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When Molly started the college search with her oldest child last year, she was afraid her family would fall into the “donut hole” of tuition finances — where they made too much to qualify for need-based financial aid but not enough to easily pay for college out of pocket. The mother of three in Maryland knew from talking to other families as well as following discussions in Facebook groups — “Paying for College 101” and “Paying for College for High-Income Families 101” — that there were tricks for snagging discounts from colleges by comparison shopping among campuses.
Unlike retailers, colleges don’t use the term “discounts.” Rather, they attach fancy names, like “Presidential Award,” to what is generally known as merit aid because it sounds better than a price cut. Giving merit aid to students who don’t qualify for need-based aid is nothing new; the strategy has been around since the 1970s, especially for middle-class families at smaller private colleges. But in the last decade, the discounting has become much more ubiquitous among all kinds of private colleges and especially widespread for families who make more than $200,000 a year but still face financial constraints on the cost of an education. Public flagship universities have jumped on the bandwagon, too, offering similar incentives to higher-income applicants from other states (who, if enrolled, would pay out-of-state tuition prices).
“Colleges keep giving out more merit aid to more families because they can’t get them to pay more,” Mark Salisbury told me. Salisbury, a former administrator at Augustana College in Illinois, runs TuitionFit, a website where people can share their financial-aid offers and see what others like them got. Most of the money that colleges are giving out in merit aid isn’t coming from the endowment. Rather, it’s revenue the college never receives — a simple price cut off the top. Salisbury and others in the business refer to it as “Kohl’s cash,” after the discount strategy employed by the mid-market retailer.
The result is a new world where more and more students and parents comparison shop over fine gradations of prestige. The calculus among collegegoing families often looks like this: Is a school ranked 25th by U.S. News & World Report worth full price when a school ranked 40th is willing to give a $10,000-a-year discount? Chasing discounts has turned into a game for applicants and their families, weighing whether a notch or two of prestige is worth a substantial tuition break.
“We undermatched to maximize merit,” Molly told me, using the lingo popular in online groups. That means her son Jack — a pseudonym, as are the names of other people in this story — applied to less prestigious colleges than his academic stats (3.82 GPA, ten AP courses, 1380 SAT score) would suggest he could get into. He did so in an explicit effort to get merit aid. “Our family is smack between $200,000 and $250,000,” Molly told me.
The applicant pools of top-ranked colleges are overflowing with teenagers who have academic stats like Jack, so while he might have been accepted to one of them, they wouldn’t need to offer him merit aid. After all, plenty of qualified applicants were willing to pay full freight. But Molly recognized that schools a bit lower in the rankings would throw money at Jack — say, $15,000 off the all-in price of $60,000 — so he’d be more likely to enroll. From the school’s perspective, they would get Jack and his excellent numbers, which — with others like him — would help drive up the school’s averages and improve its academic rankings. The school would also generate at least some revenue at a time when, for many institutions, doing so is getting more challenging.
Jack, who graduated from high school last month, received acceptances from a dozen colleges, all well-regarded private schools in the Northeast. Molly showed me a spreadsheet where she tracked her son’s merit offers. What immediately sticks out is how haphazard the discounts are. One school, Lafayette College, offered nothing off its $84,402 cost. But Drexel slashed $29,400 from its price tag of $81,758. Rochester Institute of Technology carved $25,000 from its rack rate of $73,791. Worcester Polytechnic Institute gave Jack one of the biggest merit packages he received: $43,660, bringing the family’s annual cost down to $35,626. He chose WPI. “It works out to be about the same as if he went to the University of Maryland,” Molly said.
Molly believes she and her family won in playing the merit-aid game. According to work recently published by economist Phillip Levine of Wellesley College, a family at the income level of Molly’s is indeed in a donut hole — often stuck paying full price, even if it severely stretches their finances. In his research, Levine found that what lower- and middle-income families (those making under $180,000 annually) pay out of pocket at private colleges — what is called their “net price” after financial aid is applied — has been relatively flat for the last decade. But that flat line for the net price at private colleges turns into a hockey stick starting around $200,000. At that level, Levine showed, schools start to expect more families to be full payers.
“At private institutions, the net price … has only increased for higher-income students,” Levine wrote in his study. Meanwhile, at public universities, while the net price has risen for all students, “the increases have been larger for higher-income students,” he wrote. At public colleges, the net price makes a steep rise starting at the $125,000 income mark.
