Do you remember a wedding or funeral you were helping to plan? Was affordability your top priority for the big day?
An asymmetric market is one in which one side of the transaction has almost all the important information needed to make a wise decision. Examples include buying used cars, buying homes (without inspections), or even receiving medical treatments. These are situations when we can be taken advantage of by providers because we don’t know what we don’t know.
These asymmetric markets become even more dangerous when they are combined with emotional decision-making. Emotional asymmetric markets arise when we are presented with purchase opportunities that occur only once or twice in our lifetimes. In these situations, we don’t really know what the appropriate or “right” costs are for our purchase, but we do care deeply about spending the “right” amount, because we often equate the value with the investment.
Two of the best examples are weddings and funerals. We know that there is no evidence to suggest that expensive weddings are statistically linked to long-lasting marriages. We also know that the average funeral in the U.S. costs more than $9,000 and few people are prepared to pay for all the costs involved. However, both of these events are both extremely emotionally powerful moments where money plays second, if not third fiddle, to other motivators that we feel reflect how much we love or loved someone.
Going to college is often an emotional asymmetric market. Most people plan to attend college only once in their lives, and many families wish, if not believe, that a student should have every opportunity to study wherever they want. This often leads families to spend ridiculous amounts of money on college—whether outright or by taking on debt. Many parents see paying for college as their final gift to their child before they leave home and thus parents do whatever it takes to make that parting gift one that they feel good about.
What families don’t know is that, behind the curtain of college admissions and financial aid, there is an annual educated gamble occurring, where each college is attempting to guess the highest amount of money they can charge each student that then allows the university to meet its net tuition revenue goals. Summertime brings a frenzy in many admission offices where many colleges are literally offering incrementally more financial aid every few weeks. No matter what colleges tell you, there is rarely any set amount of money a family has to pay to attend. The real “floor” is a set amount the college wants to receive in order to keep everyone employed and moving forward institutional goals.
This means that the cost of college is secretly negotiable. And I believe it is time for families to unite to fight back against the unfair pricing of colleges. We should empower families to work together to negotiate the price of tuition down to a reasonable sum.
How? With group college discounts.
Lower Costs for Families, More Students for Colleges
Group discounts are already available in several sectors and for specific groups of people. For example, AARP has over 300 deals across the U.S. for its members, typically people over the age of 50. Businesses provide these discounts because older people in the U.S. are becoming a bigger share of the population. Another example are group purchasing organizations that exist in health care to negotiate reduced prices in bulk. In order for doctors and hospitals to get maximum money from millions of people seeking medical care, hospitals and doctors accept lower rates for procedures and medicines because the benefits of bulk purchases outweigh the overpriced amounts they charge individuals.
Can you imagine group discounts for weddings or funerals? The concept is laughable because weddings and funerals are unique events for one or two people. We might purchase family plots in cemeteries, but we certainly don’t coordinate with others on our death dates, nor our marriage dates.
However, we know that each year there will be millions of high school graduates attending college. Every one of these students will be in some form or fashion “negotiating” their purchase price. Some students will pay $0 because they scored a close to a perfect score on a standardized test. Other students will pay $75,000 per year ($300,000 over four years) because their pre-college academic achievements are not comparable to the students at the expensive private college where they want to attend.
What if there were “group purchasing organizations” for families seeking to attend college?
Initially this idea might cause us to cringe because we don’t want to negotiate any deal that locks our child into attending one college. Let’s think bigger. Why are college presidents fighting to get into certain athletic conferences? Because the wealthiest conferences share the wealth among their members. We don’t need to convince families to all attend one college at a discount. What if families negotiated with groups of colleges to secure discounts if their children attend one of any number of colleges in the group? College consortiums have been rapidly increasing in recent years. This is the perfect time to work with these groups of colleges to negotiate deals.
For example, what if the private Catholic high schools in a geographic region negotiated with a group of Catholic colleges to provide discounts to their graduates? If 200 high school graduates from Boston-based private Catholic high schools attend any one of a group of Catholic colleges in the area, these students could receive an incremental discount based on the number of students participating. (This example intentionally uses a group of private colleges because these are the institutions with the most room for price negotiation. In one sense, states have already “negotiated” group pricing discounts for their residents using state funds in return for in-state pricing.)
The colleges in this arrangement make more money due to a larger “sell rate”—they are increasing their incoming student classes in an era of declining college enrollment. The prospective students save money by partnering with other families to attend schools aligned with their religious beliefs. By linking the size of discounts to the number of students attending, universities would then have their own peer admissions recruiters. This is similar in concept to college sports teams securing a top recruit who then recruits their all-star friends to join them at that college. The college wins, the team wins, and the players win.
To pull this off, families need the equivalent of a sports agent or political lobbyist to advocate and negotiate on their behalf. Honestly, identifying where a role like this emerges from existing business is the key. Many of the top college admission consulting firms are working with hundreds of high-achieving and often wealthier students. As these companies seek competitive advantages, exploring an idea like this with a group of their clients (prospective students and their families) could be a great first step. It could take time to develop, but I believe it’s worth the effort.
Families have more power than they realize, if they’re willing to work together and use smart business principles to not only reduce rising college prices, but also improve the net tuition universities receive through larger student enrollments.