Why COVID will eventually drive college tuition up, not down

American higher education is ramping up again for another semester though you’d hardly know it. For the overwhelming majority of students, “going back to school” has been no more exhausting than moving a laptop from the living room to the dining room.

One might think students and their families would welcome the room and board financial relief. Tuition and fees aren’t cheap, but living costs — everything from meal plans to residence halls or off-campus apartments — are the real budget busters. Even for the lucky few who do finish a degree in four years, living costs are a brand-new Tesla’s worth of debt…without the car.

And yet, when schools began to publicly announce they were shifting to a mostly — or completely — remote fall term this past summer, it was tuition itself that became the object of scorn. Paying for college wasn’t about buying seat time in a lecture hall; it was about buying a rich learning “environment.” Continuing to pay upwards of $30,000 a year in tuition while their son or daughter sat next to them on the family couch with a laptop suddenly felt like a breach of contract.

Higher education institutions threw back mixed signals. A few places like Williams College did trim back tuition, yet most held the line and a brave few, like the University of Southern California, announced tuition hikes.

Their reasoning? The cost to train and credential was neither an a la carte menu nor was it something cobbled together on a whim. From faculty to support staff to campus buildings, the money to fund those resources was spent no matter where or how the learning took place.

In the end, the surprising part wasn’t that parents and students were questioning how expensive college was; affordability has been a concern for decades. It was the argument families employed to make their case. By buying into the claim the tuition paid for more than just a degree, American consumers gave traditional colleges all the leverage they need to charge even more tuition post-COVID.

Does tuition really buy education?

There is no shortage of theories, from government lending to cost disease to an arms race to lattices and ratchets, for why American higher education continues to become more and more expensive, and none have ever shown to be a good fit.

Colleges and universities educate students, sure. But we know their primary purpose really is to credential because if learning was the goal, then no school would ever give out grades; students would just keep learning until they demonstrated mastery.

Or, think of it this way, if schools believed they could produce or control learning, why would they make inferior products and potentially send unprepared graduates into the workforce?

Tuition can’t be for a degree because every year tens of thousands of students pay tuition but leave school without any credential, but universities do give students access to tools to learn — from classes to tutors to peers to libraries. But if students and families honestly believe remote learning should cost less, then tuition must be covering, at least in part, the experience too.

This model — where consumers pay for the right to access resources or an experience that they can use to benefit themselves — isn’t strange; it’s actually the way health or country club memberships work. Gyms don’t produce “health” but instead bundle training equipment, trainers and motivating patrons into a monthly membership fee. Country clubs largely do the same where members buy access to the club’s privately-owned facilities and, importantly, exclusive ability to interact with other dues-paying members.

Is college really so different? If networking and building peer relationships do much to ensure future high-wage job opportunities — and we know they do — then surely that’s a value-add directly attributable to what the university is offering. If it provides value, then it’s also worth charging for.

Thinking about universities as health or country clubs also helps explain why a big chunk of the price that college goers at some schools pay is wrapped up in non-learning amenities. Nothing says tuition has to be for teaching. If access to high-value peers, faculty, and facilities is what some colleges offer and are partly what prospective high-quality students crave, then lazy rivers or more spacious residence halls or state-of-the-art laboratory resources aren’t wasteful.

How much schools can, or should, charge for an experience is relative, but also technically without limit. At a time when companies can charge consumers willing to meet celebrities up to $15,000 for a 10-minute zoom call, what will a family planning to spend upwards of $250,000 on their child’s bachelor’s degree pay to improve their child’s chances at a lifetime of future networking opportunities?

The “varsity blues” scandal last year made clear that there are parents who will pay well more than tuition and fees to ensure their child gets a degree from a particular institution.

If we want to get a sense of the amenities premium, it’s instructive to look at the community college transfer model. Economics 101 at almost all institutions requires little more than a lecturer and a classroom yet some state flagships will charge $500 per credit hour for that course but accept a $95 per credit hour equivalent from a community college.

Subsidies aside, can we possibly believe the delivery cost is four times as much, especially when the flagship is probably teaching most of its intro sections using 3rd and 4th-year PhD students? No rigorous analysis has ever been done but I’d bet the networking premium at some schools may account for as much as half of the price charged.

The flip side to networking premiums is that tuition should fall as institutional selectivity does. At community colleges or not-very-selective regional public universities, which education the majority of the nation’s students, pricing is far more likely to just cover the cost of training itself.

Good intentions, bad outcomes

When students and families started rebelling against colleges continuing to charge the same rates for virtual learning as they do for in-person, they probably had every right to do so. If some fraction of tuition paid at some of the more expensive 4-year institutions is a premium for the “experience,” then you can’t take out a benefit but leave in the cost.

Imagine ordering surf and turf, paying the bill up-front and then having the waiter tell you they’re not serving lobster.

When America’s public universities and private colleges eventually can go back to providing immersive, in-person training, one thing will definitely be different. The public outcry that the experience itself and future networking opportunities matter means colleges now have a free hand to explicitly market the cost and value of these things in their marketing and recruiting.

Decades of research tells us that a good portion of those costs will get passed directly to consumers.

For years, experts have debated how high prices can reasonably climb before consumers eventually look for less-costly alternatives. For older students already in the workforce that time is probably here. Coding boot camps, online community college programs and short-course certificates are all evidence that the market recognizes a sizeable fraction is not willing to pay a premium on experience; the credential is all that matters.

For the straight-from-high-school crowd looking for a bachelor’s degree or even graduate training, the health club pricing model deserves a more detailed look by researchers, but also federal and state policymakers looking to help contain rising tuition. The COVID pandemic may provide students and families a small amount of short-run tuition relief, but in the long-run it may well be the catalyst for a years of higher tuition coming.