Private Colleges Are Offering Record Tuition Discounts to Win Students

Those scarily high tuition prices most private colleges say they charge are increasingly as make-believe as Freddy Krueger: Only 11% of freshmen paid them last year, according to a survey of private colleges released today.

The rest—89% of freshmen at private colleges—received a school grant or scholarship worth, on average, 54% of the published or “sticker” tuition, the National Association of College and University Business Officers reported. Both those numbers are all-time records.

The survey indicates that colleges eager to recruit applicants are luring students with big grants— often labeled “merit scholarships” to flatter recipients, but in reality more like the discounts off of a retailer's price tag.

In 2013, the latest year for which data are available, most private colleges reported sticker prices for tuition and fees somewhere between $30,000 and $45,000 a year. (Room, board, books, and travel typically add another $15,000 to $20,000 to the total annual costs.)

But schools that accepted more than half of applicants charged net tuition, after scholarships were subtracted, of less than $20,000. Those that accepted less than half of their applicants charged their students an average net tuition of about $23,600

That explains why the odds are lower for getting a deal at an Ivy League college. Nearly a third of schools—mostly large, selective, wealthy universities with plenty of applicants—didn't increase their discounts last year, NACUBO reported. The most selective colleges on Money’s Best Colleges list—those with admissions rates of 33% or less—gave only about half of their students grants.

But that still leaves more than 1,000 non-elite private colleges attempting to attract students with ever-bigger scholarships or discounts off their ever-higher tuition. In fact, among the 736 colleges in Money’s rankings, nearly 100 award a scholarship to every single freshman. Those schools accept an average of 66% of applicants.

College officials cited three key reasons for the rise in discounts.

• Psychology. Research by Lucie Lapovsky, a former president of Mercy College in New York who now serves as a consultant to colleges, shows that at least 40% of students and parents would opt for the bragging rights they get when a school gives them a large scholarship off a high tuition, rather than a school that has lower tuition and lower aid, but similar net costs.
• Economics. The combination of rising tuition and financial woes for the middle class mean more applicants need scholarships to afford private colleges, said Steven Klein, vice president for enrollment management at Albion College in Michigan, where 100% of freshmen received a school grant in 2012 (the latest year for which federal data are available).
• Competition. In part because of a decline in the number of 18-year-olds, more colleges are having recruiting problems, and thus need to offer bigger discounts. About a third of the schools surveyed told NACUBO that their enrollment declined last year.

The latest numbers "provide more evidence that students and families should look beyond sticker prices,” said NACUBO President and CEO John Walda. Instead, he said, families should focus on the "net" price, which is the price they pay after grants and scholarships have been subtracted.

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One unfortunate result of the growing practice of raising sticker prices and offering more aid is confusion for students and parents, Lapovsky contends. Students have to apply to colleges in the fall, without a good sense of how much the college will actually cost them. Although colleges are required to provide a net price calculator tool on their websites, Lapovsky says many are outdated or give such general estimates that they aren’t helpful.

So students typically have to wait until April to see their final offer. And because colleges demand an answer by May 1, many students have just a few short weeks to make a potentially life-changing financial decision.

In addition, Lapovsky says, the common but mistaken assumption that colleges with high tuition are “better” than those with lower tuition can lead families to make costly college choices.

In fact, Money has found no significant relationship between the average net price charged by the colleges in our rankings and important quality indicators such as the earnings of recent graduates.

For more advice on paying for college, and to create a customizable list of colleges based on criteria such as size, selectivity, and affordability, visit the new Money College Planner.