February 7, 2012
Several years ago, when my daughter was a high school senior, my wife bought a softcover book with a page on each of hundreds of different schools (I think it was this book). It wasn't an important reference for us because she had pretty much already decided to attend Sarah Lawrence College. I had heard that Sarah Lawrence was an expensive school, according to some article I had read. So out of a bit more than idle curiosity, I picked up the book and sought the page on Sarah Lawrence. Yes, the book confirmed it to be expensive, and on a whim I paged through looking for Harvard University to compare. On the way to Harvard's page I came to Hartwick College, of which I know little other than it's in Oneonta, and an acquaintance attended school there. I was surprised to find that Hartwick's total cost for a year was within a few hundred dollars of Sarah Lawrence, and even more surprised to find that Harvard's total cost fell neatly between the two. I think at the time that the total annual cost was in the $40,000 range, making a few hundred dollars of difference practically meaningless.
Now, they are all good schools, but you will have a hard time convincing me that you will get 99+% of the benefit of going to Harvard by attending Hartwick. If Hartwick is not a Chevy it might be a Buick, but Harvard is a Mercedes; they're not the same. Why do they cost the same?
At the root of the price of anything is that eternal equation: supply and demand. Add to that my theory of "Next-Best." In this case, Harvard University is perceived worldwide as a desirable school, and it receives so many applications each year that it accepts only a small percentage: 6.2% last year. That leaves 93.8% of Harvard's applicants to seek another school - the one they view as "next-best." As demand cascades from first to second choice (or to third or fourth), there remains enough demand to keep pricing high even among choices not otherwise seen as equal. That's cold comfort to families struggling with the cost of college and graduates grappling with student loan debt. Higher education costs may be just a footnote in the presidential election, but whoever wins you can look for this topic to rise in prominence over the next few years.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).