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I have very different interpretation about merit aid to wealthy families than this article. Rather than discounting list price tuition to wealthy, well-qualified students, my theory is list price includes mandatory “donation” for students on the bubble. https://www.nytimes.com/2020/06/16/opinion/coronavirus-college-rich-kids.html?smid=tw-share
Rather than thinking of the list price as the base and colleges applying discounts, it’s more descriptive to think of the actual cost of education as the base and then consider whose price gets marked up (wealthy students either int'l or on the bubble academically). 2/13
This is relevant to the colleges outside of the top tier with 10 or 11 figure endowments with need blind admissions. Most colleges must balance merit with ability to pay in selecting the incoming class. To do so, they price discriminate via merit and financial aid. 3/13
The average tuition list price for private 4-years is $37k. But there's massive discounting. The average tuition discount last year was 53%. Think of the average net tuition of $18k as the amount required to run the college. The question is how a college achieves that #. 4/13
Rather than charge everyone the same $18k (on average), which would exclude many well-qualified, low-income students, colleges engage in extreme price discrimination. They start with a high list price that few people pay and then discount. 5/13
The list price is essentially a bundle of the cost of providing an education plus a mandatory contribution. While well-qualified and lower income students are not required to pay this “contribution,” bubble & int’l students are. 6/13
If student desirability by colleges fits a bell curve, then there are many students on the bubble academically or int’l that colleges have a hard time distinguishing among. Ability to pay becomes the differentiator. 7/13
Schools value diversity (SES, race, geographic, interests), academic success, & sports talent. Students in these buckets generally pay cost or less. Those not in these buckets differentiate themselves by being willing to make a financial contribution (i.e. pay list price). 8/13
(Why universities, especially those without large and rabid alumni bases, subsidize sports talent is a whole different conversation.) 9/13
Colleges don’t want to explicitly say bubble students can gain entry by donating so they use the concept of high list price + discounts to achieve the same effect. Well-qualified students pay something close or below cost while bubble students pay cost + contribution. 10/13
Consider the outcomes of 4 types of applicants:
1. Well-qualified, wealthy: admitted, billed $18k
2. Well-qualified, not wealthy: admitted, billed <$18k
3. Bubble/int’l student, wealthy: admitted, billed $18k plus $19k donation
4. Bubble student, not wealthy: not admitted
11/13
1. Well-qualified, wealthy: admitted, billed $18k
2. Well-qualified, not wealthy: admitted, billed <$18k
3. Bubble/int’l student, wealthy: admitted, billed $18k plus $19k donation
4. Bubble student, not wealthy: not admitted
11/13
The key to financial solvency is balancing buckets (2) and (3). Colleges can’t afford too many 2s and don’t want too many 3s, as described in detail in this article. 12/13 https://www.nytimes.com/interactive/2019/09/10/magazine/college-admissions-paul-tough.html
2 ways to look at this, depending on one’s perspective:
1. Students able to pay full list price get higher acceptance rates, which increases inequality
2. Students able to pay full list allow colleges to accept lower income students, thus decreasing inequality
13/13
1. Students able to pay full list price get higher acceptance rates, which increases inequality
2. Students able to pay full list allow colleges to accept lower income students, thus decreasing inequality
13/13
