Risky Strategy’: Private Colleges Slash Tuition to Stay Viable

Overview

‘Risky Strategy’:
Private Colleges Slash Tuition to Stay Viable

While Ivy League universities and other elite schools raise prices, some less selective institutions are reducing costs in a bid to attract more students.

(Bloomberg) -- This year, the price of tuition at Bethel University’s quaint lakeside campus in St. Paul, Minnesota is $44,050. Next year, it will be close to half of that: $25,990.

The tiny school is one of dozens across the US to slash prices in recent years in an effort to draw more students. Described as tuition “resets,” struggling institutions are making the moves as families increasingly question the value of high-cost degrees from anywhere except the most elite universities.

The markdowns at Bethel and elsewhere highlight a fault line across higher education. While Ivy League universities and other elite schools approach $100,000 per year, a growing share of smaller, less selective private institutions are cutting costs in a bid to avoid joining the dozens of peers shutting their campus gates for good.

“It’s a risky strategy,” said Phillip Levine, an economist at Wellesley College. Schools set prices high because it signals selectivity and quality, then flatter applicants by reducing costs with merit aid packages, he said. “If you cut the sticker price to $50,000 and give up the merit, you just lost those advantages.”

Bethel says the early results are promising. It enrolled nearly 500 new students this year and has seen 40% more visits compared to the same time last year. Attendance doubled at the college's three most recent recruiting events.

Wartburg College in Waverly, Iowa is also among the institutions that have rolled out tuition resets. Wartburg — where almost half of the school’s student body is involved in sports — cut tuition by more than 45% to $25,000 starting this fall. Similarly, Concordia University Texas slashed tuition by almost 40% to $23,500 for this academic year.

Millikin University in Decatur, Illinois, has been testing a tuition cut since 2021, when it offered local students a 33% discount. After seeing a boost in enrollment, Millikin decided to expand the tuition cut for all of their undergraduate students.

The college is pleased with the results so far. Millikin saw a 12% increase in enrollment year-over-year and a 47% increase in transfer students. Students eligible for Pell Grants — those of exceptional financial need — increased by a quarter and those from underrepresented races and ethnicities went up by 30%.

At $26,000, Millikin is still more expensive than public schools in Illinois, but it’s among the cheapest of the private institutions. Millikin is assuming it will keep bringing in the same tuition revenue per student for the incoming class, but increase the volume of students by enrolling more and retaining them.

“The value proposition of higher education has been challenged and we really need to be listening to our stakeholders,” said Sarah Kottich, Millikin’s executive vice president & chief strategy officer. “Schools that are not thinking about how they can better serve their local communities and be affordable and accessible are not positioning themselves well for the future.”

More than 100 schools across the US have slashed tuition prices over the last decade. The cost reductions come as dozens of small, often religious, schools close each year, battered by declining enrollment and growing concerns about the surging cost of college. For years, higher and higher prices have been an effective marketing tool for colleges — but these days there are growing calls for more transparent pricing.

In 2019, only 16% of students enrolled in private, nonprofit institutions paid the sticker price, according to research by Levine. Even relatively wealthy students usually receive some kind of discount:
Less than a third of higher-income students paid full freight at private schools during the same period, compared to 64% in 1995.

The story is different at ultra-selective institutions. The cost of attendance for most Ivy League schools has already surpassed $90,000 and despite generous financial aid packages, about a half of the student body still…