Tuition, Inc.: How to Use Collective Bargaining to Lower Tuition

by @sftierney and Audrey Peek

The 2016 presidential campaign made a federal policy around debt- or tuition-free college seem plausible, perhaps even likely, should a Democrat win the White House, but Trump’s victory makes such a prospect seem unlikely. DC’s energy is now focused on Obamacare and foreign policy, and many doubt that the Higher Education Act will be reauthorized before late 2018. Market-driven efforts to stop rising tuition and student debt may be the best way to help today’s students, and could also be the more politically palatable route given the unified Republican control of the federal government.

One new option that we feel merits consideration is for students to join together to negotiate tuition prices through tuition cooperatives, an intermediary group that could bulk purchase higher education by bundling students’ financial aid and other resources. Tuition cooperatives would give students more leverage when choosing colleges, something especially needed when dealing with high-cost programs with uncertain value, such as professional schools.

It’s no secret that rising college tuition has made it difficult for many to go to and graduate from college. Research tells us that low-income and Black students are especially sensitive to tuition increases, and too often colleges don’t prioritize funds for students that need the most help. Even after enrollment, the cost of going to college can constrain students. Financial barriers are among the most frequently cited reasons for leaving college.

It may sound strange to talk about bulk purchasing education as if it were a product on a shelf, but there is much that higher education can learn from the business models of other industries. College is one of the few large, complex investments Americans must make without the help of professional purchasers. We benefit from the expertise of real estate agents, labor relations negotiators, and retirement fund managers when making other large decisions that have long-term consequences. While it’s possible to make these purchases on your own, professional brokers come in handy if you don’t have the experience, time, or ability to manage the entire process by yourself.

Why do we expect college students — many of whom are now first-generation students barely removed from high school or returning adults who had difficulty finding the right fit last time — to make very large and life-defining purchases without the option of intermediaries? We are stuck in a rudimentary system in which a college sends a student a bill, and the student either pays it or must seek schooling elsewhere. That process is simple, but it creates the conditions for an inefficient market, particularly in particular communities or programs where alternatives may not readily exist. In this system, most students have little to no bargaining power (or experience of bargaining with colleges). They may find themselves on the losing end of an information asymmetry and may not know what constitutes a “good deal” or a quality education. Finally, they have limited ability to structure more complex, yet more favorable, payment plans.

In other industries, intermediaries often allow us to combine our resources with those of other purchasers (think, among others, of healthcare). Goods and services are often cheaper when they are purchased in bulk, as it reduces transaction and customization costs associated with individualized purchasing. So why don’t students pool their resources and collectively buy college enrollment packages?

Imagine that instead of buying their education directly from colleges, students could use financial aid or savings to pay into a cooperative. The cooperative then uses these aggregated funds from multiple students to negotiate with colleges and bulk purchase access to courses for a discounted rate.

Implementation

Tuition cooperatives could be non-profits that take several forms, depending on missions, student members, and sources of funding. Tuition cooperatives could be organized by sector, focusing on non-degree schools, like coding boot camps, or schools with high prices and uncertain outcomes, like some for-profits.

Tuition cooperatives could also help simplify other interactions that students have with colleges. Similar to one-stop social services at community colleges, tuition cooperatives could assist students by gathering transcripts, streamlining financial aid applications, and advising students on transfer requirements. Overhead costs for these services could be covered with a small percentage of tuition savings.

Impact on Students

By aggregating students’ buying power and using professionalized buyers, tuition cooperatives could help push down prices and serve as gatekeepers to keep predatory for-profit colleges in check. Through the deals they make or don’t make, cooperatives can steer students away from the Corinthian College of the future. The one-stop storefront, too, will provide students with easy access to centralized supports and resources — an especially helpful feature for students that attend multiple schools.

Tuition cooperatives wouldn’t be for everyone. Since tuition cooperatives would be a market-based approach to affordability and quality, cooperatives will have difficulty negotiating with schools that enjoy relatively inelastic demand for their services. Students in education deserts will still have limited choices. Cooperatives would only succeed if they are willing and able to exclude colleges from their in-network coverage. If that happens, students can still choose to attend “out-of-network.”

Another challenge would be developing trust for Tuition Cooperatives. Students and families would need to be sure that there are benefits to participating in a Tuition Cooperative that outweigh the costs of participating in a new and untested system. Though this issue would be less important as Tuition Cooperatives grow, the initial challenge could in part be overcome by advertising the non-financial benefits of participation, such as access to streamlined services across institutions and access to informed staff who could help applicants navigate the application process.

Healthier higher education landscape

Why would a college negotiate with a tuition cooperative? A very large cooperative could be difficult to ignore. And while cooperatives could be designed to be compatible with selective admissions processes, they might work especially well with open-enrollment colleges.

For colleges, revenue from tuition and fees (whether it’s paid with financial aid or students’ savings) is tied to the enrollment of specific, individual students. Revenue from a tuition cooperative, meanwhile, is tied to overall demand. Schools don’t know which specific students will enroll in any given year, but they have a good idea of what the class size will be and how much students will collectively pay. With tuition cooperatives, colleges could, if they wanted to, lock in multi-year deals in which they charge a low rate for access to their courses and in return enjoy a more stable, predictable revenue stream that is less affected by enrollment fluxes.

Similarly, tuition cooperatives help make the traditional fee-per-credit-hour model more abstract. Students are one step further removed from paying for credit hours attempted, while the complicated details are handled between cooperative and college personnel. Over time, this could help with efforts around paying for competency-based education or other models.

Tuition Cooperatives offer an innovative solution to the problems of higher education complexity and unaffordability. By negotiating prices and centralizing academic and non-academic services, tuition cooperatives allow students greater control over their college experience. The traditional higher education system, which relies heavily on interactions between individual students and institutions, must adapt to meet the needs of today’s students. Tuition Cooperatives are a promising solution to this problem.

Sean Tierney is Associate Commissioner for Strategic Planning and Policy at the Indiana Commission for Higher Education. Audrey Peek is a Researcher at the American Institutes for Research. The opinions expressed here are their own and do not reflect those of their employers.