A Shell Game by Any Other Name: The Economics and Rationale behind Tuition Discounting

Abstract

In recent years, concerns regarding runaway college tuition and student loan debt have served to undermine public confidence in the value of American higher education. Ironically, the very issue that is now causing such alarm—high tuition—has long been a signature feature of the financial model intentionally employed by the vast majority of smaller private colleges in the United States. This white paper provides a primer on the economics of private college finance and the rationale behind tuition discounting. After exploring the practical benefits and unintended consequences of the so-called “high-price/high-aid” model, an alternative approach to smaller private college finance is presented and its virtues are considered. The piece concludes with a series of clarifying questions for private colleges and the prospective students and families they seek to serve.