Colleges Use Price Discrimination – Here’s How to Deal With It
You want to travel to Tokyo, so go to Google Flights and do a little research. Tickets cost around $ 800, but you close your browser window and decide to watch again later. A couple of months pass, and those same flights now cost $ 1200. What gives? This is called price discrimination, and colleges use the same strategy to sell tuition.
How colleges rate their studies like seats on an airplane
Price discrimination is a strategy of selling a product at different prices to maximize profits, and usually this price is equal to the price the buyer is willing to pay. For example, airlines offer different ticket prices, so customers are always looking for the “ best time to buy ”. On Saturday, the same flight can be twice as long as on Tuesday. Airlines fluctuate their prices based on demand – they know travelers will pay more at the last minute, so they increase their prices closer to travel dates. They also use business and first class notations to get people to pay as much as possible for seats on a single flight.
As reported by the New York Times, college prices work similarly:
Like airlines, colleges don’t want to sell every student seat for the same market price. Instead, they want to find a wealthy student who has a wholehearted interest in the college and charge her parents a lot of money, and then find the next person on the demand curve and then the next. So they charge high tuition fees and start to discount. There is a whole industry of expensive consultants advising colleges on how to do this using some of the theories used by airlines.
Colleges use financial aid forms to determine how much they can charge you. Of course, they explain it in a much more florid way – they say that they need to calculate the “best financial aid package” for each student.
Why price discrimination is problematic
The problem is that they usually take your parents’ assets and income into account, and if your parents don’t pay the bill or have a whole bunch of expenses of their own, you might end up in a ” too poor for college, too rich for financial aid ” position.
However, such a structure is also a problem for colleges, and as the New York Times explains, it could gradually disappear:
When you charge each client exactly what they are willing to pay, you have nowhere else to go … If you increase your tuition fees by $ 100, but you have to increase the average discount by $ 100, you will not get better. Price discrimination could be a time-limited strategy that allowed small private colleges to cut costs, develop new programs, and use information technology to enter new markets. But for more and more people, it was a way to postpone the settlement day, which now seems to have arrived.
In addition, only 12% of students actually pay full price for this degree anyway.
What can you do about this?
In the meantime, it is useful to know how this structure works because it gives students the opportunity to negotiate.
Agreement with the appeal
Administrators are allowed to correct FAFSA data, and you can bargain for a better option with an appeal, a letter explaining why they should reconsider their decision.
If you can justify needs or merit-based circumstances (such as job loss, medical bills, or offers from other colleges), you can get a better package of services. Here are some tips for filing an appeal from Student Loan Hero :
- The letter should be short and not appeal to their emotions. It should be logical and factual.
- Break up the numbers. Explain how much the tuition fee will not be enough for you. The idea is to demonstrate your financial need for the best possible package. But don’t ask for a specific dollar amount.
- If you have any other suggestions, tell them their university is your best bet and if they can match your other suggestions, you will sign up.
- Include any third party documentation if you have one.
Finally, you want to call the process “professional judgment” or “appeal”. Don’t really call it “negotiation,” although yes, that’s what you are doing.
Use this FAFSA loophole
Some assets are not measured on the Free Application for Federal Student Aid or the FAFSA, and this is important because it creates a kind of loophole for a better financial aid package.
Gary Carpenter, executive director of the National College Advocacy Group, said Bankrate, that families can increase their eligibility, transferring these assets before they will submit an application:
“The FAFSA does not assess a family home. He does not evaluate retirement accounts. It doesn’t value life insurance or annuities, ”says Carpenter. “In addition, they do not value personal assets such as cars, clothing, furniture – none of these are valued.”
So if you’re worried that your family’s assets may make up for the availability of your education, your family may consider raising retirement bills or paying off mortgages, Bankrate says.
Of course, not everyone can do this – your family may need these assets to pay for other expenses – but there is a loophole nonetheless. At the very least, it helps you prepare, and when you know how colleges measure their learning, at least you know what to expect.