How One University Makes Transparent Pricing Work

After putting two sons through college, Tim Roach has figured out the fine print of college pricing. Tuition tends to go up, while scholarship amounts stay flat, leaving students with more to pay each year. Textbooks can be awfully expensive. And then there are the fees, levied left and right for purposes that are not always clear. “Every year,” he says, “you crossed your fingers and gritted your teeth when that bill came.”

Making Transparent Pricing Work

One university’s unconventional experiment has yielded encouraging results. So how come other colleges don’t seem eager to try it?

But Mr. Roach is having a different experience with his daughter, Molly, even though she’s a rising senior at the same college that both of her brothers attended, the University of Dayton. That’s because in 2013 the university started showing its incoming students what they would pay for all four years of college.

A number of colleges will hold students’ tuition steady for four years. Dayton went further. It got rid of fees. And rather than locking in the “sticker” price charged before financial aid is applied, it locks in each student’s after-aid “net” tuition — the amount they actually have to pay. That means Dayton is raising students’ grants and scholarships in step with their tuition — and will make up the difference if their federal or state grants dip, too. (Tuition does go up each year for full-pay students — a very small share of the university’s enrollment — by an amount that’s spelled out in advance.)

Dayton provides projections of room-and-board expenses, which vary according to students’ choices. And it also gives prospective students who complete the Free Application for Federal Student Aid and visit the campus $500 to put toward books each semester for four years.

Mr. Roach, who found Dayton’s fees frustrating and counseled one of his sons to wait and see which books professors were really using in class before purchasing any, is a fan of the new system. “I like the predictability,” he says.

It seems to be working out well for Dayton so far, too. This spring, the class of 2017 set a university record with its four-year graduation rate. The graduates’ average debt burden was lower, too. How did the University of Dayton pull this off? And why haven’t more colleges followed suit?

Back in 2012, colleges were under mounting pressure to present students with clearer prices. The federal government had recently required colleges to post “net-price calculators” on their websites to give families estimates of what they would pay after financial aid, and it was encouraging them to use a standardized financial-aid award letter.

Meanwhile, Dayton’s enrollment leaders were worried about the financial burden they were putting on upperclassmen — and about the message it sent to them, says Jason Reinoehl, vice president for strategic enrollment management.

Mr. Reinoehl and his boss at the time, Sundar Kumarasamy, then the university’s vice president for enrollment management and marketing, found confirmation of their fears when they looked at graduating seniors’ feedback on the university’s exit survey. One common refrain, Mr. Reinoehl says, was frustration over the university’s fees. There was, he says, “a significant amount of negative comment around feeling nickeled and dimed. You know, back then we even had a graduation fee — so congratulations, you did so well we’re going to tack on a $95 fee.”

While similar to many colleges’ practices, the pricing model was hurting the student experience, the enrollment leaders believed — and maybe even weakening Dayton’s brand. Just think of how airline passengers feel, Mr. Kumarasamy says, when they must cough up more money to board early, bring another bag, or have more legroom.

So Dayton played around with some different scenarios that would give families a more transparent price. At first, the focus was on tuition, Mr. Reinoehl says. But once they settled on the idea of a four-year net price, it became clear that charging fees undermined the spirit of what they were trying to do: eliminate unpleasant surprises.

That work is continuing. In 2014, the university began offering students a $3,000 scholarship to study abroad and letting them do so at no extra cost if they chose one of three Dayton-organized programs. Now it is looking at ways to “embed” experiential learning and intersession classes into the pricing plan, Mr. Reinoehl says.

Dayton’s four-year price might appeal to a parent like Mr. Roach. But when the university first floated the idea, outside experts weren’t sure that it would work. That’s because the idea flew in the face of some basic higher-education economics.

A college’s costs, including what it spends on employee salary and benefits, go up each year. To bring in more revenue, the college raises tuition. But it won’t actually see all of that additional money, since it gives many students a discount. Still, the college gets a bit more money out of most students each year they are enrolled.

Locking in a net price means giving up that revenue. The price can increase only for freshmen, who probably account for between a quarter and a third of total enrollment. That means tuition will have to increase by a larger percentage each year to bring in the same amount of additional money.

As a result, the college’s sticker price will start to get out of line with those of its competitors. Maybe families would be willing to pay more upfront for the peace of mind of a four-year price. But research shows that many of them rule colleges out based on their sticker prices. No matter what else a college does, being an outlier on that price tag is a huge risk.

