Leveraging Class

Back in 2005, the Atlantic ran a piece about financial aid leveraging as a tactic used by colleges and universities to recruit wealthy and “high performing” students. Along with the growth of the “enrollment manager,” the article discusses the ethical and moral dilemma faced by institutions of higher ed as they compete for US News rankings and student-generated revenue. Back in 2005, a few years before the speculative finance industry imploded, it apparently didn’t seem like a bad idea to shape admissions policies on the business practices of credit card companies and airlines. The language of “merit” obfuscates the economic logic behind these changes:

…private schools went on a spending spree, buying up “meritorious” students (defined as gifted or rich, but ideally both). And public schools jumped at the technique as well: from 1992 to 2000 the proportion of state aid based on merit rose from just under 10 percent, where it had hovered throughout the 1980s, to 25 percent. Since 1990 the average discount on “sticker-price” tuition has risen from 26.5 percent to just under 40 percent, and the proportion of students not paying full price has grown from 62.5 percent to 80 percent.

The class implications of this are striking:

One of the basic texts of enrollment management recommends a book about pricing techniques developed by the airlines: Revenue Management: Hard-Core Tactics for Market Domination. Using the logic of the Saturday-night stay and the fourteen-day advance purchase, advanced financial-aid leveraging goes beyond general categories to forecast how much each student is willing to pay, and guarantee the best class at the lowest price.
In the least desirable categories (usually poor students with lower test scores) accepted students are often “gapped”—given a fraction of what they would need to attend, even after the maximum possible contribution from their families. (A school interested mainly in revenue might even give more money to a wealthy student with lousy scores than to a better-qualified poor student.) From 1995 to 1999 the average unmet need for families earning over $60,000 either stayed constant or narrowed slightly; for families earning $40,000 to $60,000 it grew by three percent; and for families earning under $40,000 it grew by 27 percent.

One would probably be hard pressed to find an administrator today who would openly list either airlines or the financial industry as models of best practices. (Except for, perhaps, on the issue of administrator and executive compensation, as another recent post reports.) We should ask, however, what mission current enrollment policies, especially of public institutions, serve.

The effects of such policies at our own institution need scrutiny. As the CFA response to President Hogan’s enrollment management plan points out

UIUC undergraduates are 7% African-American compared with 15% African-American population for the state; Latina/o students are 7%, compared to 16% statewide. The figures for American Indian students at UIUC are minuscule.

If such disparities are the result of increased attention to “merit” and heightened competition for rankings, we should be reevaluating our standards of excellence.

6 responses to “Leveraging Class

  1. Excellent article. Comparing the (public!) university’s pricing model to the way that the airlines extract value from consumers is a stroke of genius. It explains how some consumers (frequent flyers, full fare payers) get significantly better service even when they pay less because they know how to work the system better and because they fit the profile of someone who’s a “valued” customer, and can often bump off people who’ve been waiting longer and or even boot them out of the seats they’re already sitting in on a plane because that person is not “valued.” (this happened to me recently and it was an amazing exercise in raw power, witnessed by everyone on the plane).

    Important to mention as well that foreign students are the ones who are making up the state’s shortfall, paying incredibly high tuitions as part of a high risk strategy to become more marketable workers in a globally competitive world. Some of these students will be paying off these debts for decades–not quite the same as the indentured labor brought in by snakeheads, because less telegenic, but not unrelated.

  2. The Economist recently ran a story on increasing enrollment in the US by Chinese students. It only briefly touches on the economic incentives of US institutions:
    “Public universities, moreover, have an additional incentive. Many are struggling financially because their states have been cutting budgets in a weak economy. So they take more pupils from other countries and states in part because they pay higher fees. For example, Californians pay an average of $13,000 a year at the ten campuses of the University of California; outsiders pay about $36,000.”
    Interestingly, it ends on a somewhat vaguely threatening tone:
    “the problem is not that too many of them will come, but that on the contrary they will start to decide that it’s not worth the money, and stay home.”

  3. Thanks for pointing out potential problems with the statistics. I’m not sure why you didn’t state this as a question, such as “Does this usage of statistics take into account the potential difference in the population by age?” You could have looked here: http://illinois.us.censusviewer.com/ and found that the relative percentage of African Americans between 20-30 is comparable to the general population, at least if I’m reading the numbers correctly. I’d infer from the lack of counter data in your comment that what you’re really opposing is the position taken on ideological grounds rather than the possible misreading of data.
    I suggest that you read the Atlantic article (I’m assuming you didn’t, based on your comment). “Disparities in college attendance” is precisely what enrollment management practices are designed to create. Obviously, administrators wouldn’t use the word “disparity,” but I don’t think there’s any reasonable argument that such policies DO NOT encourage some people to enroll while discouraging others. That is, in fact, what was explicitly described in the Atlantic piece. You can choose words like “quality” and “revenue outcomes” to justify and rationalize policy, as the consultants and enrollment managers in the article do. Euphemisms are useful.

  4. I’m not sure it is a problem — if you consider that there are more young people than older people in most populations — it probably means that Afro-American and Latina/o students are more under-represented than the stats suggests, when compared to their peers.

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