College Admission Secrets

by on September 2, 2014 at 7:38 am in Economics, Education | Permalink

Most colleges are non-profits with unclear ownership status so their incentives do not lead to simple profit-maximization. Don’t be fooled, however, neither do colleges maximize student welfare or the public good. Instead colleges pursue some index of free cash flow, prestige, and administrative and faculty independence. The result is some peculiar outcomes. Most businesses, for example, don’t want to reject customers but colleges often encourage students to apply so that they can reject them. The Washington Monthly’s college issue has an excellent primer, Ten Ways Colleges Work You Over, that explains:

education moneyThe aim of the game for colleges is to boost the number of students who apply and can be rejected. By doing this, the schools see their acceptance rates fall, making them appear to be more selective—which helps them rise up the U.S. News & World Report rankings.

Take Northeastern University in Boston… [which] sends nearly 200,000 personalized letters to high school students each year. The institution then follows up these letters with emails, making it seem that the school is wooing these individuals.

… Nearly 50,000 students applied to Northeastern this year for 2,800 spots in the fall 2014 class…

Lowering its acceptance rates is at least one factor in why Northeastern has catapulted up the U.S. News rankings, rising more than 100 spots since 2002.

Profit-maximization (or maximization of free cash flow) is also not absent from the process. Many schools, for example, say they are need blind but that just means that admission officers don’t know the student’s income. Admissions officers, however, do know lots of information that is highly correlated with income including where applicants live, what high school they attended and the occupations of the applicants parents–not exactly what I would call blind.

Schools even use seemingly arbitrary bits of information to increase their revenues. The  Free Application for Federal Student Aid (FAFSA) form, for example, has students list the colleges that they are interested in applying to. Although the order is irrelevant, students often list in preferential order and the colleges see this information. As a result, colleges have an incentive to offer students who list their college first less financial aid simply because that is an indication that the student has a high demand for that college.

Brian Donohue September 2, 2014 at 7:54 am

Good article. Nothing really surprising though.

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Kenison September 2, 2014 at 9:03 am

… that “Most colleges are non-profits with unclear ownership status…” is surprising– and literally incredible. How could “ownership” be unknown in most cases?

But it’s certainly not surprising that the people who actually “run” these colleges day to day… pursue their own methods, objectives, and self-interest, rather than the ostensible goals of specific colleges set when they were established. Oligarchy always rules over time.

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Andrew' September 2, 2014 at 9:18 am

“ownership” be unknown in most cases?”

Why are you trying to change the subject to mortgage securities? ;)

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matt September 2, 2014 at 11:04 am

Quite simple, really. No one owns a non-profit. It is more of a question of who controls it, via the organizational structure and operating documents.
http://501c3.org/blog/who-really-owns-a-nonprofit/

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Kenison September 2, 2014 at 12:57 pm

Yes, practical ‘ownership’ certainly exists there but is more a question of who actually controls the college organization and its assets, beyond the legal trivia of non-profit incorporation. The Board of Directors has the clear ownership right to sell college assets & liabilities as they please, grant themselves lavish salaries & perks, and has wide discretion to dissolve the corporation and distribute its assets if they choose. The National Football League (NFL) like these colleges is a non-profit corporation — but most people would strongly dispute the idea that it has no owners… and is really somehow owned by the general “public”.

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mkt September 3, 2014 at 5:27 am

The Board of Trustees of a college has important decision-making powers over its assets, but they do not own those assets. An owner can sell the assets and walk away with the proceeds. The Board of Overseers at Harvard, even if they decided to liquidate the university, would not be permitted to walk away with the proceeds. They have fiduciary responsibilities.

As for the lavish salaries and perks, there are a few examples of trustee boards which aim big college contracts at businesses that they own, and also a few examples of college presidents pulling down big salaries (still a pittance however compared to the salaries of CEOS, or for that matter the football team’s head coach).

What is much more common however is the exact opposite of the scenario that you describe. At private non-profit colleges, the trustees are usually expected to be major donors. They don’t extract money from the college; they give money to the college.

