The Financial Aid Tool

According to an interesting piece by Daniel de Vise in the Washington Post, it looks like the preferences most Americans have for college is not actually cheaper tuition, but really high tuition.

Except they want their own tuition deeply discounted. According to de Vise:

Choosing a college isn’t, in the end, so different from buying an outfit at the mall. The customer wants a good deal. Nothing says “good deal” like a discount.

Colleges keep raising tuition [partly] so that they can offer ever-deeper discounts to prospective students. Offering the customer a 40 percent discount on an impossibly high list price accomplishes two things. It tells the customer the product has considerable worth and that it is being offered at great value.

But it’s not just the very smart, or the very poor, students who are getting these discounts on the official tuition rate. De Vise:

The average “discount rate” at private colleges is approaching 50 percent. That means the typical student (or, more likely, her parents) might be paying around $30,000 a year to attend a school whose sticker price, [including living expenses,] exceeds $50,000.

But actually reducing tuition is pretty risky, signifying to the students that the earlier tuition rate was actually improper. Merely offering better financial aid, in contrast, just makes it look like the college is more generous.

This is true despite the fact, as far as the accounts are concerned, this is the same thing. If almost half of students at private colleges are paying $30,000 a year for a $50,000 school, the actual cost of operating those schools is closer to that $30,000.

This is what financial aid has become, a levering tool for colleges to attract students, and a way of covering up what appears to be an attempt to gouge some students.

The thing is, parents and students want the high tuition-high discount because it’s standard, and that’s the best option they can get given the scenario. It’s doesn’t mean it’s their natural preference or it’s a good way for institutions to operate from a public policy perspective.

If you’re going to charge people a lot of money to do something that should be much cheaper, they’re going to prefer the option that’s officially most expensive but actually offers the best sale price, because it looks like value.

But the college discount rate doesn’t represent real value; it’s just the difference between two essentially random numbers on a page. It doesn’t have anything to do with the quality of education.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer