could someone get away with this, and why would anyone advocate this?  And yet I'm here to tell you that, in one very controversial example, it is warranted.  The example is (gulp!) higher education.

Yes, the thing we are all talking about as far as rising unaffordability and rampant inequity.  I'll be the first to admit I don't have all the facts, so I welcome corrections and additions here.  But it is my understanding that while tuition has soared, financial aid has partially increased.  In other words, the increase in the actual cost of education - the "net price," in industry parlance - is smaller than the increase in "sticker price." 

Net price has still gone up, especially at public four-year colleges, due in large part to failing state budgets necessitating big hikes in tuition without a commensurate increase in financial aid.  It is towards these state institutions where a lot of hue and cry has been made, to make public higher education more accessible.  The obvious solution seems to be to lower tuition rates.

But it's not so obvious that that solution is the best way forward, if your goal is accessibility.  Many of these public four-year colleges are on par with the best private counterparts, which means that the marketplace is often willing to pay much more than current tuition levels to attend.  Is it possible that current tuition levels at these institutions are fine, or perhaps even too low, such that those who can pay full freight are helping make possible more generous financial aid packages to others who get accepted but need financial help?

At a much smaller level, I can tell you that these sorts of discussions are happening.  I know colleagues who run schools who are trying to make sure they express the true value of the education they are providing, so that they can reset the price expectation for those paying full freight, so that they can use those funds to help subsidize others they want to admit who need help paying for tuition.  This is seen as preferable to the status quo, in which those who can afford to pay more are paying a relatively low tuition, and the school has insufficient funds to lower the price for those who can't afford to pay the current tuition. 

At the end of the day, the college experience is the same, whether you pay in full or get a full scholarship or anything in between.  It seems to me that this is an example of offering the same product for vastly different prices, that it is good that we are doing this, and that we might want to consider doing this even more. 
Post a Comment