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Filling the Gap Between Luxury and Necessity

 

Private colleges and universities must offer opportunities and services to students that cannot be found at lower-cost institutions.  The premiums paid to attend a private institution must yield benefits proportionately larger than other institutions.  
   

After graduating from high school, my grandfather gave me money to buy a car for college; it was a tremendous surprise and a welcome gift.  After thoroughly researching and test-driving many cars with my father, I ended up with a new Chevrolet—a 1984 ‘Vette.  It was two-door, cherry red, and had an automatic transmission.  The back seat was hard to get into and out of and it had very little legroom, but that did not matter very much.  The gas mileage was nothing great, but with gas prices so cheap, it did not cause serious concern.  With a custom-added stereo system, the car was perfect for my college years.

Looking back on that car, I don’t know how I made it through hot Florida summers without air conditioning.  The acceleration was weaker than originally expected.  When attempting to pass other vehicles on two-lane roads, I had to accelerate heavily in my own lane as oncoming traffic approached before changing lanes to quickly get around vehicles in front of me.  The interior and exterior features were simple, yet sufficient.  It was basic transportation and it served me very well.   You see, I had not bought a Chevy Corvette, I had bought a Chevy Chevette.

If I had been able and willing to spend four-times more money on a Corvette, I would have had one of the finest cars on the market.  There would have been plenty of horsepower to pass other cars, the exterior very stylish, the interior very luxurious and air-conditioned, and the automobile would catch the attention of onlookers.  The differences in the two cars were readily apparent and noticeable to anyone who saw them.  If I had spent more money for the Corvette, I would have bought a more luxurious, powerful, and well-built automobile and a car that was more prestigious to possess and one that others would envy.  

Economists make distinctions between necessity and luxury goods and services.  Necessities are those things that are needed.  When the prices of necessities go up, demand usually stays about the same.  Luxuries are things that are wanted.  When their prices increase, demand usually drops more than for necessities for a proportional price increase. Staple-type foods are necessities and finely-prepared meals served in upscale restaurants are luxury food items.  For people who require an automobile for work and living purposes, a Chevette would be a considered a necessity-type automobile and a Corvette would be a luxury.  Luxuries typically provide benefits that exceed those of necessities—including a perceived satisfaction of esteem and ego needs.

Given my needs and budget when choosing my first automobile, I opted for the less glamorous and more economical car that satisfied my basic needs.  By going with the more basic automobile, I did not have to borrow money and get saddled with loan payments for many years.  The Chevette met my basic needs and was affordable enough to pay for with cash.

When confronted with choices of where to attend college, many prospective students research and shop around before making their decisions.  They collect information, visit campuses, sit in on classes, and weigh the costs and benefits of attendance of each institution. 

Differences in “sticker prices” between different colleges and universities are many times more difficult to determine than for automobiles.  With cars, you can usually see and feel the extra benefits that you acquire with higher-priced alternatives; but with colleges and higher education, the benefits received from a premium price may not be as apparent.

As the tuition gap between private and public schools continues to increase, private colleges and universities must convince prospective students that investing in their offerings is worth the premium price.  Private schools must fill the gap between lower-cost higher education (perhaps from a local community college and a regional state university) and their higher-priced offerings with additional valuable benefits.  As with automobiles, higher “sticker” prices should mean higher quality, more and better features, and a name that will catch the attention of external others.

With a few notable exceptions, the name-power of many private colleges and universities does not warrant paying extra tuition and incurring additional expenses.  Most private institutions are virtually unknown outside of their nearby geographic areas.  Most public institutions are also relatively unknown outside of their geographic regions.  So if name power does not warrant a premium price, what does?

Many small, private institutions claim that students attend their schools because of their small class sizes, personal interaction with full-time faculty members, liberal arts traditions, and family-like environments.  While these features would probably be appealing to students who would get lost in mega-universities, they are not the sole domain of private institutions.  Many public community colleges and four-year schools also have small enrollments, low student-faculty ratios, and family environments.  Those features alone do not warrant premium private-school prices.

Private schools must offer more to their students.  Private schools should offer opportunities and benefits that cannot be found outside of private higher education—this means going above and beyond the offerings of public schools.  Those institutions that are church-related can and should create faith-based environments that help distinguish themselves from public competitors.  If they claim to be teaching schools, they need to be extraordinary in their teaching.   If they claim to offer career and community connections through their alumni and support network, they must provide those opportunities to students in superior ways.  If private schools tout a “well-rounded and complete” education for their students, they should offer a complete range of educational and character-building opportunities for their students.  If they purport to prepare students for admission to graduate and professional schools, they should develop and maintain connections to well-respected programs.  The attention, rigor, expectations, and involvement of faculty and the interactions and services provided by staff members must be exceptional.  Living and learning facilities must also be exceptional.

The challenge for many private institutions is that they must offer exceptional experiences with less-than-exceptional funding.  Most small, private institutions are at a disadvantage to public schools with respect to funds for operational expenses, salaries, facilities, and technology.  Many struggle to make their budgets and cover costs.  Strong leadership and a dedicated faculty, staff, and base of supporters working together in a culture of excellence are needed to draw exceptional performance and offerings out of a workplace with limited financial resources.

In a society where college degrees are becoming necessary for jobs and desirable standards of living, more and more prospective students will judge whether they wish to invest in necessity or luxury educations.  When the benefits of the luxury institution are readily apparent, institutions will have an easier time attracting students to their offerings.  When premium prices are being charged for common college experiences, students will likely choose lower-cost alternatives or go to luxury institutions that do provide premium features. 

Institutions that charge Corvette-like prices for their offerings should provide significantly better features and prestige than their lower-priced competitors.  If we want our students to pay more and to acquire and carry debt for many years to pay off their educations, we better provide them with premium-quality benefits.

  

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2006, 2007, 2008 Coleman Patterson, All Rights Reserved