Buzz
You’re planning a trip to Tokyo, so you turn to Google Flights for some research. Tickets are priced at around $800, but you close your browser, intending to check again later. A couple of months pass, and now those same flights are $1,200. What happened? This is called price discrimination, and it’s the same strategy colleges use to sell tuition.
How Colleges Set Their Tuition Prices Like Airline Tickets
Price discrimination is the practice of offering a product at varying prices to optimize profits, typically based on what the customer is willing to pay. For example, airlines offer a range of ticket prices, which leads customers to constantly search for the “best time to buy.” A flight that costs twice as much on a Saturday compared to a Tuesday is a result of this strategy. Airlines adjust their prices according to demand—knowing last-minute buyers will pay more, they raise prices as the departure date nears. They also leverage business and first-class options to maximize revenue for essentially the same flight.
College pricing works in a similar fashion, as reported by the New York Times:
Similar to airlines, colleges don't want to charge the same price for every student slot. Their goal is to find the wealthy student who is determined to attend and charge her family a premium, then work their way down the demand curve, charging each subsequent student accordingly. To do this, they set tuition high and offer discounts. There’s a whole industry of costly consultants who guide colleges on how to implement these strategies, borrowing theories from the airline industry.
Colleges use financial aid forms to determine how much they can charge you. Of course, they phrase it more delicately—they claim they need to calculate the “optimal financial aid package” for each student.
Why Price Discrimination Is a Problem
The issue is, colleges typically consider your parents' assets and income when determining financial aid. If your parents aren’t covering the costs, or if they have significant expenses of their own, you might find yourself stuck in the “too rich for financial aid, too poor for college” scenario.
This system also poses challenges for colleges, and as the New York Times reports, it may soon be on the decline:
Once you charge each customer the maximum they’re willing to pay, there’s nowhere else to go... Increasing tuition by $100 while also raising the average discount by $100 leaves you no better off. Price discrimination might have been a temporary strategy that allowed small private colleges to reduce costs, develop new programs, and leverage information technology to expand their reach. However, for many, it turned into a way to delay an inevitable reckoning, which now seems to have arrived.
Moreover, only 12% of students actually pay the full advertised price for their degree.
What Can You Do About It?
In the meantime, it’s useful to understand how this system operates, as it opens up opportunities for students to negotiate.
Negotiate with an Appeal
Administrators have the ability to modify FAFSA data, and you may be able to negotiate a better offer with an appeal—a letter explaining why they should reconsider your situation.
If you can present a valid need-based or merit-based reason (such as job loss, medical expenses, or offers from other schools), you might secure a better financial aid package. Here are some tips for submitting your appeal, according to Student Loan Hero:
Keep your letter concise and stick to facts rather than appealing to emotions.
Provide a clear breakdown of your finances. Explain the tuition gap you're facing, showing your need for a better offer. Avoid specifying a dollar amount.
If you’ve received other offers, let them know their school is your top choice, and if they can match the offers, you’ll commit to enrolling.
Attach any third-party documentation if available.
Lastly, refer to the process as “professional judgment” or an “appeal.” Avoid calling it “negotiating,” even though, in essence, that’s exactly what you're doing.
Use This FAFSA “Loophole”
Certain assets are not considered in the Free Application for Federal Student Aid (FAFSA), which is significant because it opens a sort of loophole for securing a better financial aid package.
Gary Carpenter, executive director of the National College Advocacy Group, told Bankrate that families can actually increase their eligibility for aid by transferring certain assets before applying:
“The FAFSA form does not assess the family home. It does not assess retirement accounts. It does not assess life insurance policies or annuities,” Carpenter explains. “Additionally, personal assets like cars, clothing, and furniture are not assessed either.”
So if you’re concerned that your family’s assets might affect your tuition affordability, your family might want to consider maximizing retirement accounts or paying down the mortgage, according to Bankrate.
Of course, not everyone is in a position to do this—your family might need those assets for other expenses—but the “loophole” is still there. Even if you can’t take advantage of it, it helps to be informed, and understanding how colleges price tuition can at least give you an idea of what to expect.
