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Net price: A college president's view

Please read this letter on "net price" versus "sticker price" of college from Loren Swartzendruber, president of Eastern Mennonite University and chair of the Council of Independent Colleges in Virginia. It is a perspective shared, no doubt, by other college administrators.

I've edited lightly for space.

I've been involved in private higher education for 26 years, and have served as a president in two institutions for the past 16 years. This is the single most misunderstood reality that negatively impacts the marketing of private higher education. Many families do not even consider a private college because they simply don't understand this factor and therefore rule us out on the basis of "sticker price" before they begin the process.
Just prior to assuming my first presidency in Kansas I visited several presidents to gather their wisdom and counsel. The very first word of "advice" I received was, "You might at well understand from the beginning, your job is similar to that of a used car salesman. Everyone wants to know, 'What is my discount?'" Since my family owned a farm implement business, that wasn't exactly a negative comment, but it did come as a surprise. Ironically, that institution closed a few years later, reportedly because they had let the discount rate get too high. That is, of course, the challenge we all face. For those of us who are not heavily endowed, it is a benchmark we have to watch very carefully. It's been interesting to see the reality that the more richly endowed institutions have actually struggled more in the current recession--some of us not so heavily endowed have never had the opportunity to rely on those endowment earnings!

The "time to graduation" factor is another one that impacts the total cost of education in ways that parents and students rarely consider. We did a study in Kansas some years ago. When one factored in the average time to graduation, the extra year or more of tuition payments (and loss of income for that same time period), it turned out that the net cost of attending a private institution was, on average, practically the same as for a public. Of course, no student is average! Put all of these factors together with smaller class sizes, fewer (or no) teaching assistants in the classroom, high rates of acceptance into graduate schools, etc., and it's more difficult to make the case for public education on the basis of "lower cost." I have my own personal stories in this regard from having spent one year here at EMU and then three at the University of Iowa (where I transferred to study pharmacy). I vowed then that if I had children they would attend a small private liberal arts college for at least the first two years of general education. In fact, all four of our children spent all of their years in such schools as did all of their spouses. The only downside is that most of them so deeply incorporated the values they learned for service that none of them chose careers that will generate huge incomes! As a college president trying to raise $30 million for a new science building, it's a unique problem when many of our alumni love the institution but don't have the means to make mega-gifts :):).

We also know the general population assumes that public higher education provides the greater access, both in terms of family income levels and racial diversity. The facts are otherwise. In Virginia, for example, the median family income of students at the four-year public institutions is higher than the median family income of students attending the private institutions. And, many of the privates enroll a higher percentage of students of color than is the case at many of the four-year publics. While the precise numbers are difficult to determine, we know that the median family income at the public (and highly rated) James Madison University across town in Harrisonburg is well above the median family income of our students at EMU, even though our sticker price is considerably higher than that of JMU.

Another subject for possible review is that of state financial aid support for students enrolled in private colleges. Currently, Virginia provides a Tuition Assistance Grant (TAG) of $3,100 per year for Virginia students in Virginia private colleges. That amount is less than 50 percent of the subsidy given to in-state students at the four-year publics. In addition, the Commonwealth provides capital funding to the publics while the privates raise gifts or bond those facilities. In a situation like Virginia's where most of the publics are full and some of the privates could take a few more students, that's a very reasonable economic investment for the state. Adding seats in the public institutions, at least in a state like Virginia, is much more expensive for the tax-payers than providing funds for students to attend private institutions.

Over the years it has been frustrating to see so many news articles about the rising costs of higher education, frequently pointing to the sticker prices at the most prestigious institutions as an indication that a private education is out of reach for most families. We regularly have parents of current students tell us that we aren't adequately communicating the realities of net college costs and the availability of financial aid. My sense is that we do communicate those realities to prospects but we're too often cut out of the process before we even get to that point. Loren

Dr. Loren Swartzendruber, B.S., '76; M.Div. '79
Eastern Mennonite University
Harrisonburg, VA

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By Daniel de Vise  |  February 17, 2010; 10:51 AM ET
Categories:  Administration , Admissions , Aid , Privates  | Tags: Eastern Mennonite University, college finance, net price  
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I think the reason that your average income at your private school is lower than at James Madison is that you offer lower income families discounts that bring the cost closer to or lower than a public college. My family would be considered upper middle class so we probably would get no aid from a private. Still, I can't see spending 40 to 50,000 for college for each of my children. It just doesn't make sense for my long-term financial health. I want to be able to retire responsibly and not be a burden to my children later. So... my kids will probably end up at a state school.

Posted by: prnt23 | February 17, 2010 2:30 PM | Report abuse

While it may be true that students from middle income families may not receive great amounts of need-based financial aid from a private institution, most of our institutional financial aid funds go to students based on academic achievement. At my institution, for example, our top academic scholarship (not counting the Honors Program, for which the scholarships are even higher) is currently $10,000 per year.

The Virginia Tuition Assistance Grant for Virginia residents at Virginia private colleges is not currently need-based. All students receive this grant regardless of family income.

Parents and students need to ask questions about graduation rates and average time to graduation for the colleges they are considering. These factors impact the actual cost dramatically.

Making the assumption that a family would have to pay $40-50,000 per child per year at a private college is precisely that, an assumption, and I underscore that a family won't actually know the "net cost" without having gone through the admissions and financial aid process.

Posted by: LorenS | February 19, 2010 1:51 PM | Report abuse

LorenS: I guess I will know more whether your recommendations ring true in April. My very high achieving son has applied to both VA state schools and some privates and we have filled out the financial aid documents. Our FAFSA calculation shows no aid but maybe the private colleges will look more carefully at our situation. I hope you are right!

Posted by: prnt23 | February 21, 2010 11:47 AM | Report abuse

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