Differentiated Pricing for Higher Education

By Watson Scott Swail, President & CEO, Educational Policy Institute/EPI International

For too long, North American higher education, as well as much of the world’s, has offered a one size fits all pricing structure in higher education. Just as we now understand that there needs to be differentiated instruction on our campuses whether they be online or bricks and mortar, perhaps it’s time that we change the pricing structure for higher education.

Australia was one of the first to differentiate pricing. Using a national model, the HECS II pricing scheme provided three tiers of pricing, with the lowest tier providing lower cost for areas of national need, such as social work and education (teaching). Areas such as law and medicine were in the higher priced third tier. This approach makes sense since the return on investment (ROI) for the professions is much greater than social work and associated career tracks. Interesting to note, law school is one of the least expensive programs for a school to operate, but because of the ROI and the demand, they can afford to put it in the upper tier.

Part of today’s dialogue emanates from a conversation I had this morning with Jamie Caridi, the Vice President for Student Services at Ohio Dominican University in Columbus, Ohio. ODU (not to be confused with the “other” ODU – Old Dominion University in Norfolk, VA) is a private four-year Catholic university serving 2,000 students on campus with another 1,000 students off campus in adult education. A urban university, ODU services a disproportionate number of low-income students as part of their mission. For many students, ODU represents their only real shot at higher education. Of course, with low-income students often comes low ACT scores. Many of these students have ACT scores below 20 points (i.e., not very strong academically).

For ODU, as with many institutions like them, these low-income students are less likely to succeed due to poor academic preparation, but they are loaded up with student loans to pay their tuition. This causes a conundrum for colleges and universities. Students at huge risks are asked to take on heavy loans for a “chance” at success.

What if we took a different tactic?

What if we provide differentiated pricing, allowing freshman and sophomore students reduced tuition in those years. If they succeed, they are more likely to stay at that institution. If they do not succeed, we have given them a lesser debt to recover from. But wouldn’t they then transfer to a less expensive institution for the final two years? No. Otherwise, they would have attended that institution in the first place.

Finances are a main reason that many low-income students drop out of college. What if we reduce the burden in the first two years, thinking that if they can see the light at the end of the tunnel at the end, they can figure out financing for the final two years.

This is not dissimilar to what we do in a 2+2 model, where students attend a lower cost two-year school for their first two years and articulate their credits to a four-year institution for years 3 and 4. Makes sense to me.

Then why don’t we also look at differentiation by program type? Let’s reduce the cost of service fields and up the cost of professional fields. But what about the low-income students who want to enter law? We already have need-based ways of reducing their burden, and their ROI will be significantly higher. They can pay their debt. This can work.

Of course, we are still hampered by an education system that is simply too expensive. We need to reduce the cost of education substantially. But reducing the cost while also differentiating the price of college would start moving us toward a new, more productive, more efficient, and more fair system of higher education that is also better aligned with workforce needs.

Are we ready?

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About Educational Policy Institute

The Educational Policy Institute is a Washington, DC-based research think tank on education and the social sciences. EPI conducts evaluation and policy studies on various educational issues from Pre-K to workforce outcomes in the United States, Canada, and beyond. Visit us at educationalpolicy.org.
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