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Revenue Generation: Tuition, Financial Aid, & Fees

Revenue Generation: Tuition, Financial Aid, & Fees. Source: Baum, S., & Payea , K. (2010). Trends in college pricing, 2010 . New York, NY: The College Board. Source: Baum, S., & Payea , K. (2010). Trends in college pricing, 2010 . New York, NY: The College Board. Change in Sources of Grants.

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Revenue Generation: Tuition, Financial Aid, & Fees

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  1. Revenue Generation:Tuition, Financial Aid, & Fees

  2. Source: Baum, S., & Payea, K. (2010). Trends in college pricing, 2010. New York, NY: The College Board.

  3. Source: Baum, S., & Payea, K. (2010). Trends in college pricing, 2010. New York, NY: The College Board.

  4. Change in Sources of Grants Source: Baum, S., & Payea, K. (2010). Trends in Student Aid, 2010. New York, NY: The College Board.

  5. Source: Baum, S., & Payea, K. (2010). Trends in Student Aid, 2010. New York, NY: The College Board.

  6. Source: Baum, S., & Payea, K. (2010). Trends in college pricing, 2010. New York, NY: The College Board.

  7. Source: Baum, S., & Payea, K. (2010). Trends in college pricing, 2010. New York, NY: The College Board.

  8. Source: Baum, S., & Payea, K. (2010). Trends in college pricing, 2010. New York, NY: The College Board.

  9. Elasticity The percentage change in Quantity with respect to a 1% change in Price • Inelastic if less than 1 • Raise revenue with increases in price • Elastic if greater than 1 • Raise revenue by lowering price Literature generally finds inelastic demand • Needy students more elastic • Out-of-state students more elastic

  10. Revenue Changes Due to Changes in Price P A PA Lost Revenue B PB Gained Revenue Q QB QA

  11. Determinants of Elasticity • Availability of substitute goods • Close substitute -> more elastic • Percentage of income • Higher the ratio of price/income -> more elastic • Necessity • Higher importance -> lower elasticity • How broadly a good is defined • Broader definitions -> more inelastic • Brand loyalty • More loyalty -> more inelastic • Who pays • If good is paid by someone else -> more elastic Link to examples

  12. Price Discrimination Willingness to pay example • Price Discrimination is the practice of charging different prices to different consumers for the same good or charging different consumers different prices based on the quantity purchased (DesJardins & Bell, 2006, p. 69) • Perfect – everyone charged their willingness to pay • 2nd degree – Price depends on units purchased • 3rd degree – Price depends on characteristics of consumer

  13. Why Price Discriminate • To maximize net tuition revenue • Charge based on willingness to pay • Competition for desirable students • Target aid to form a well rounded class • Average discount rate (WBA, p. 81): • Community colleges – 2% • Public 4-year – 12% • Private 4-year – 28% (error in table) • For-profit – 1%

  14. Models of Price Discrimination • Needs-blind admission, Needs-based financial aid • Practiced by the most elite institutions • Only merit is used to assess admissibility • Only need is used to assess financial aid awards • Institutions meets need of all students with financial aid offers • Some institutions can offer different packages of grants, loans, and work-study (on merit)

  15. Models of Price Discrimination • Merit-based financial aid • Utilized by less selective private institutions (non-IVY) • Financial aid offers are awarded based upon merit and need • Increased competitiveness for top students, but offers financial aid to non-needy students • Increasing use in flagship public institutions

  16. Discussion • Do you think that our mission as a land grant institution corresponds with either a LL or HH institutional tuition and aid model? • Do you think our mission as the state flagship institution corresponds with either a LL or HH institutional tuition and aid model?

  17. Curs & Singell, 2010 • Explain to the class the following details: • How did prices change across groups • What happened to enrollments across groups • What happened to overall revenue for the university • HH model for instate • HH model for out-of-state • LL model for instate • LL model for out-of-state

  18. Curs & Singell, 2010 • Do you think the findings in this paper would be transferable to alternative institutional types? • What can be learned? • What would most likely be different? • Elite private university (i.e. Cornell) • Public liberal arts university (i.e. Truman State) • Elite public university (i.e. Michigan) • Community College (i.e. Moberly Area CC)

  19. Case Studies • Represent your case study through a visual display. • Be sure to represent the following items: • The tuition/aid policy change • What is expected to happen, or what happened from the perspective of: • The institution • The student body

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