College Uncovered, Season 2, Episode 3

As they struggle to fill seats, universities on average dole out more than half of the revenue they collect from tuition in the form of discounts and financial aid.

If a private company discounted its products by more than half, it would be out of business. It’s an incredibly self-destructive model, but no one seems willing to be the first to stop doing it.

This financial arms war among colleges is draining so much revenue that many are losing money even as they increase their tuition. That’s because almost no one pays the advertised price; nearly all students, including those whose families can afford to pay, now get discounts and institutional financial aid. Not only is this pushing colleges into insolvency; it discourages many students and families — particularly low-income ones — from considering a college, since they see only the advertised cost and don’t realize they’d almost certainly pay a much, much lower one.

These many machinations are beginning to slow down the annual increases in the cost of college. Some institutions are even lowering their prices. In this episode of College Uncovered, The Hechinger Report and GBH will show you how to take advantage of the college pricing chaos.

Listen to the whole series

Scroll to the end of this transcript to find out more about these topics, with links to additional helpful information — including a tool to help you search for calculators that will tell you the likely net price you will pay at any college, based on your income.

Jon: So we’re here at Vinyl Index, which is a very hip record store. They sell new and used vinyl, in the very hip boom market section of Somerville outside of Boston.

Kirk: And you’re looking for some ’80s albums? Maybe Chicago?

Jon: And we are not looking for some ’80s albums, but we’re looking for some rare albums, and we’re going to see what kind of a discount we can get.

Kirk: You’re going to haggle.

Jon: We’re going. To haggle.

Aaron Wetjen-Barry: I am Aaron Wetjen-Barry, aka Aaron-eous. I work here at Vinyl Index, ordering new and used music.

Kirk: Aaron-eous. Can you explain the nickname?

Aaron Wetjen-Barry: So, I started in college, actually, but I’m a visual artist, and I’m kind of from the hip hop scene where we all have our, like, hip hop names.

Jon: So tell me what the most expensive album is that you have here?

Aaron Wetjen-Barry: So, we sell a lot of, say, Grateful Dead box sets here. So, you know, like, something like this. This record just has, like, eight records in there. So it’s, like, four hours of music.

Kirk: How much does that go for?

Aaron Wetjen-Barry: This one goes for $200 even.

Jon: So can we get this for 56 percent off?

Aaron Wetjen-Barry: Unfortunately, the mark up is not that good, so it wouldn’t be able to do that.

Jon: Yeah, so what would happen if you sold everything here in this shop for 56 percent off?

Aaron Wetjen-Barry: We’d probably be out of business in a week.

Jon: That makes pretty logical sense if you do the math. I mean, a business can’t give back more than half of what it makes and stay in business.

Kirk: But that’s exactly what colleges and universities are doing in a complicated and largely unknown pricing strategy that makes seemingly no logical sense at all. Or does it?

This is College Uncovered from GBH News and The Hechinger Report podcast, pulling back the ivy to reveal how colleges really work.

I’m Kirk Carapezza from GBH.

Jon: And I’m Jon Marcus with The Hechinger Report.

Kirk: We’re calling this episode “Half Off Full Price.”

Jon: We’ve been talking on this podcast about how families can negotiate their way into a discount on the cost of college, but how much money colleges are actually giving away might come as a surprise.

Colleges give back, in the form of tuition discounts and financial aid, 56 percent of the revenue they take in. And that’s the average. Some are giving overall discounts of 60 or even 70 percent.

The colleges don’t call them discounts. They call them scholarships. And that’s how families see them when they get offered their financial aid. But those are just fancy ways to reduce the price, the same way retailers do when they’re trying to attract more customers.

Kirk: This discounting practice started back in the ’90s, the last time colleges faced a really big enrollment decline. Today, both public and private colleges do it.

Will Doyle: Many people thought a lot of private colleges were going to go out of business at that time.

Kirk: Will Doyle is a professor of higher education at Vanderbilt University.

Will Doyle: What the private colleges did, though, was they figured out that the worst thing in the world is an empty seat. If they could figure out what somebody was willing to pay for a seat and charge them that, then they might as well fill every seat and get what they could for it.

Kirk: So Doyle says that’s exactly what they did.

