Tuition Supply and Demand
In 2000, the Pennsylvania Board of Ursinus College (UC) raised its tuition and fees by 17.6% to $23,460. In result, they received 200 more applicants. How about tuition supply on demand? In prior years, other colleges have raised their tuition to match rival colleges; such as the University of Notre Dame, Bryn Mawr College, Rice University, and the University of Richmond. They also experienced an increase in enrolment. In contrast, North Wesleyan College lowered their tuition and fees about 10 years ago by 22% and attracted fewer students.
As a hired consultant my obligation is to evaluate recommendations made by the college’s admissions director, Susan Hansen. Susan states that the data from the competing colleges suggest that the tuition supply and demand curves for colleges slope upward – the quantity demanded increases with price. She projects that the increase in tuition and reduction in in financial aid will solve the schools financial problems.
Last year the college enrolled 400 new students who each paid an effective tuition of $15,000 (after financial aid), totalling $6,000,000. She projects that with the increased demand from charging an effective tuition of $25,000, the college will be able to enrol 600 new students (of equal or better quality), totalling $15,000,000 (Brickley, Smith & Zimmerman, 2009, p. 110).
Ms. Hansen argues that with the increase in tuition and fees plus the reduction in financial aid, enrollment will increase. The law of demand has a negative slope, so as more services are rendered the price of that service is reduced. Ms. Hansen evaluates and suggests that the demand of the foretold colleges is in an upward slope. In actuality, the slope of demand decreases while the slope of supply increases. The demand curve may shift, but only if changes in quantity demanded change. Movements of the entire demand curve are caused by other factors (such as changes in income) and are referred to as changes in demand (Brickley, Smith & Zimmerman, 2009, p. 109). The increase in tuition prices and reduction in financial aid would ultimately reduce the overall enrollment of students. Changes in demand such as the increase of financial aid, will result in an outward shift of the demand curve, allowing for increase enrollment. Her argument is flawed in the sense that the data she was evaluating was based on misinformation of basic economics.
Secondly, state and federal aid of tuition have been regulated and are enforced. A college that increases its tuition costs is more than likely to be denied aid to their students. The state of the economy is in remission and there are no sights on increasing state or federal aid for college students, let alone forgiving student loans. President Barack Obama has said several times in 2012 colleges must work to contain costs and not rely on tuition increases in the absence of state funding. If they do not, Obama said, they could lose out on federal money (“College tuition rose,” 2012).
In conclusion, if the political influence of change doesn’t alter the minds of the board members decision, than surly the misrepresentation of Ms. Hansen’s economic perspective of data evaluation surely will.