(Forbes) by Richard Vedder.
In dating, there are enormous information problems. A guy knows the kind of girl he wants to date, but how does he find her? Modern technology can help marvelously: my own daughter found her husband on Matchmaker.com.
Similarly, there is an enormous information problem that universities and their students continually confront. After all, they are strangers to one another. For the university the problem is: how can we get the best feasible students to meet our needs and also maximize our revenues in the process? For the student, the problem is: which school that I like can I get into at the minimal feasible price? These problems arise because colleges engage in intense price discrimination: except for some usually rather affluent students who actually pay the sticker (official tuition) price, everyone pays a different amount. Colleges have devised formulas and pricing matrices that determine how much discounting from the full price to give to each student, with the discount related in some cases to academic achievement (mid-quality or lower quality schools discounting substantially to have some good students), in other cases to diversity concerns (the selective admissions school wanting more minority representation), or to the student’s financial situation.
The typical student has no idea what she will pay — will she get a discount (scholarship)? How big will it be? Will she need federal student loans? The student typically only learns of the precise cost after she has applied and been accepted, maybe weeks or months after first considering the school. Likewise, the school does not know precisely how much money it will be taking in, because it is uncertain as to its mix of incoming students, each paying wildly varying fees.
My friend Don Boudreaux, economics professor at George Mason University and blogger at Café Hayek, has introduced me to a DC area entrepreneur named Kyle Albaugh who wants to dramatically reduce the angst that both students and schools face each year. He wants to create a marketplace for buyers and sellers, which he calls Bid Brain. Colleges would provide Bid Brain with their admissions and financial aid/criteria. That would enable Bid Brain to tell you, for example, how much scholarship aid a white student with an ACT score of 29 who ranked in the top 10 percent of his class and who comes from a family with an $85,000 income and no other siblings in college could expect to receive – providing the student with the exact price for attending that university.
Students, of course, would provide Bid Brain all the needed academic, demographic, and financial information needed to allow a determination of the price of the colleges for which the student would be eligible for admission. Then the student would receive a list of potential colleges and prices. With that information in hand, the student would then formally apply for admission to the college (or colleges) of his or her choice. Since much of the guesswork is removed, there would be less unnecessary filling out of application forms for inappropriate schools. Student campus visits could be targeted to schools that Bid Brain suggests are both academically and financially feasible. Competition is enhanced, and decisions are more likely to be mutually beneficial to schools and students alike. (See also www.higheradmission.com )
What stops this from happening? Albaugh tells me college admissions folks are cool to the idea. Aside from breaking from tradition, I suspect the admissions officers see this as a threat: if they reveal to a third party (Bid Brain) their admissions criteria, in the long run students will have a smaller perceived need to visit admissions offices and curry favor. Also, in reality currently admissions officers can use idiosyncratic criteria to alter admittances to favor students they prefer, giving them some power, and which they may feel will be threatened if a third party knows a lot about what the school does. Besides all of that, of course, Albaugh needs to overcome some capital expenses to mount his potentially highly useful but disruptive innovation.
As Albaugh put it to me, “One way or another, change is coming to Higher Ed.” Ideas like his can spur that needed change and competition.
Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University and is an Adjunct Scholar at the American Enterprise Institute.
