The Dangers of the Tuition Discount and How to Avoid Them

When I started this site I frequently said that “Colleges are priced like houses, but sold like cars.” I still believe that. Car buying, like shopping for a college, favors the best-informed buyer. The best-informed buyer gets the largest discount. Colleges do much the same thing. Only they call the tuition discount a scholarship.

Imagine you are considering a college that charges $40,000 for tuition and fees and $10,000 for room and board. There are other expenses, too, such as books and essentials such as transportation home, clothes and a computer or software. Your family does not qualify for the Pell Grant or any need-based aid. Now the college offers a $4,000 merit scholarship, renewable upon achieving a G.P.A of 3.0 or better . That knocks the tuition and fees down to $36,000, though you still need to come up with the rest.

Is this a generous offer? In sense, yes.

You expected to get no aid and you got a $4,000/year scholarship instead. Your family takes out the Stafford Loan and pays the rest.

The following year, the college announces a 3 percent increase in tuition and fees and a 3 percent increase in room and board charges. The faculty want a raise and it costs more to feed and house every student who lives on campus. Three percent of $40,000 is $1,200. Three percent of $10,000 is $300. Your tuition discount just dropped to $2,500 and you will need to borrow more. A five percent increase in tuition and fees as well as room and board would drop that tuition discount down to $1,500. If you qualify for a Stafford Loan as a sophomore, you can borrow an extra $1,000. The rest comes out of your family’s pocket.

It’s quite possible that the discount goes down to nothing by the junior or senior year.

Sometimes schools “lock in” tuition for four years at the freshman year rates. In those cases, the tuition discount really starts at the sophomore year. But nothing stops the university from increasing or adding fees that could negate the discount.

But the news is not all bad. Sometimes students qualify for exceptionally generous scholarships equal to half or all of the tuition and fees. The school sometimes agrees in advance to cover future increases so you don’t need to borrow more each year. It’s very nice to be wanted by such schools. The school may want you badly because you’re an excellent student, and quite likely to graduate. Or you’re likely to add something (athletics, arts, among other things) to the community that other’s cannot.

Should you take the offer? Maybe. If academics, quality and fit are there.

Here are some tips to help if you’re considering a private liberal arts college. Ask yourself, as you tour the campus virtually or without a student guide, if you feel happy there. Are students talking and gathering or is everyone hushed as they move between buildings? Or do they look bored or tired? 

Check the freshman retention and graduation rates.

A four-year private college should retain and graduate students better than all but the best state universities. Why would you spend the time there if it didn’t? A freshman retention rate of at least 85 percent and a four-year graduation rate of 60 percent would be my minimum scores for a private liberal arts college. Private colleges that offer aggressive discounts combined with low retention and graduation rates are not worth your time. They’re quite likely to be in financial trouble, and might not be able to maintain a scholarship over four years.

Imagine that a school that welcomes 500 freshman loses 150 at the end of the school year. The school has to make up that loss in the next freshman class, by finding more transfer students (less likely to need housing), or by raising the costs over everyone who decided to stay. In this scenario, you definitely lose more of your discount.

Check past tuition, fee and room and board increases to get a handle on the future.

College Navigator, the site run by the U.S. Department of Education, will tell you what the school currently charges and what it charged during the previous three academic years. It also allows you make tuition and fee projections.

Does the school charge higher tuition and fees in some schools that it does not charge in others? 

It’s been an accepted practice to charge students in architecture, business, engineering and health sciences more because their education costs more to deliver and because it requires more career services. It’s quite possible that you’ll be asked to pay a tuition increase after you have declared a major.

Are there at least three possible majors offered by the school that you might like to study?

Liberal arts colleges offer fewer majors than larger schools. If you’re fixated on only one major, you might want to consider a larger, and less expensive, public option.

Want to know more about me? Check out these podcasts!

Listen to my talk, College Is A Learning AND Living Community, hosted by Dr. Cynthia Colon from Destination YOUniversity on Voice of America Radio!

Listen to my talk, What Exactly Is a Good College? hosted by test-prep experts Amy Seeley and Mike Bergin on Tests And The Rest!

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