Molly won the merit-aid game precisely because of her strategy for Jack to undermatch. Higher-ranked schools don’t need to play — there are plenty of students willing to pay full freight. But there are fewer schools every year with that kind of pricing power among a majority of their families. At a national summit hosted by the Department of Education last year, the president of Colorado College, L. Song Richardson, described full-paying students as “gold” because they’re becoming a rarer commodity.
Many upper-middle-class families facing full tuition are asking what paying that premium gets them. Facebook groups and Reddit threads about paying for college are full of complaints about the lack of upside for doing so. Unlike with an airline, when you might get more when you pay more, there aren’t any perks that come along with paying full price for college. “They don’t even let you be the first in line to register for classes,” Gavin, an ophthalmologist in Florida, told me. His youngest daughter will be a freshman at the University of Miami this fall. His all-in full-freight price: $93,000. Gavin makes north of $700,000. He told me that he doesn’t “need” the discount. “But I feel like a fool sometimes for paying full price when everyone else seems to be getting a deal,” he said.
Figuring out who is getting a deal and how much of a discount they are receiving, however, is difficult, which is why tools like TuitionFit are increasingly popular with families looking for a price break. Colleges don’t list tuition levels like airlines have fare classes, and the formulas schools use to award their aid each year are often hidden in a tool students could use to try to figure what they’ll pay if they’re accepted called the Net Price Calculator, which the federal government requires colleges to display on their websites. But sometimes, families can get a better sense of the discounts by finding a college’s Common Data Set (CDS) on its website. At Miami, the CDS illustrates that about a quarter of the university’s 12,000 undergraduates who didn’t qualify for aid based on financial need received a merit discount. The average was about $24,000 — a 25 percent discount.
Unlike need-based aid, which is computed using a family’s finances disclosed on a variety of forms, merit aid is determined by how much a college wants or needs you. Most of the quantitative work needed to calculate that number has been outsourced to companies who have developed sophisticated algorithms derived from a variety of factors, including test scores, high-school grades, and Zip Codes. Brian Zucker runs one of those firms, the Human Capital Research Corporation. The ability of what Zucker called “middle-market colleges” to charge full price has collapsed in the last decade, the result of increasing sticker prices and more families simply saying no to paying full price even when they can swing it.
When the parents of today’s applicants went to college in the 1990s, there were many more higher-income families paying full price. According to Levine’s calculations, the share of higher-income families (making over $200,000 in today’s dollars) paying full sticker price at private colleges declined from 64 percent in 1995–96 to 28 percent in 2019–20. At public colleges, it fell from 79 percent to 47 percent during that time.
“With a few exceptions, colleges all now have an opening bid with families,” Zucker said. The opening bid, of course, depends on where the college sits in the rankings. The CFO at a small private liberal-arts college ranked just outside the top 50 in U.S. News & World Report shared data he had compiled showing the rapid deterioration of full-payers has been most acute at institutions like his, small liberal-arts colleges that rank between 51 and 100 — schools like Rhodes College, St. Lawrence University, and Hobart & William Smith Colleges. Today, nine out of every ten full-pay students who go to any liberal-arts college are enrolled at a campus in the top 50.
Laura, a mother in Massachusetts with a household income of around $270,000, set a cap of $35,000 a year on out-of-pocket expenses to send her son to school. She showed me how she used both the Net Price Calculator and the CDS to comparison shop. The Net Price Calculator, she said, wasn’t always helpful for merit aid. So she’d go to the CDS to look for the percentage of institutional aid that is given out without respect to an applicant’s financial need. At the end of the process, her son ended up at Clarkson with a $34,000 discount off its sticker price of $78,000. While the net price ended up $9,000 above her cap, it was still, in her view, a good outcome.
As discounts continue to proliferate, the sticker price is “becoming increasingly disconnected from the amount that students actually pay,” Levine wrote in his study. So it raises the question: Why even have a sticker price, if very few or no one is paying it? I asked the CFO of the small private college that question. He told me that several years ago, the campus asked parents if the school should just lower its sticker price to an amount that most people are paying anyway. The answer was an overwhelming “no.” Why? The higher sticker price was a sign of prestige, and they liked to brag that they were getting a merit scholarship.
