Guest Post: Dan Lundquist on Concordia’s Tuition Reset

During the past year, a key theme The Lawlor Group has been addressing and advising clients about is the increasing concern about affordability and value. This theme prompted a guest blog post from a longtime friend and respected thought leader in the higher education marketplace, Dan Lundquist, who also wrote in March about “The Hot New College Amenity: Affordability.”

Colleges and universities have now completed another recruitment cycle, and the concern about college affordability has not gone away. If anything, it has increased as more and more people have a limited ability to pay, and the group with the ability to pay is becoming more prudent in their willingness to pay. Of course, all of this impacts another very relevant topic for higher education—net revenues.

College is still an important investment. And people know it is an important investment they need to make. But, what price value? Colleges and universities (particularly in the private, non-profit sector) are adding to the confusion with the high-price/high-aid model. It is definitely working for some colleges, but my frustration as a higher education marketing strategist and consultant is that too many students and families are not considering a private college because of perceptions shaped by the published tuition price.

Yesterday, our client Concordia University in St. Paul did something about it when they announced a tuition reset. And this important strategic initiative has garnered lots of attention. It also struck a nerve with Dan, who just happens to be speaking next month at our Lunch with Lawlor event in Denver. The subject is “The Future of Higher Education: Falling Downstairs or Purposeful Realignment?”

Dan has a particularly informed perspective because he is a “product” of some of the best colleges and universities in the United States: He was educated at Amherst and Harvard, worked at Penn, and has served over 30 years as a successful enrollment management professional/consultant. When he learned about the Concordia tuition reset, he was inclined to share some “food for thought,” along with what he believes is a recipe for the future of higher education.

We invite you to read his post, and please share your comments.

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In the late 1970s the sticker price of college education became detached from the indices it had generally tracked up until then. The ‘80s were a go-go time that, in retrospect, somewhere between 99% and 100% of Americans would say resembled nothing so much as the beginning of a Ponzi scheme.

Let’s toast to that!

Chivas Regal is a very good blended Scotch whiskey that has been around about as long as most of the American Ivy League colleges. The Seagram family took Chivas corporate and masterfully marketed—branded and priced—the spirit. Chivas was viewed as special: exclusive, expensive, and prestigious. Seagrams discovered that, along with image management, they could increase its price and increase sales. During the 1980s over 1.2 million cases of their most popular 12-year-old bottles were sold in the United States annually. What an era! What a beverage! (U.S. sales stand at approximately 450,000 cases these days.)

Drawing on thirty-five years of experience as a college administrator, I recall the phrase “Chivas Regal Effect” entering the lexicon in the 1980s when I worked at the University of Pennsylvania. Back before the federal government busted the so-called Overlap Group (the Ivies and MIT) for collusion and price-fixing, we in the admissions office would compare prices and financial aid offers with our core overlap group (AKA “competitors”) in hopes that we could minimize the role the cost would play in college choice. But there was another result; one that I honestly believe at the time was unintended. Penn’s president Martin Meyerson said it best: “We were building up a kind of notion about colleges and universities that the higher the price, the better they were.” (Stanford’s finance vice president Bill Massy was blunter: “The theory was, basically, we will increase tuition as much as the market will bear.”)

We all know the rest of the story. Up to now, that is.

Massy, meet Bennett.

College rankings gained prominence, money was easy to come by, the Massy Theorem took hold, and with no end in sight many colleges invested in quality high-overhead infrastructure and programing. Then the economy iced down (although the Great Recession did not blunt college tuition’s upward trajectory), and the Bennett Hypothesis (“increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase”) gained ascendency as the cocktail party gave way to the Tea Party. Even a portion of this year’s State of the Union Address was a softball warning about cost … that most of highered felt they, sadly and reluctantly, had to ignore.

Behind the scenes, “doing less with less.”

Barring the most resource-rich college brands (ironically), research has shown that family willingness and ability to pay is declining. Families will try harder to meet the bill if their child is talented enough to be admitted to an Ivy League school, but they are also looking at “financial aid safety” colleges in greater numbers. More research indicates that the number of students turning down their top-choice pricey school in favor of a more affordable option is sharply on the rise.

Seeking a middle way, some highered advocates have begun looking at the dilemma differently. Rather than focus on top-line price—and the amount of financial aid “discount” that colleges “spend”—why not look at 1) what your families can pay, 2) what it costs to run your college, and 3) revenue from all non-tuition sources. Then add #1 and #3 and subtract #2, and charge as close to THAT as possible. Might, so goes the reasoning, these families (a customer base committed to your product but stung by financial uncertainty) be willing to pay less for less? Let someone else pay for those electron microscopes! First Edition Audubons, not on my dime!

A radical departure: Concordia’s “right pricing” experiment.

Yesterday Concordia University, St. Paul in Minnesota announced a $10,000 price DROP: “In resetting our tuition to a price last seen a decade ago, we are responding to the concerns of students and families who feel our nation’s colleges have become unaffordable,” said Rev. Tom Ries, president of Concordia. “We hope that other private colleges and universities will soon be able to follow our lead.” Operating from a position of relative strength and a keen sense of market sentiment, Concordia is branding the price cut as a “reset,” a disciplined, no smoke-and-mirrors, anti-Chivas moment that has “the phone ringing off the hook” in their admissions office—and has already garnered a mixture of “RIP, we hardly knew Ye” and quixotic admiration in the highered community.

I think Concordia intends to be in the human capital business to stay, and I’m betting on their math. For the sake of higher education and future generations of college students.