Will Doyle: They looked at what people in different categories were willing to pay and figured out what they could charge them. And by doing that, they ended up being able to fill those empty seats. And they survived what was supposed to be an incredibly difficult time, actually pretty well.

Kirk: Notice that he isn’t saying that the money goes to the people who couldn’t pay the full freight, just that they might be on the fence about picking a school. So colleges have steadily shifted some of their financial aid to people who might not actually need it, just to get them to enroll.

Will Doyle: Colleges actually will charge a little less for the highest-income students, the ones who are closest to the ability to do full pay, because just a small discount, a small honorific discount where you’ve told the student they’ve gotten the scholarship, can tip the decision for that student to attend. Many of the highest-income students with not necessarily great test scores actually do receive some amount of financial aid.

Jon: Right, just like the way the person sitting next to you on an airplane might have paid a completely different price for the flight. From the college’s point of view, it sort of makes sense. You need to have at least some people who can pay at least some of the tuition.

Brett Schraeder: But if you don’t give them anything, they may never show up. And so then you don’t have any revenue from that student to help with your mission, to help serve other students, to pay your faculty.

Jon: That’s Brett Schraeder, managing director for financial aid at the consulting firm EAB, which advises colleges about this kind of thing.

But as the years have gone by, this approach has sort of trapped many colleges and universities in a cutthroat competition for students to whom they have to give more and more discounts and financial aid. And continuing to advertise a very high list or sticker price that almost no one pays is discouraging some students from even applying to colleges that might be a really good fit for them.

Kirk: Okay, so what does all of this mean to you if you’re a student or a parent? Well, you could be missing out. One survey found that a majority of families don’t know that colleges discount their price. Another, by the student loan company Sallie Mae, finds that nearly 80 percent of people eliminate a college from consideration because they see the list price, and they think it’s too high.

Brian Rosenberg saw this firsthand from the inside.

Brian Rosenberg: I am president emeritus of Macalester College and author of a recent book, Whatever It Is, I’m against It: Resistance to Change in Higher Education.

Jon: Rosenberg says the whole pricing mechanism is complicated and baffling to a consumer.

Brian Rosenberg: And so students, particularly first-generation students, students who aren’t particularly sophisticated, will simply look at the fact that a college’s posted price for tuition, room and board of $70,000 and say, ‘Well, I’m not even going to think about that.’

Jon: That’s right — even though almost no one actually pays that price. I ran the federal data, which, as you know, Kirk, is something I like to do in my free time. And there are 428 colleges and universities at which not a single incoming freshman pays the full price.

Kirk: So that leads to another little secret you might not have noticed. Yes, it’s true that the price of tuition and fees has been going up at three times the rate of inflation, but those price increases have suddenly leveled off.

In 2022, average tuition actually went down, when adjusted for inflation.

Let’s be clear. Paying for college is still scary and expensive. But the point of all this is that it doesn’t cost as much as people sometimes think. And the price? It’s pretty much stopped going up.

Jon: I mean, as you said, college is still really expensive. Tuition, room, board, books and other costs comes to nearly $60,000 a year at private nonprofit colleges and nearly 30 grand at public ones. But colleges are giving back more and more of their money to fill seats. Which means they’re running into money crunches of their own.

So how do students and their parents take advantage of this practice? We asked one of the top experts who helps low income and first-generation students do it.

Scott Del Rossi: My name is Scott Del Rossi and I am the vice president of college and career at College Possible. College Possible is a national nonprofit, that provides college access and college success coaching to about 25,000 students across the country.

Jon: So how can a family find out how much of a discount they might get from a particular college? I mean, short of actually applying.

Scott Del Rossi: If you navigate to their financial aid page. Oftentimes they’ll have a tuition calculator that you can enter in your family’s income, yearly income. And that will let you know how much college will typically cost for a family at that income.

Jon: That’s true. The colleges are actually required by law to provide these net price calculators. They’re supposed to tell you what you’ll actually pay after discounts and financial aid based on your family income. And for the most part, they’ll give you the right general idea.

But a study by researchers at the University of Pennsylvania found that some of the links didn’t work, or the prices were out of date, or they didn’t say what year they were from. So don’t assume they’re right on the money — so to speak.

Scott: Absolutely. Ironically, I was looking for one for the other day, and it was very much buried on the website. You kind of had to know it existed in order just to find the calculator.