Alex’s statement stands. It’s actually not horribly inaccurate to model colleges as profit-maximizing entities. But that profit goes to the endowment; it does not enrich the trustees, for exactly the reason that Alex stated: they don’t own the college and they don’t get to claim the assets nor the profits (except for the occasional sneaky end-around such as those sweetheart contracts).

brad September 4, 2014 at 3:26 pm

It doesn’t go to the endowment, it goes out the door in salaries. The university is best modeled as a partnership — like a big law firm or an old style investment bank. The partners are the tenured faculty and the senior administrators.

rayward September 2, 2014 at 8:24 am

The higher education industry. One paradox is (the appearance of) selective admissions coupled with the need for a critical mass (of customers). Where would the higher education industry be without the lower half, the often maligned underachievers? It would collapse. One might question whether the relatively small elite colleges depend on the lower half, when their “underachievers” (the lower half) are far above the “average”, or even the top, of the large, mostly public, universities? My answer is that those small, elite colleges cannot exist in the absence of the large, mostly public, universities. What I fear for the higher education industry is that it is unprepared for what’s ahead, as the lower half, disappointed with the combination of high tuition (and student debt) and few opportunities upon graduation, choose better alternatives, leaving the higher education industry without the critical mass that makes it all possible. Goodbye, Columbus!

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NPW September 2, 2014 at 8:30 am

I had a Prof tell me that the same percentage of people are college educated today as were 50 years ago, because only those who attend Ivies are educated.

He was my Prof. We were not at an Ivy. I declined to ask him if that meant he wasn’t an actual professor.

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andrew' September 2, 2014 at 8:39 am

Nearly all my professors were produced by ivies or top schools of the major, so it is the same right?

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Careless September 3, 2014 at 7:06 pm

But the ratio of population to American students at the Ivies is much higher now, so it should be lower, not unchanged.

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Marie September 4, 2014 at 12:15 am

He could have figured that out if he’d been a real professor.

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Scott H. September 2, 2014 at 11:34 am

Let’s not get overly dramatic. The only thing that would “collapse” in your scenario is the rejection ratio. I’m sure another rubric for greatness in higher education can be found.

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chuck martel September 2, 2014 at 8:33 am

The huge ratio of applications over admissions is what keeps tuition rising astronomically. The University of Minnesota accepts a little over 5200 freshmen each year out of 35,000 applicants. As long as those numbers are in the same relationship tuition will continue to climb.

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Steve-O September 2, 2014 at 12:09 pm

Don’t they have nearly 50,000 students? And not everyone who is accepted matriculates. That number seems low.

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Careless September 3, 2014 at 7:08 pm

35,000 undergrads. So it is a bit low. If anyone hated UM, I suppose we could get a 7 years joke.

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Marie September 4, 2014 at 12:17 am

Transfer students? I think state schools in states with heavy community college systems get a lot of that? Just a thought.

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Axa September 2, 2014 at 9:04 am

What happens if an student applies to more than one university for admission? If the student applies to 3 universities, gets rejected in 2 but anyway lands a place in the last one. Is there anyway to differentiate between inflated demand (students applying to more than 1 university) and real college demand?

Numbers get complicated when the College Board recommends that students should apply to 5 to 8 colleges. https://bigfuture.collegeboard.org/get-in/applying-101/applying-to-college-faq

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NPW September 2, 2014 at 12:14 pm

This

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Kevin September 2, 2014 at 1:24 pm

Agreed. A statistic that doesn’t seem to get much play is the percentage of students a university must accept to fill their slots. It sounds equally impressive if two schools each get about 50,000 applicants and accept 5000, but if one school only has to send out 6000 acceptances to fill those 5000 slots, while the other school sends out 15000 acceptances, then there is clearly at least the perception (by the students) of a huge difference in value between those two schools.

