Few students pay the published tuition price at private colleges because of the plethora of financial aid available to all students. This is also true for many students at public colleges where there are now many programs that offer free tuition especially at community colleges and where tuition is covered by the Federal Pell grant for most low-income students. At most private colleges, with the exception of the most competitive such as the Ivies and little Ivies, almost all colleges provide both need-based and merit-based aid to almost all of their students and, at many institutions, to all of their students irrespective of financial need.
According to a new study by Sallie Mae and Ipsos, almost half of all families think that financial aid is only for those with financial need. According to this same study, “about 6 in 10 currently enrolled undergraduate families report eliminating a school from consideration based on cost before deciding which colleges to research or apply to and thirty-four percent of college-bound families are considering only public colleges and universities.
Only 18% of families believe that the amount families actually pay for college is lower than the price that is advertised by the school and 70% of families believe that private schools are always more expensive than public schools. The facts show that private colleges are heavily discounted. The average discount rate for new freshmen, according to the 2020-21 survey by the National Association of Colleges and Universities Business Officers, is 55.3% and 89.7% of new freshmen receive financial aid. Thus, although the average private college tuition is $38,135, the average net tuition for freshmen is only $15,973 compared to the average four-year public college tuition of $10,338. The actual difference between the published price at private colleges and universities is more than twice the discounted price; and the discounted price is only about $5,000 more than the tuition at public four-year institutions.
The question one must ask is why private colleges continue to increase their price when almost none of their student are paying anywhere near the published price and the high price is actually discouraging many students from even looking at the schools. According to the College Board Report “Trends in College Pricing and Financial Aid,” the average tuition and fees at private four-year colleges between 2006-07 and 2020-21 increased from $29,750 to $38,070 while the net tuition actually declined from $16,540 to $14,990. The rationale for continuing to increase tuition are three-fold: some think that students and families resonate more to the amount of the aid offer rather than to the net price; some believe that families equate price with quality and thus the higher the price the more attractive the institution will be and the third reason is that most schools increase tuition every year so that they can get additional revenue from continuing students. Most schools do not increase the original aid offers to students thus, as students progress, they pay the tuition increases thus netting the schools additional revenue from upper-class students.
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It is time that schools reconsider this strategy and begin to charge a price which is must closer to the net price that they receive. This will provide for more transparent pricing and will encourage more students to look at private colleges thus providing students with a wider range of choices.