Kirk: So now you know, and just knowing about these discounts can be a big help in getting the best deal, especially with many colleges so desperate for enrollment. Here’s Scott Del Rossi again.

Scott Del Rossi: We always recommend to students and families that they apply to more than one college.

Jon: You mean, so they can pit one against the other?

Scott Del Rossi: You can always present that as, you know, ‘Hey, these are the things that I really hope that you consider, and reevaluate the financial aid award. And these are the types of awards I’m getting from other colleges and universities.’

Kirk: This growing discount rate is a major reason why a lot of them are closing or likely to close, which we’re also going to be talking about this season.

Don’t just take it from us. We asked Brian Rosenberg, the former president of Macalester, who had to deal with this problem, whether a 56 percent average discount rate at private colleges is too much.

Brian Rosenberg: It’s unsustainable.

Jon: So why don’t colleges stop?

Brian Rosenberg: They have no choice. I mean, the obvious question that a lot of people ask is, ‘Well, if your discount rate is 50 percent, why don’t you just cut your sticker price in half?’ And some colleges are doing that.

Jon: You’re talking about a tuition reset.

Brian Rosenberg: A tuition reset.

Jon: A tuition reset is the higher education’s sort of typically wonky way of describing lowering the price. And as Brian Rosenberg says, some colleges are trying that now, charging everyone the average that people were paying anyway without playing the game of showing one price and charging another one.

Kirk: Especially in places where they’re running out of students, like in the Northeast and the Midwest. That’s where an enrollment cliff is on its way, as the number of 18-year-olds declines.

Susan Stuebner: My name is Sue Stuebner, and I’m the president of Colby Sawyer College, which is in New London, New Hampshire.

Jon: Last year, Colby Sawyer lowered its advertised price by more than 60 percent, down from about $46,000 to $17,000 a year, not including room and board. Not a single student was paying the full price anyway.

Susan Stuebner: As institutions’ tuition prices go up, you’re losing the chance to have a conversation with more and more families. And so the pool you’re actually drawing from gets smaller and smaller. And we looked around the marketplace and our listed or sticker-price tuition was among the highest in New Hampshire as well as even in in New England. So when I mentioned that statistic earlier about not being in conversation with so many families, you know, that combined with the enrollment cliff had us very nervous.

Kirk: Stuebner says that Colby Sawyer has gotten a bump in applications, and a lot more of the students it accepted have already put down their deposits. And other colleges are watching whether this model works.

Susan Stuebner: We’re getting a lot of interest. You know, a lot of folks have reached out and just asked about the process. So I think, if nothing else, a lot of schools are considering it.

Kirk: But American consumer behavior is a little strange. For one thing, if something costs more, we seem to think it must be better. Like cars. Or whiskey. Will Doyle says it’s called the Chivas Regal Effect.

Will Doyle: It’s called the Chivas Regal Effect because Chivas Regal is this kind of mediocre whiskey. And they came up with a brilliant strategy, which was actually to increase their price. And by increasing the price, they moved it from the bottom shelf to the middle shelf. And people look at whiskeys and they think, ‘Oh, the middle shelf must be an okay whiskey.’ And they bought that one.

Lots of colleges find the same thing that when they reduce the sticker price. When they reduce the stated price, the perceived quality of the institution goes down. So if an institution maintains a very high stated price, they’re kind of saying, ‘Oh, we’re a high-quality place. Then they can quietly discount for the set of students that they’re seeking to enroll.

Kirk: So you’re there in Tennessee, a major producer of whiskey, and the sticker price at Vanderbilt is now approaching $100,000 a year. Is that the Chivas Regal Effect?

Will Doyle: I’m going to decline to comment on my own institution.

Kirk: Okay. Fair enough. So the other thing that colleges have done is disguise the discounts as scholarships that parents love to see. It gives the parents bragging rights. And at a lot of colleges, almost everybody gets them. But we love to get awards. And so when colleges lower the price, Susan Stuebner says parents want to know where their kids’ scholarships went.

Susan Stuebner: The group that had the most difficult time understanding what we were trying to do were our current students. We provided them with a comparison of what they were currently receiving from the college that year and what they would receive the next year. When you looked at the actual amount they paid to attend Colby Sawyer, it was the same. But for some families and for some students, you know, their initial reaction was, you’re taking this scholarship away from me.

