Most families believe their student has received a scholarship from a college due to that student's achievements. It is flattering and exciting to see scholarships listed on their financial aid offer.
However, colleges don’t necessarily see it that way. From the college’s perspective, scholarship money is marketing dollars. They know that a juicy scholarship provides a powerful incentive for a student to choose their institution over over another.
Tuition Discounting In Action
According to a study by the Lumina Foundation, tuition discounting really took off in the late 1970s and has become standard practice at most four-year colleges and universities.
Institutions use the discounts for a variety of purposes, but generally their goal is to manage or tailor enrollment for one or more reasons: to increase racial, ethnic or income diversity on their campuses or to woo students who have shown superior academic performance or other special skills. Campus officials try to use their tuition discounts strategically. Hoping to raise net tuition revenue, they put their money where it will attract the most students — particularly students who are most likely to help institutions achieve their missions and purposes.
There are several ways families can take advantage of this situation. If they have a student who is underrepresented on campus in one or several ways, they can expect to receive more financial aid in the form of scholarships, and they are also in a better position to negotiate for additional aid.
For example, let’s say a private college is trying to improve their diversity and balance out a campus that is heavily female dominated.
This gives a male student who also happens to be an ethnic minority a serious edge in admissions and in achieving great scholarships. Expect even more aid if his test scores are above average.
You can see more of this type of favoritism in action with this list of colleges that favor either male or female applicants recently published by the Washington Post.
The Unintended Consequences
By gaining a better understanding of how a college uses scholarships as marketing dollars, families can apply to colleges strategically, and have more power when analyzing and comparing financial aid offers. This can give some families an advantage if they are able to leverage the information.
However, there is a dark side to tuition discounting. Sometimes tuition discounting can actually have the opposite affect colleges want.
One of the tactics schools use to make their marketing dollars spread farther is to offer more scholarships in smaller amounts. Instead of offering $15,000 to one particularly needy student, the school will offer three $5,000 scholarships to students they believe are likely to succeed at their school. Students who benefit most from these smaller scholarships tend to be from higher-income backgrounds. These students financial need is not as great, but scholarships make a nice incentive for that student to spend their education dollars at that particular institution.
Unfortunately, this means that particularly needy is offered a small scholarship, or none at all instead of the $15,000 scholarship that may have allowed them to afford the college. This practice is also known as “gapping” or admit-deny. A student is accepted to the school, but not given nearly enough aid to make it financial feasible. The school intends to discourage the student from attending.
Some students will take the hint and go to a school that is more affordable. However, many students do not take the hint and instead take out massive loans in order to attend their dream school. This is no doubt one of the many causes of the ballooning of student debt.
Tuition discounting is another reason why the sticker prices of colleges seem so astronomical. Few students actually pay those prices. But that huge price tag can have the effect of scaring low-income students away from even applying to those schools even if they are high achieving. In actuality some of those students would probably have received generous scholarships (if they are the kind of student the college is seeking to enroll), but they don’t know that and thus they don’t even apply.
Cut Through the Confusion
There are few things you can buy that have a pricing structure as confusing as a college education. All the effort put into optimizing enrollment, boosting retention and other important metrics for the college means that every student pays a different price. And some are paying significantly more than others.
For an easy way to compare financial aid offers, find out if your financial aid package is fair, and learn your negotiating power, try using College Cost Cutter.