The practice of marking down tuition sticker prices is decades old and comes with few benefits at this point, many experts say. It can mislead students and muddy the conversation around the value of a college education, while for institutions tuition discounting can wear on revenue and finances in a competitive environment.
“It’s not good for anybody. It’s not good for the students. And it’s not good for the institutions,” said Phillip Levine, an economics professor at Wellesley College, in Massachusetts, and author of the book “A Problem of Fit: How the Complexity of College Pricing Hurts Students — and Universities.”
“If you interviewed university leaders and institutions that are doing this, they will tell you it doesn’t make sense,” Levine added. “But there’s no way to get out of it.”
...Trying to tailor aid — and hence price — takes complicated statistical crunching. Often colleges turn to outside firms that can build what’s called a leveraging matrix for admissions offices....
Convoluted as the pricing system might be, there is no easy off ramp. As Levine noted, one fairly straightforward — but illegal — fix would be for institutions to work together on pricing.
Elite colleges have indeed tried such a tactic in the past, and they’ve been sued under antitrust laws. The U.S. Department of Justice reached a consent decree in the 1990s with Ivy League schools in such a case, and more recently top-ranked universities settled a price-fixing lawsuit brought by private plaintiffs.
Notwithstanding the above, there is a way to get out of this self-destructive dilemma, which I outlined briefly on p. 86 of Stephen Burd's (ed.) new book Lifting the Veil on Enrollment Management.... Let me describe it here in more detail.
Misleading students and parents is often inherent in pricing, particularly when price is set by what is known in the enrollment management industry as financial aid leveraging. Thousands of schools, public and private, contract with consulting firms to maximize enrollment at the least possible cost to their budgets, even to the considerable disadvantage of populations they purport to serve.* How they do it — their algorithms and aid packaging practices — is not disclosed to consumers, for fear disclosure would defeat the purpose of the processes. The current system depends on a certain degree of secrecy and deception.
Too many in higher education, generally speaking, do not know that under current law, full disclosure of both the amounts of all financial aid awards, which determine actual price, and the criteria used to arrive at those amounts, is required of all schools participating in federal student aid programs ("Title IV").** Moreover, misrepresentation of price can result in removal of a school from federal program participation.***
The Secretary of Education could and should issue a "Dear Colleague" letter to all Title IV schools reminding them of current law requirements and advising them that he will be sending program review teams to representative schools to assess compliance. The review teams would be looking at both in-house and consultant-contracted pricing practices. Particular attention would be paid to how the practices either support or undermine the statutory purposes of Title IV programs, which are to improve higher education access for the financially needy.
The Secretary would use the review teams to identify any regulatory ambiguities that need clarification and any practices that countervail Title IV programs, which would be considered pricing misrepresentations as well as violations of legally-bound fiduciary duty under Title IV program participation agreements.
When current law, as above, is followed by schools and reinforced by the Secretary, antitrust concerns will be minimized by removing the need for alleged anticompetitive collusion among schools in pricing. The Justice Department will recognize that the Secretary's enforcement of current law consumer-protection disclosure requirements is pro- rather than anticompetitive and that the Secretary's identification and elimination of pricing practices that undermine the purpose of Title IV programs are not violations of either the "per se rule" or "rule of reason" standard of anticompetitive behavior (DOJ's concerns), because the Dear Colleague is issued by the Secretary based on law and is not the result of any agreements among institutions. ****
Dear Colleague letters are sub-regulatory and a time-honored way to solve even the most difficult problems. In this case, such a letter could soon end a pricing system that so many university leaders agree "doesn't make sense."
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* See especially Peter Schmidt, "Words Without Actions: The Troubled Relationship Between Enrollment Management and Diversity," in Lifting the Veil on Enrollment Management....(2024).
** 34 CFR § 668.42 Financial assistance information
*** 34 CFR § 668.71 Scope and special definitions
**** https://www.justice.gov/atr/case-document/file/1518171/dl?inline
