One of the most distasteful aspects of the pricing strategy followed by nearly all private nonprofit colleges and many public colleges is that needy kids often end up paying more than their affluent classmates. Sallie Mae’s annual report, “How America Pays for College” (the subject of this post), provides further confirmation. Here is how BloombergBusinesweek describes the findings on this point:
Scholarships went the other way, getting more generous for wealthier families. Thirty-five percent of low-income families got an average of $7,237 in scholarships, while 36 percent of wealthy families got an average of $10,213 in scholarships. The gap reflects the priorities of the colleges: 69 percent of the scholarships for wealthy students come from the schools themselves rather than nonprofit or public sources. This confirms the results of a recent study by the New America Foundation that found that schools are increasingly using aid to lure wealthy students rather than targeting those most in need. So as stagnant incomes continue to stress less affluent families, wealthy parents are getting a helping hand.
If you’re someone who wants to help needy kids get a college education, then you’d better support them directly. Gifts to your alma mater for this purpose will more likely end up subsidizing high-achieving privileged students, even if you designate the gifts for need-based scholarships (which simply enable the college to shift other funds to discount the tuition of students they really want).
If, on the other hand, you’re more concerned with your alma mater’s reputation and standing in the rankings, then keep on giving to your alma mater.
The reason this morally dubious pricing strategy thrives is simple: colleges value those students who have higher GPAs, higher standardized test scores and fatter bank accounts than they do the other kids, so the competition for the former is more intense.
The field is more level at public universities, where tuition-discounting is often reserved for out-of-state students (although that’s changing as more public universities are getting into the “merit”-based tuition discounting game).
For students, there are two things to remember:
- If you have strong grades and SAT/ACT scores, there are colleges out there who want you and are willing to discount their tuitions substantially in order to land you as a member of their freshman class. Use this to your advantage. Shop around. (But don’t expect these deals at those relatively few elite schools where demand exceeds available space by a wide margin.)
- If you have mediocre or poor grades, you’ll end up paying more than your higher achieving classmates at most private nonprofit colleges. Before committing to a private college, be sure to compare the price (the actual net price set forth in the financial aid letter after reducing the published tuition by grants and scholarships, but not loans [which really aren’t “financial aid” despite colleges’ efforts to mischaracterize them]) against that being charged by the public universities in your state. You might be able to save a lot, and avoid going deeply into debt, by pursing the public option.
By the way, this crazy pricing strategy being followed by so most private colleges is another reason many of them are going broke (see today’s earlier post).
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