Conscious Parallelism is the legal term when companies post the same prices but show no evidence that they are directly colluding. That pretty much describes what colleges do resulting in very similar tuition and a narrow band for tuition increases.
So it was a big deal last August when one college broke ranks and tried to compete on price. North Shore Community College in Danvers and Lynn took out a full page ad in the Boston Globe highlighting that its tuition was cheaper than nine other regional colleges. For example, the ad explains with an elaborate table that North Shore is over $40,000 cheaper per year than Northeastern. We are used to airlines broadcasting cheaper fares, but colleges? Still, why not? It’s basic capitalism: not enough students? Just showcase the lowest price and more students will come.
Imagine the headlines if that happened: “Harvard Slashes Tuition by 15%—Ivies Follow”, or “Price War Breaks out among Colleges—Students Celebrate”, or “Tuitions Plummet—Colleges Fire High Priced Staffs”.
But colleges do not compete on price. They compete on flowers. Take a college tour and you will walk by the prettiest flowers on campus growing next to new gyms and dining halls. When you pass the student aid office, ask about tuition. The guide will tell you that the college is competitive with all similar colleges. And they will be correct because colleges are consciously seeking to be similar in pricing.
A sign that price competition is not important is that the principle ‘Best colleges’ ranking by U.S. News and World Report doesn’t include tuition as a component. Imagine ranking any other industry and leaving out pricing.
The government aids and abets colleges by sending them in depth financial information on each student. The colleges feed this data along with all the information they get from the common app into their computers. Almost identical offer letters are the result of this treasure trove of information and the practice of using the same formula to determine how much each student can pay. Colleges are consciously making parallel offers knowing that undercutting each other would only drive the price down.
Imagine if you shopped for a car with all your financial information plastered on your forehead. The guy in the showroom would know exactly how much you could afford. So would his competitors. Their prices might vary but not by much.
While colleges want all of a student’s financial information, they don’t return the favor. They don’t mention that tuitions increase every year, or that their grants are front loaded and usually go down after freshman year, or even any of the loan terms. This lack of information may be on the cusp of consumer fraud.
There are many signs that the present tuition system is under stress. It is confronting an overall decline in student population. It is driving students away from all but the most prestigious private colleges to public colleges. It is stretching the limits of what students can repay. The bond market thinks the system is a mess and values student loans as junk. Politicians are discovering that they can’t get their hands on enough tax revenue to fix it. Perhaps when tuition reach $100,000 we will be forced to confront the issue head on. Whatever happens, we should add price competition to the mix of solutions.