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Sbard September 2, 2014 at 5:37 pm

The industry term for the statistic you are discussing is “yield”. Part of the reason you don’t hear much about it is because US News lowered the weighting of yield in its rankings several years ago after a number a mid-tier schools were playing games with that figure to boost their rankings with things like “priority wait lists” or in some cases outright rejections for overqualified candidates who they thought were likely to end up attending more prestigious institutions.

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Tom September 2, 2014 at 2:53 pm

I have come from the future to tell you that colleges in the years to come will send out prefilled application forms to the high school population, then pay them a cash consideration to send them back in.

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Ed September 2, 2014 at 9:08 am

Supposing a normal, officiall for-profit, business did this? Supposing airlines heavily encouraged people to buy tickets for flights that were already overbooked, including using direct mail solicitations? Would would happen?

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Locke September 2, 2014 at 10:15 am

The industry would probably find itself quickly regulated.

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Mo September 2, 2014 at 10:30 am

Do you mean like retailers advertising door-buster type sales on Black Friday where they specifically have limited supplies on loss leaders to get people in the door and create a frenzy? Or Apple advertising sold out devices with a 3 week waitlist on TV?

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andrew' September 2, 2014 at 10:35 am

For the analogy to work, there would need to be a third party advertising the crowd as a signal of quality. It almost works. It mostly breaks down at the taxpayer subsidy and loan inflated prices and lack of proper competition and market discipline though.

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DanC September 2, 2014 at 9:25 am

I would think the yield rate, (% of acceptances that actually attend a school), is a better indication of market demand then acceptance rate alone.

Of course any of these can be manipulated by skilled admissions departments.

Graduation rate can be a measure of dedication to students after admission.

Perhaps most important is how well you can use the networks of the school, given your background, after graduation. i.e. family connections, regional connections, industry connections, etc.

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Ray Lopez September 2, 2014 at 9:37 am

But this gamesmanship works both ways. I sent my application into Harvard, knowing full well they would not accept me, so I could truthfully say: “I applied to Harvard”.

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Peter Akuleyev September 2, 2014 at 10:01 am

How does telling people you applied to Harvard help you or enhance your status? Are you hoping people will assume you turned Harvard down?

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Leon Kautsky September 2, 2014 at 10:23 am

Living in the Philippines appears to have significantly warped Ray Lopez’s view of status and hierarchy in the West.

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andrew' September 2, 2014 at 1:01 pm

Maybe he’s not trying to impress men of the West.

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msgkings September 2, 2014 at 3:35 pm

Why do Filipina hookers care where you applied to college? Does that change how much you have to pay them?

FC September 2, 2014 at 4:13 pm

It’s a weak signal anyway. When she asks your opinion of the “Symposium” and realizes that you haven’t even read it she’ll hand you your money back and tell you to go gnothi seauton.

msgkings September 2, 2014 at 4:46 pm

Perfect spot for this link: http://www.newyorker.com/magazine/1974/12/16/the-whore-of-mensa

Woody Allen used to be absolutely hilarious once, it’s hard to believe.

Brian Donohue September 2, 2014 at 3:39 pm

Did you know Ray pre-Phillipines? I suspect he was always this way.

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Andrew' September 3, 2014 at 12:53 pm

Did you know the Phillipines pre-the most interesting man, or close, named Ray in the Phillipines?

The Other Jim September 2, 2014 at 10:41 am

If any US business was run the way a typical university is run, all of the administrators would be in prison, and all of the assets would be seized.

But a college? Hey, have some tax-free land to run it on! Carry on, lads!

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Alexei Sadeski September 2, 2014 at 10:45 am

Universities are friends of the people, whilst businesses exploit the people.

This is simple stuff, comrade.

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Lord Action September 2, 2014 at 10:48 am

Would it be legally acceptable for regular firms to charge $100 for each filed job application?

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Marie September 3, 2014 at 12:23 am

I was thinking this.
What’s the down side for a university in encouraging application? It’s like entry fees for creative writing contests, no?

What’s interesting is how the consumer base for higher ed seems o.k. with being treated as a bunch of marks.

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JCW September 2, 2014 at 12:47 pm

A lot of these changes took place as part of the larger shift to “corporatize” higher education in the last 20 or so years. Right now, you’re basically getting the worst of both worlds.

