You want to go to Tokyo, so you hit up Google Flights and do some research. Tickets are around $800, but you close your browser window and decide to look again later. A couple of months pass, and those same flights are now $1,200. What gives? It’s called price discrimination, and colleges use the same strategy to sell tuition.
How Colleges Price Their Tuition Like Airplane Seats
Price discrimination is the strategy of selling a product at a range of prices to maximize profits, and usually, that price is whatever the customer is willing to pay. Airlines, for example, offer a range of prices for their tickets, which is why customers are always searching for the “best time to buy.” On a Saturday, the same flight might be twice as much as it is on a Tuesday. Airlines fluctuate their prices based on demand—they know last-minute travelers will pay more, so they hike up their prices closer to the travel dates. They also use business and first class designations to get people to pay as much as possible for seats on the same flight.
College prices work similarly, the New York Times reports:
Like airlines, colleges don’t want to sell each student slot for the same market price. Instead, they want to find the rich student with her heart set on that college and charge her parents a lot of money, then find the next person on the demand curve, and the next. So they set tuition high and start discounting. There is a whole industry of expensive consultants who advise colleges on how to do this, using some of the same theories employed by airlines.
Colleges use financial aid forms to gauge how much they can charge you. Of course, they explain it in much more flowery terms—they say they need to calculate the “best financial aid package” for each student.
Why Price Discrimination Is a Bad Idea for Everyone
The problem is, they usually take into consideration your parents’ assets and earnings, and if your parents aren’t footing the bill or if they have a whole heap of their own expenses, you might find yourself in a “too poor for college, too rich for financial aid” situation.
This structure is also a problem for colleges, though, and as the New York Times explains, it might be on its way out:
Once you charge every customer exactly the most they’re willing to pay, there’s nowhere else to go…If you increase your tuition by $100, but have to increase your average discount by $100, you’re no better off. Price discrimination could have been a time-limited strategy that allowed small private colleges to cut costs, develop new programs and use information technology to reach new markets. But for a growing number, it was a way to put off a day of reckoning that now seems to have arrived.
Additionally, only 12% of students actually pay the full sticker price for this degree anyway.
What Can You Do About It?
In the meantime, it pays to know how this structure works, because it does allow room for students to negotiate.
Negotiate with an Appeal
Administrators are allowed to adjust FAFSA data, and you might be able to haggle a better option with an appeal, a letter explaining why they should reconsider.
If you can make the case for a need-based or merit-based circumstance (a job loss, medical bills, or offers from other colleges, for example), you might be able to get a better package. Here are some tips for submitting your appeal, according to Student Loan Hero:
- Keep your letter short and avoid appealing to their emotions. It should be logical and fact-based.
- Break down the numbers. Explain how much you will fall short on tuition. The idea is to demonstrate your financial need for a better package. But don’t ask for a specific dollar amount.
- If you have other offers, tell them that their university is your top choice and if they can match your other offers, you’ll enroll.
- Include any third-party documentation, if you have it.
Finally, you want to refer to the process as “professional judgment” or an “appeal.” Don’t actually call it “negotiating,” even though, yes, that’s exactly what you’re doing.
Use This FAFSA “Loophole”
Some assets aren’t assessed in the Free Application for Federal Student Aid, or FAFSA, and this is important because it creates a sort of loophole for getting a better financial aid package.
Gary Carpenter, executive director of the National College Advocacy Group told Bankrate that families can actually increase their aid eligibility by transferring these assets before they apply:
“The FAFSA form does not assess the family home. It does not assess retirement accounts. It does not assess life insurance policies or annuities,” says Carpenter. “Also, they do not assess personal assets like automobiles, clothing, furniture — none of that is assessed.”
So if you’re worried that your families assets might offset your tuition affordability, your family might consider maxing out retirement accounts, or paying down the mortgage, Bankrate reports.
Of course, not everyone is the position to do this — your family might need those assets to pay for other expenses — but the “loophole” exists nonetheless. If nothing else, though, it helps to be prepared, and when you know how colleges price their tuition, at least you know what to expect.