Colleges Follow Bait-and-Switch Pricing Measures to Lure Students
February 18, 2015

Transferring colleges is often difficult and expensive. As a result, many college students avoid switching colleges, unless the change is unavoidable. However, it appears that some colleges are taking undue advantage of this situation.

Initially, these colleges offer an attractive “teaser” rate to students, thereby getting them to enroll. Once the students commit to the institution, the institutions hit the students with the regular, higher tuition and fees levied for subsequent years. Some days back, Ben Miller highlighted the means by which some colleges transform good deals for students into burdensome financial commitments.

Many four-year colleges (especially private, nonprofit colleges) often draw attention to the fact that many college students do not pay the listed tuition and fees. Instead, they highlight that these students typically avail of heavily discounted and affordable “net prices” by virtue of receiving federal college aid in addition to aid offered by the institution.

The White House publishes a College Scorecard that lists the net price of a college to help students select the best college. By publishing the net price of colleges, the federal government seeks to highlight to students and their families that college remains affordable. To achieve this, many programs have stipulated that colleges must have interactive calculators on their websites. Colleges even report the data to the Department of Education.

However, not many people notice that the net price information that colleges typically make public, focuses solely on what first-year students pay. These interactive calculators and other information on the website remain silent on the amount that students would have to pay in subsequent years.

There is no guarantee that the money a college offers in the first year will also be available in the following year. As a result, the expenses incurred by a student in the second year of college could well be thousands of dollars higher than that the student paid as a freshman.

For example, Miller refers to data that shows that:

  • About 69 percent of freshmen in public colleges and 86 percent in private colleges receive grants
  • The percent of other undergraduate students receiving grants is 58 percent and 75 percent in public and private colleges respectively
  • Public colleges give freshmen an average grant amount of $7,913, while other undergraduate students get $7,098 as the average grant amount
  • Similarly, private colleges give freshmen an average grant amount of $18,099, while other undergraduate students receive $15,246 as the average grant amount – a difference of over $2,800

Miller writes that in addition to tuition increases, many colleges intentionally give returning students lesser institutional grant aid. As a result, students often end up paying more than the sticker prices.

Data from the Department of Education also reveal that other undergraduate students do not get as much aid from their colleges as freshmen do. For example, 75 percent of fulltime freshmen at public and private nonprofit four-year colleges receive some kind of grant aid. This aid could comprise federal, state or institutional aid. However, only 63 percent of all other undergraduate students at these institutions receive grant aid. Even worse, the typical award amount given to freshmen was about $11,867. All other undergraduates received awards that were about $1,900 lower i.e. $9,997.

In some instances, educational institutions could feel that awarding lesser amounts of financial aid after the freshman year is appropriate. For example, if a family’s income increases, then the college could decide to give another student need-based aid. Alternatively, part-time students do not require as much aid as fulltime students do.

However, Miller specifies that the colleges that indulge in offering teaser rates to students are fulltime institutions that have traditional student bodies. He cites the example of the Philadelphia-based Drexel University that has 84 percent fulltime students. This university offers grant aids worth $19,063 to each freshman requiring student aid – about 93 percent of its freshmen. However, only 75 percent of the remaining students get institutional aid. That too, worth an average of $15,210 – nearly $4,000 lesser.

Following these practices often helps universities maintain their financial viability. However, it can be devastating for students who can just about afford to attend college at the start. When these students step into the second year, they will find that they need to pay thousands of dollars more than they had anticipated. As a result, they need to take out larger student loans, which drives them further into debt – besides wrecking their budget.

This bait-and-switch pricing mechanism is a game that many colleges play to meet revenue and enrollment targets. However, students often get the raw deal in the bargain. They cannot stop attending college, because a degree is still the best route to achieving better-paying jobs. At the same time, they cannot change colleges either because of the expenses involved.

Some colleges also make a big show of awarding scholarship dollars to students who meet certain academic requirements, such as maintaining a high Grade Point Average (GPA). However, the flipside of this approach is that colleges can view needy students, who do not fare as well academically, as undeserving. As a result, they will justify spending lesser money on these students even if they belong to low-income families.

Miller concludes that the chances of the authorities getting colleges to commit to providing multiyear aid packages from their own funds is slim. Therefore, the best approach that students must follow is to review their grants carefully. This would involve checking the grants to ascertain those that could change each year, in addition to understanding the underlying reasons behind the change.