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Marie September 3, 2014 at 12:20 am

What’s your ETA, in that scenario, for when it will all hash out and settle down?

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Albigensian September 2, 2014 at 11:00 am

What other business can demand you tell them how much you can afford to spend before setting the price?

Perhaps prices would be more reasonable if the FAFSA were abolished?

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NPW September 2, 2014 at 12:13 pm

What other business partially pays for the product?

And the process is voluntary. One could just pay full price.

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andrew' September 2, 2014 at 12:59 pm

Not exactly.

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J September 2, 2014 at 2:21 pm

That’s just….ack!! No! You’re getting ripped off!

I don’t want to type out the whole thing, but just, price discrimination, car dealerships, oligopoly, applicant income visibility, price collusion, blah blah blah. You know how it goes.

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Andrew' September 2, 2014 at 2:59 pm

Or just the education signaling versus exclusivity thing.

If education did what they said it did it would pay for itself to do it to everyone.

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byomtov September 2, 2014 at 10:00 pm

One could, but most couldn’t.

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dead serious September 3, 2014 at 7:56 am

Health insurance?

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dead serious September 3, 2014 at 7:57 am

And medical treatment?

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Dave September 2, 2014 at 11:50 am

I had a similar thing happen to me when applying to law school. I got a 165, which is certainly decent and got me into a school I really loved (it’s true; I really enjoyed law school!), but it’s definitely not enough to make one a strong applicant to truly elite schools (absent some minority status that this straight white guy definitely lacks). But it was, apparently, enough for Harvard to think they could con me into applying with an email asking me to “based on my impressive test scores.”

I was pretty appalled with such an obvious scam: they clearly wanted the $35 application fee for someone they could reject in just a few short seconds, which would add to their selectivity.

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Steve-O September 2, 2014 at 12:12 pm

Maybe they just thought you were gay.

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Urso September 2, 2014 at 12:41 pm

I had a similar experience, with a similarly ranked school, except they even offered to waive my application fee. This made me think I was a shoo-in; they obviously desperately wanted me to apply. So I did. Alas, summarily rejected.

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D September 2, 2014 at 2:03 pm

I wonder if there a class-action lawsuit for encouraging people to apply and pay an application fee when the school knows the chance of hiring is remote.

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msgkings September 2, 2014 at 3:38 pm

You’d think there’d be plenty of class-action lawyers who were themselves victims….

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Turkey Vulture September 2, 2014 at 5:21 pm

As long as you don’t say you enjoyed most of the people at your law school, I believe you.

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Stu Pidazzo September 3, 2014 at 12:41 am

I had 99th percentile scores and had the temerity to apply to the top three schools as a non-alum, non-rich, white guy. Pretty sure they have an auto-reject button for suckers like that.

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Lloyd Cohen September 2, 2014 at 1:30 pm

Alex,

You might find my article of interest: .Comments On The Legal Education Cartel, 17 J.C.L.I. 25 (2008). Alas I am so old-fashioned I don’t have a link. It deals with law schools specifically but is in many ways applicable to universities. A core proposition is that the de facto owners of most of these institutions is the faculty.

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John B. Chilton September 2, 2014 at 3:15 pm

Isn’t “admissions secrets” redundant?

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Aboss Noor September 2, 2014 at 9:42 pm

I think its redundant but with numbers like northeastern then you can understand how much money there making by these secrets, if people knew then would as many people apply?

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Aboss Noor September 2, 2014 at 9:40 pm

I feel that the fafsa form is simplified in the sense to help teens out of high school learn there chances. Applying to top schools and then also including your local community college, just shows that you don’t know what your going to do and are financially unstable. Back to schools wanting there acceptance rate to be the reason for them to appear on the U.S. news ranking just shows that they don’t care about there students rather numbers. do they do it for the application fee because that adds up for example Northeastern has 20,000 applicants at $20 application rate that’s $400,000 and since ownership is unclear what fund does that go to?

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