Private nonprofit colleges’ published tuitions should be ignored

I still run into quite a few people who think they can’t afford to attend a private nonprofit college because of its high tuition. They have on idea that the vast majority of students at those schools don’t pay the sticker price. It’s understandable that people don’t realize the published tuition simply represents a ceiling, that is, it’s in effect a statement that no incoming freshman will pay more than that amount. It tells us nothing about how many will actually pay the sticker price.

Indeed, on average, freshmen at the private nonprofit colleges get a discount of more than 40% off the sticker price. At some schools no one pays the sticker price — everyone receives a discount (or “scholarship” as the college prefer to call them). And at some, students with high academic achievement, or high need, get a full ride (all the tuition is waived).

If you want an idea what colleges actually charge, then check the College Navigator website. Enter the name of the college you’re considering, then click on the Net Price tab. You’ll see the actual net tuition charged to students. It’s even broken down by income category.

You’re chances of receiving a hefty discount are better if your grades and test scores are high. But don’t assume you have to have top academic credentials to receive a big discount, especially at the less selective schools.

The students colleges really want

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:

Impressed by the size of scholarship being offered? Perhaps you shouldn’t be.

If you still don’t understand how colleges (particularly, private ones) discount their prices (the subject of prior posts, including this and this one), check out this excellent post (“Few Pay Full Price For College Today, Should You?”) by a friend of mine, Lucie Lapovsky, a former college president and chief financial officer. The unfortunate part is that students and their parents often get so focused on the size of the scholarship or grant that they lose sight of the more important number: net price. And they also fail to appreciate the impact of the tuition-discounting system on future tuition increases (see this post explaining how a 3.9% tuition increase can actually be a 9.8% increase for current students).

What should students and their parents make of these dramatic tuition cuts?

Alaska Pacific University (APU) is the latest private, nonprofit college to cut its tuition by a significant amount. In APU’s case, it slashed its published tuition—or “sticker price” if you prefer—by nearly a third, from $29,700 to $19,500. According to APU President Don Bantz, “the $29,000 sticker price turned a lot of people off. They didn’t wanna go any further.” (See AP story posted on OregonLive.) So, in an effort to boost enrollment and increase revenue, the university made the tough decision to cut its tuition by nearly $10,000. But don’t be misled.

Why the 3.9% tuition increase is actually a 9.8% increase or more for some students

In the world of nonprofit, private colleges, current students take it on the chin at many schools from year to year, in a way that generally doesn’t create the consternation one would expect. It’s all because of the impact of tuition discounting and the way increases in tuition play out. Permit me to explain.

The mystery of tuition discounting

On average, students at private, nonprofit colleges pay less than 60% of the published tuition. That’s right, on average they receive a tuition discount of more than 40% (the “discount rate”). Many public institutions follow this practice, too, although more so with their out-of-state students who don’t qualify for the much lower in-state tuition. What all this means is you can’t really tell much about actual cost by comparing published tuitions.