How Spending More on Academics Can Actually Hurt College Enrollment

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You’ve probably heard of college described as little more than a “party,” or perhaps as a “country club” where the emphasis is on socializing and top-notch campus amenities, not studying and a top-notch academic environment. It turns out there is good reason why many colleges today put more focus on fun.

From a purely business standpoint, it not only makes sense for certain colleges to increase spending on high-end student amenities like health clubs and smoothie bars, it appears to be economically harmful for them to put more money toward higher-quality instruction and better overall education for students.

That’s one of the findings in a new National Bureau of Economic Research paper entitled “College As Country Club: Do Colleges Cater to Students’ Preferences for Consumption?” To answer the question in the title, the answer seems to be a resounding YES. And why wouldn’t they? Every business caters to its clientele, after all.

This doesn’t necessarily mean that every college is doubling down on expenditures for sports, climbing walls, and plush student lounges and dorms, while cutting back on money aimed for top instructors and hi-tech research labs. Instead, colleges seem to be likely to skew spending in ways that most appeal to their student base. “More selective schools have a much greater incentive to improve academic quality,” the report’s authors write, because that’s what many of the institution’s students tend to value most. “High-achieving students have a greater willingness to pay for academic quality.”

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But what about colleges that aren’t exactly in the realm of the Ivy League? The report states:

Less selective schools (particularly privates), by comparison, have a greater incentive to focus on consumption amenities, since this is what their marginal students value. In fact, our estimates suggest that less selective schools will actually harm enrollment by spending more on instruction.

To clarify, most students love the country club-like “consumption amenities” that are nearly ubiquitous on college campuses. But the authors say that “wealthy students are more willing to pay more” for them, while the nerds and high achievers prefer that their tuition and student fees go toward a better academic experience. The students at less selective colleges, meanwhile, are not only attracted to luxury campus amenities, they are turned off by schools that put more focus—and dollars—toward academic quality.

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To use the study’s economic jargon, this all amounts to “demand-side market pressure,” in which schools are only trying to deliver what students want most.

As a result of their research, the authors call into question the idea that “the fear of losing students is believed to compel colleges to provide high levels of academic quality.” The findings indicate that if some colleges are worried about losing students, they shouldn’t bother increasing academic spending. The money would be better spent on another climbing wall or smoothie bar instead.