Thursday, February 17, 2011

Colleges Violate the Law of Demand

Yet the same strategy proved disastrous for North Carolina Wesleyan College. Ten years ago that college cut tuition and fees by 22 percent, to $7,150. But it attracted fewer wealthy applicants and more poor ones, who needed more aid even as the revenue generated from tuition declined.

“It didn’t work out the way it had been hoped,” said Ian David Campbell Newbould, the college’s president. “People don’t want cheap.”

The law of demand in short as prices go down people want more. For some reason that might not always be true with colleges. I remember when Muskighum College in Ohio cut tuition by about 1/3 and I thought I recall hearing it didn't go so well. The above quote is from a 4 year old New York Times article shows it didn't go well for NC Wesleyan, although suggests Muskighum did OK.

Recently Sewanee College agreed to cut their tuition by 10% as described by this Times article.

I think times are different. Small liberal arts schools are fighting economic trends that would lead people to state schools (even though I'm economist I won't call state schools an inferior good).

I also wonder as a generation of parents who had sizable student loans comes of age, if the willingness to borrow of their children will fall. This assume children actually listen to their parents.

Still 4 years of Towson is about the price of one year 1 year of Sewanee College
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