Thursday, July 08, 2004

Another round of drinks for the counselors 

A story picked up at the Captain's Quarters on the wooing of high school academic counselors by colleges.
Though the image of the admissions process is often one of high school guidance counselors sidling up to colleges in hopes of gaining an advantage for their students, the reality is sometimes the other way around.

Colleges are so intent on getting not just enough applicants, but the best ones, that some are lavishing perks on guidance counselors, raising questions about the difference between merely promoting a university and currying favor with those who speak directly into the ear of students and parents trying to evaluate it.

The colleges themselves seem uncertain as to what is, or is not, appropriate. Some say theater tickets are all right, but professional sporting events are questionable. Others say massages are obviously out of bounds, but fancy dinners and waterfront cruises that feature a city's skyline are fine.
The Captain worries:
With federal aid comprising a much-bigger slice of incoming tuition, one has to wonder whether these colleges see graduating high-school students as the key to big paydays, making the extra effort profitable in the long run. But as these schmoozefests escalate, as they surely will (sort of like the academia equivalent of gas wars), the cost will make themselves felt in the pocketbooks of American parents and taxpayers.

Parents now have to ask their students' counselors whether or not they've accepted junkets to the schools towards which they push their students. Wasn't it bad enough when this type of kickback scheme only emanated from the Atheletics departments?
The question we ask is, where's the profit in all this to the universities? The answer, of course, is price discrimination. You want to offer slots to those most likely to take them who meet your criteria, and you want to extract the highest price. Who better to have that information than high school admissions counselors?

I'm not convinced that's a bad thing. Admissions people are in the sales business; read this article in today's university paper about our "enrollment management" guy, and tell me what you see. And sales people woo those who can bring them business. My brother has tickets to all kinds of Boston sporting events to woo shipping managers to give business to his trucking firm. The manager doesn't own the business usually; should they eschew seats to the Red Sox?

If we're worried about costs, a new book by Richard Vedder from AEI explains the problem well:

Escalating tuition reflects two other developments of modern times. The first is a rise in price discrimination, which occurs when different customers pay different prices for the same service. Tuition is discounted by scholarship aid. Over time, that aid has grown substantially, so the actual average price to the consumer has risen somewhat less rapidly than stated tuition suggests. Price discrimination has allowed many universities to take advantage of the fact that affluent students are usually less sensitive to costs than poorer ones. By charging the wealthier students more, total revenues are enhanced. Also, at many selective-admissions universities, parents will often gladly pay high tuition if their child�s only other option is to attend less prestigious schools. Universities have increased �sticker prices� aggressively to charge some students whatever the market will bear.

The second factor boosting tuition is an increasing cross-subsidization within universities, with institutions diverting resources away from undergraduate instruction. Professors who two generations ago would have taught twelve hours a week now teach six or possibly nine hours. The reduced teaching load is supposed to allow professors to do more research. Traditionally, undergraduate education has been heavily subsidized by third parties (through scholarships and loans); now, undergraduates are increasingly subsidizing other university expenses such as research, student activities, bigger administrative structures, and more costly intercollegiate athletic programs.

Third-party payment of tuition leading to insensitivity to price changes and cross-subsidization. Vedder makes the apt comparison to the health care industry. The online introduction has convinced me to buy this book; I suspect you'll hear more about it here later.