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It has been called the "Chivas Regal effect." In the '80s a new ethos evolved among university officials--and parents--that equated price with quality. A collateral force ensured that tuition would not only rise but also rise at the same rate for comparable schools. Colleges in the Ivy League have always kept close watch on one another, setting their tuition to make sure no one school became so much of a bargain that it drew the best students just on the basis of price. Less prestigious schools set their prices in relation to what the Ivies charged. Says Meyerson: "We were building up a kind of notion about colleges and universities that the higher the price, the better they were."
In 1980 inflation and Penn's tuition rose in concert; in 1981 they parted company. From the 1980-81 school year--when Meyerson retired--to the next, Penn's base tuition increased 15%, to $6,900, far more than the 10.3% boost in the cost of living. The following year the disparity became starker. Penn's tuition rose 16%, 2 1/2 times the slowing rate of inflation and more than three times the growth in median family income.
This disparity can be partly explained by the sudden drop in inflation, says Glen Stine, senior Penn budget official from 1982 to 1990, who is currently vice president for finance at the University of Colorado. "Nobody believed inflation would come down as much as it did, so you were always making projections of inflation that were perhaps too high." But from 1982 to 1989--long enough, presumably, for Penn's analysts to adjust to the new inflationary landscape--Penn's tuition hikes consistently outstripped inflation, rising annually from two to four times as fast.
The underlying premise of the Chivas Regal effect proved to be correct. "The theory of it was, basically, we will raise the tuition as much as the market will bear," says William Massy, a former Stanford University finance officer, now a consultant on the subject. And parents bore it. Throughout the '80s, says Meyerson, parents came increasingly to feel that a college education was a necessity, a direct conduit to a high-paying job. Easy financial credit, moreover, made it possible for parents to borrow large sums of money; doing so for college became more socially acceptable. From 1983 through 1988, the number of applications to Penn rose 25%, despite the cost. "It was a crescendo," Meyerson says. "People were willing to spend an awful lot more for collegiate education."
Penn, of course, was not alone in raising tuition. Despite having markedly different underlying cost structures, the top schools increased their tuition at nearly identical rates, behavior that persists today. From 1990 to 1994, Harvard and Princeton did a tuition tango that raised tuitions at virtually the same rate each year and consistently resulted in base prices within $10 to $195 of each other. Penn and Columbia did likewise, ending each year in an even steamier embrace--within $36 to $110 of each other--even though the costs of doing business in Manhattan are far higher.