Jon: Brett Schrader’s consulting firm does a survey of high school seniors every year to find out what would attract them to a college.

Brett Schraeder: We ask them, ‘Hey, if you had three different awards, if you had a $40,000 prize and a $20,000 scholarship, if you had a $30,000 prize and a $10,000 scholarship, or you had just a $20,000 prize — so basically same net cost for each one — which one would you pick?’ Always. They pick the ones with the scholarships.

Jon: The bottom line is that colleges and universities have created a system that makes it ridiculously hard for people to figure out what they’ll actually pay, even though it might be less than they expect.

Susan Stuebner: In today’s era, higher education is being scrutinized for how much it costs, and at the same time, what it actually costs to families is much less for most of us than what we list. So it’s very confusing.

Jon: It’s pretty quiet here on a Thursday morning on a campus. I thought it was Friday that students didn’t go to class.

Kirk: We went to the campus of Lasell University, which, like Colby Sawyer, also cut its price this year by about a third, from nearly $60,000 to just under $40,000. Lasell is one of those schools we mentioned earlier where not a single student had been paying the advertised sticker price. That raises the question, do students who are already attending save any money when a college cuts its list price?

Jon: We caught up with a business management major on her way to or her off campus job.

Rose Andrey Pluviose: My name is Rose Andrey Pluviose. I’m a senior here at LaSalle, and I’m from Boston, Massachusetts.

Jon: Did you come out ahead when they lowered the price? Did you end up paying less to go here?

Rose Andrey Pluviose: I would say about $1,500 less.

Jon: Other students came out even.

Parker Tallman: I’m Parker Tallman. I am 21 years old. I’m from New Jersey. So for me, it didn’t really make an impact. Tuition went down, which means your scholarships go down, too. So even though we’re paying less out of pocket, the scholarships go down as well. I don’t know what the dollar figure is, what I’m paying right now anymore. And I just heard that it’s possibly going up again.

Jon: Lots of students told us the same thing — that the pricing system at colleges doesn’t make much sense when tuition gets lowered by $20,000, but their own price stays the same or falls by maybe $1,500.

Parker Tallman: It shouldn’t be that difficult. If you’re going to have a set price, have a set price.

Jon: But in your case, basically you came out even.

Parker Tallman: I came out even. Yeah, basically I came out even, luckily.

Jon: Scott Del Rossi also warns that tuition resets are a little bit of a gimmick when you do the math, and that people shouldn’t get too excited about them.

Scott Del Rossi: If the sticker price is still being lowered, but the financial aid package is getting lowered, we certainly do want to get students’ and families’ hopes up.

Kirk: So the moral of this crazy story is to not assume that the price you see is what you’ll pay for college. You will likely pay a lot less.

Jon: We’ll let Brian Rosenberg have the last word here. The former president of Macalester says colleges are clinging to this impenetrable pricing strategy in a desperate bid for survival.

Brian Rosenberg: These colleges need students. And unless they keep marking down the price more and more, students simply are not going to come. There are many, many colleges where not a single student pays the full price. It is like a business that is struggling to stay alive.

Jon: And yet we keep doing it.

Brian Rosenberg: And yet we keep doing it.

Kirk: This is College Uncovered. I’m Kirk Carapezza from GBH.

Jon: And I’m Jon Marcus from The Hechinger Report. Be sure to keep listening to future episodes to hear more about what colleges and universities don’t teach you.

Kirk: We would love to hear from you. Send us an email to gbhnewsconnect@wgbh.org and tell us what you want to know about how colleges really operate. And if you’re with a college or university. Tell us what you think the public should know about higher ed.

Jon: This episode was produced and written by Kirk Carapezza …

Kirk: … and Jon Marcus, and it’s edited by Jeff Keating. Meg Woolhouse is our supervising editor and Ellen London is the executive producer.

Gary Mott and David Goodman are our mix engineers. We had production assistance from Diane Adame.

All of our music is by college bands. Theme song and original music by Left Roman out of MIT.

Mei He is our project manager and head of GBH podcasts is Devin Maverick Robins.

College Uncovered is a production of GBH News and The Hechinger Report and distributed by PRX. It’s made possible by Lumina Foundation.

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