Mr. Kumarasamy understood that argument when Dayton started exploring the plan, but thought that it was missing a key detail. Dayton wouldn’t have to raise tuition on subsequent entering classes as much as everyone expected, he posited. That’s because the university would improve student retention. In crude terms, higher retention means larger enrollment, and that means more revenue.

About 88 percent of freshmen who started at Dayton in 2011 returned as sophomores. So Dayton had some room to improve. And with entering classes of around 2,000 students, bumping up retention by even a couple of percentage points would make a significant difference in the number of students who are staying enrolled — and continuing to pay tuition.

The university already had a number of efforts to boost retention underway. And in a convenient twist, the pricing plan didn’t just rely on greater retention, it should also help to create it. Students transfer or drop out for a variety of reasons, but money is certainly one of them.

Mark Kantrowitz, a financial-aid expert and advocate of providing better information to families, has liked Dayton’s plan since he first learned of it. But Mr. Kantrowitz, the publisher and vice president for strategy at Cappex.com, a college and scholarship search site, hadn’t initially thought of how it would intersect with retention, he says. Now he realizes that the link is crucial. By offering a four-year price, Mr. Kantrowitz says, a college can correct families’ “wishful thinking” about what they can afford. “They know whether or not they can send their child there,” he says. “If the student enrolls they’re much more likely to persist.”

Not only that, Mr. Kumarasamy says, the plan should build goodwill for Dayton. “The way they feel at graduation.” he says, “10, 20 years from now, who knows what kind of gift and support they will show for the university.”

Still, Dayton was taking a risk. After the university’s board committed to the plan, Mr. Kumarasamy told The Chronicle, “I hope to God it works.”

Despite turnover in both its president and its enrollment manager — Mr. Kumarasamy is now at Northeastern University — Dayton is continuing its pricing experiment. And the early signs are positive.

It’s impossible, of course, to draw a straight line from a university’s pricing strategy to an outcome like higher graduation rates or lower debt burdens. Still, Dayton officials think the new four-year price is a big part of the reason why the class of 2017 had a four-year graduation rate of 67 percent, up from 59 percent the year before. A smaller share of the class borrowed, and those who did had an average debt level of $33,398, down from $38,153. The retention rate saw a slight uptick, and Dayton was able to keep annual increases in tuition relatively low.

Those are the kinds of changes most colleges would love to see. But few seem interested in replicating Dayton’s plan.

At least two colleges have rolled out similar programs in recent years — both public universities not far from Dayton. In 2015, Ohio University began locking in tuition and room-and-board options and got rid of most fees in its OHIO Guarantee. While the university doesn’t promise a set net price, it points out that its scholarships hold their value under the flat tuition rate. The following year, Miami University introduced its Tuition Promise, locking in tuition, fees, and room-and-board options as well as institutional need- and merit-based aid.

Every once in a while, Mr. Reinoehl will hear from a college official who’s interested in Dayton’s model and wants to pick his brain. But “then there’s no follow through,” he says. Mr. Reinoehl imagines that his counterparts at other colleges run into one of several snags. The biggest barrier, Mr. Reinoehl believes, is the financial risk a college has to take on to offer students a locked net price.

Eliminating fees would also be a huge challenge for many institutions, he adds — and indeed some colleges that lock sticker tuition do not include fees. At many colleges, fees are set by academic units across campus, he says. They were at Dayton. That meant that administrators had to, for instance, talk to the business school’s leaders about its professional-development fee (used in part to cover a subscription to The Wall Street Journal) and assure them the university would make up for it out of a centralized pot of tuition revenue. Even if a college cleared those two bars, it would have to be reasonably confident it could improve retention enough to mitigate the price it charged incoming students.

Since Dayton’s program appears to be unique, there’s no telling whether other colleges would see similar results if they tried it, Mr. Kantrowitz says. But he adds another caution: “This gets the student in the door,” but they’ll only stay if the quality of the academic program is what they expect.

“You’d have to have substance,” he says, “not just a quick fix like this — and this isn’t that quick a fix.”

Beckie Supiano writes about college affordability, the job market for new graduates, and professional schools, among other things. Follow her on Twitter @becksup, or drop her a line at beckie.supiano@chronicle.com.