Econ in the News: Plummeting Admission Rates at Top Tier Colleges

In continuation with the college theme this week, I’m going to examine the rapidly falling admission rates to what people consider some of the best colleges in the world, especially in the United States. “Top tier” colleges, such as Stanford, the Ivy League, MIT, the University of Chicago, and other schools, have famously renown academic departments – and infamous odds of getting in.

Economists tend to reserve the phrase “Zero Lower Bound” for interest rates and the problems that occur there, but I think that the zero lower bound of admissions rates fits quite nicely here. Because college ranking systems (such as the U.S. News and World Report) factor in admissions selectivity when determining their college rankings each year, one of the easiest ways for a college to improve its rankings – and by extension, its brand value – is by having rapid decreases in its admissions rate (whether or not that’s a good thing is out of the scope of this post). The University of Chicago is a great example of this; because its admissions rate has rapidly fallen over the past decade, it is now tied for fourth place in the rankings, which as a result generates increased interest in the university. However, there does exist the “zero lower bound”, or point at which the admissions rate becomes a negligible percentage. Stanford is poised to break a 5% admissions rate, and similar caliber schools already have admissions rates in the low teens to single digits. This makes the resource we wish to get – a “top tier” college acceptance, in this instance – increasingly harder to obtain. The supply of these spots each year is near-fixed, but demand continues to shift upward.

Given that the number of high school students in the US has just about peaked, where is this demand coming from? Within the US, demand continues to rise due to incredibly generous financial aid packages at top schools, such as Stanford offering free tuition for any family with income under $125,000. By making the actual cost of attending the college very competitive for low-to-middle class families, an increased number of people consider it economically viable to apply. Outside the US exist large areas that still have much untapped potential for US universities. International students are increasingly hearing about the Ivy League and other extraordinary US schools from family, peers, and online college forums; with competition for their local schools even worse than in the US, high single-digit admission percentages may actually look better in comparison. As a result, many students from academically-competitive countries (like China and India) as well as countries with very wealthy families increasingly placing education as a top priority (like the United Arab Emirates and Nigeria) are turning to the US for a world-class education.

At some point approaching the zero lower bound, shouldn’t we see more students turning away from hyperselective admissions, believing it to be an inefficient use of their time, than increasing numbers of students who are attracted to the potential reward of admission? If that point exists, we haven’t hit it yet. An end to the upward shift in demand could come from a sudden change in the perceived social and economic benefits from a top tier college degree, or perhaps from running out of new groups from which to attract new applicants. Right now, though, a degree form one of the best US colleges is still considered an extremely valuable resource, and a lower admission rates is considered a valuable tool in promoting a more valuable college brand. So long as these factors hold true, admission rates will continue to decrease.

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