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Financial Planning > College Planning

Colleges Feeling the Pressure of High Tuition

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The high cost of college is not only an issue for families and students but for colleges as well, especially nonprofit colleges that are not among the 100 or so elite institutions in the country.

(Related: New Tool Helps Families Assess Effects of Budget Cuts on Student Aid)

These institutions are having a harder time attracting students because of their high sticker price, so they offer increasingly generous financial aid packages, including merit-based packages, and add infrastructure and amenities, but both squeeze revenues.  In addition, there’s the constant competition from cheaper public colleges and universities, which is growing as more of those institutions introduce free tuition or other discount programs.

The average annual cost for a public four-year college, including tuition, fees and room and board, is $20,090 for the 2016-2017 school year, less than half the $45,370 cost for a nonprofit four-year college, according to the College Board.

(Related: How American Families Pay for College: 2017)

That’s the sticker price, but many schools offer discounts to attract students. The average discount rate offered by 411 small nonprofit colleges for the 2016-2017 academic year was 44.2%, according to the National Association of College and University Business Offices.

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That’s good news for families and students who paid the discounted price, but it doesn’t bode well for the future for schools and students, including those receiving merit aid.

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“We’re at a price tipping point and we need to be able to think of solutions,” says Sarah Flanagan, vice president for government relations and policy development at the National Association of Independent Colleges and Universities (NAICU). “Schools can’t make ends meet. Many families can’t either.”

Schools are feeling the pressure of providing merit aid to attract students with high academic standing — a key measure in college rankings — while simultaneously providing financial aid to students in need.

So NAICU is proposing that Congress grant private, nonprofit colleges temporary exemptive relief from antitrust restrictions to allow schools to talk to one another about new business models that could make college more affordable. Those models could address price, discount rates, financial aid and other topics.

“Private, nonprofit colleges are deeply aware of the growing college pricing crisis and related strains on both families and institutions,” reads the proposal, noting that half of full-time students are taking out loans to pay for school. It asks for a five-year exemption from antitrust rules that would be extended only if the extension “served affordability purposes.”

At this point the proposal has yet to be presented formally to Congress though discussions have begun, and it’s not clear how Congress will respond. But if it is approved, it’s possible that some or many nonprofit private schools will reduce merit aid, given to academic high achievers, in order to increase aid to low-income students who otherwise could not afford college.

It’s also possible that schools will reduce financial aid to middle- and upper-income students, but not increase funds for low-income students, and use the savings to increase revenue, says Robert Shireman, senior fellow at the Century Foundation, who has written about collaboration among colleges.

He doesn’t expect Congress will approve a plan that doesn’t clarify expectations to increase the number of low-income students.

In the meantime schools can reduce costs or reduce financial aid awarded as merit or need-based, but that could create complications in addition to reducing revenues.

“When the market price is $30,000 and you drop that to $18,000 you’re not perceived as a bargain but as being out of line,” says Steven DiSalvo, Ph.D, president of Saint Anselm College in Manchester, New Hampshire, which is known for hosting presidential primary debates.

That’s why he and other presidents of nonprofit private colleges want the ability to talk to each other.

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