2019 Admissions - Application spending
How much are students spending on application fees? On the application process?
Application fee spending by students hit its all-time high in 2019, up 61% since 2009
College application fees have grown slowly; spending is driven by volume (more applications)
A rough estimate of total direct spending by students on the college search process is worked up
We will start this post by looking at application fee data, the portion of college search spending that can most accurately be quantified, and move on to hazier spend categories related to the search, providing a preliminary approximation of annual costs associated with the activity.
Application fees have been increasing solidly, with total fee revenue hitting a record high of $557 million in the 2019 cycle.
This compares to $347mm in 2019, an increase of 61% over ten years.
We had estimated aggregate net tuition and fees for US undergrad programs to stand at $136 billion in 2018, excluding revenues from residential housing, athletic programs and other ancillary items, so the $537mm in application fees collected by colleges that year is a tiny slice of the total college cash streams from undergrad programs.
The increase was driven by students filing more applications, not be colleges hiking their actual fees. In fact, the average application fee rose only 11% over the decade, far below college pricing increases and general US inflation, from $43.31 in 2009 to $48.41 in 2019. This low rate of inflation illustrates how colleges are competing for students and making sure not to discourage applications.
US News & World Report cited an average application fee of $44 for 2020 based on a partial sample without detailing the weighting used to calculate the average. The numbers above are based on reported data from 3,600 institutions weighted by applications.
As mentioned, students submitted more applications:
Which in turn drove up the average amount one of the 1.6 million students enrolling in selective colleges spent on application fees:
Average spending per student stood at $220 in 2009. 2019’s $355 represents a 62% increase over 2009. (Selective here means any college that is not open admissions.)
Other application spending - Testing
The other single major piece of application spending by students are standardized tests. How much is spent collectively on these tests? The big testmakers, ETS, the College Board and ACT, do not report revenues by operating line, so we are forced to make an informed estimate and qualify that the numbers as provisional.
ETS: One older general journalistic source provides an estimated of $600 million annually from the SAT for ETS. This number makes sense in the context of their consolidated financial reporting.
ACT: ACT, a smaller organization than ETS, reported overall revenue of $288 million in 2018 for all of its product lines. (ACT’s revenue had been dropping in recent years, leading the organization to run an operating loss.)
College Board: The College Board reported revenues of $1.073 billion in 2018 with about half of that coming from AP tests. (There’s a legitimate argument that AP costs are part of the college prep process, so let’s clarify that we are counting direct costs only: costs that are incurred as a direct consequence of applying to colleges.)
Pre-COVID, the three testmakers likely generated $1.2-1.3 billion annually from their testing services from undergraduate candidate revenues alone. These revenues have fallen by at least 40% (see this note from the Common App CEO Jenny Rickard) after the post-COVID expansion of test optional policies. If that level holds, the testmakers would generate much lower revenues, falling to a level roughly in line with total application fees paid to US selective undergraduate programs.
Overall application spending
Other application costs from test prep, advisory services and financial planning are difficult to estimate given the fragmented state of the marketplace. Test prep firms generally do not disclose their revenues and the category is fragmented, with a score of medium to large players. But the numbers that are available suggest test prep is not a huge business in dollar terms. For example, Kaplan’s market-leading test prep business reported annual revenue of $244 million in 2019, including training for graduate program tests like the LSAT. Spending on college search consultants and financial planning is even more difficult to estimate. We will use $400-600 million as a placeholder for annual spending on consulting, planning, test prepping and other services combined.
Pre-COVID, we would estimate total direct annual spending on college applications by students in the range of $2.2-2.4 billion. Post-COVID and post-test-optional, initial reports suggest testing revenues will drop by about half but, with soaring application volumes and falling acceptance rates at highly selective schools, some of that savings will be reinvested in more applications. Our best guess - we wouldn’t deign to call it an estimate just yet - is that direct student spending on college search will fall from $2.2-2.4 billion to $1.8-2.0 billion in coming years.
Is this level appropriate?
That $1.8-2.0 billion would represent roughly 1% of undergrad program revenues for the US industry (this time including tuition, all room & board and ancillary items, unlike the figure mentioned earlier). Free services provided to many college applicants, such as high school guidance counseling, supplement this spending.
Is the 1% appropriate? To put this in context, consensus estimates on costs associated with buying a house or condo - also a large, complex purchase imbued with personal significance - lie in the range of 2-5% of the house value. That range indicates college search costs of 1% of the ultimate purchase amount may be too low. But is the comparison of college search with home buying costs appropriate? That’s for the market to determine, but the comparison does suggest that high school graduates may be spending too little on their college search, not that they are overspending.
Let’s end with a few general observations:
Direct student spend on college search will fall by several hundred million annually as a result of the test optional change, absent other changes. This provides room in students’ budgets to spend on other items - such as more applications.
Students spending 1% of net college costs on their search is if anything too low.
CTAS’ latest projection of the average Net Cost of a Class of ‘25 Bachelor’s degree is $102,284. The 1% figure indicates the average college student spends about $1,000 on the college search, including application fees, tests (ex-AP) and advisory fees. (Of course, this ~$1,000 is not evenly distributed across applicants.) Roughly $200-$300 of that $1,000 is left over after applications and testing for these advisory fees on average. Given the extra costs of a bad college fit and the savings an informed search strategy can generate, the couple of hundred dollars spent on advisory services seems dramatically too low, just looking at the question financially and before taking into their educational or lifestyle impact.
Test-optional policies seem like a net savings for students and a small revenue gain for colleges at first glance but, given the logic of the acceptance-yield-price dynamic, the long-term impact will be complex and perhaps not financially beneficial to higher ed overall.
We would also expect to see a subset of selective colleges reprioritize to emphasize board scores over high school GPA. Sophisticated segments of the higher ed industry and some portion of the public disagree with the move towards test optional. Product specialization would typically emerge catering to this pro-testing segment of employers, academics and students. For enrollment-strapped private colleges, bucking the shift to test optional is that most precious of gifts, a market opening in trying times.
The next post will look at specific colleges - who charges the most for applications and which colleges charge fees yet accept nearly everyone.
Read this post and others at the CTAS site.