What if you were told that college isn’t actually getting more expensive? Inconceivable, right? There’s no doubt that on paper, the sticker price of tuition has reached eye-watering heights. Amherst College, a private school in Massachusetts, lists its yearly tuition and fees as over $67,000, for example. But a consultant who used to work in the Department of Education says it’s all a mirage. “There’s nothing surprising going on here from a market standpoint,” Dan Currell, CEO of the Digital Commerce Alliance, told Fortune.
Tuition prices are certainly increasing, but what people pay after being given institutional scholarships means the total cost has stayed relatively the same over the past 20 years, Currell said, elaborating on his article that made the initial argument in National Affairs. In other words, colleges are posting higher sticker prices while quietly offering greater discounts. The reason they do so is part of a longstanding trend to appear as though they’re offering a higher-quality education, like that of Ivy League schools, by promoting comparable sky-high prices.
The colleges are doing all the things you would expect a player in the market to do, said Currell, who was previously a senior advisor in the U.S. Department of Education and a fellow in the office of former Nebraska Sen. Ben Sasse. In his article, Currell explains that schools learned, starting in the late ‘80s and early ‘90s, that having the appearance of high tuition was a good marketing strategy. The astronomical price gave a sense of exclusivity—like that of Harvard, Princeton, or Yale—which led to more applications.
But most college students can’t and aren’t willing to pay the full tuition price for an average college education. That’s why schools offer institutional scholarships to bring down the amount that must be paid out of pocket. But these scholarships have no money behind them, Currell says, labeling them in his article as “phantom scholarships that were really just discounts” and “got out of hand quickly.”
‘High-sticker, high-discount’
Of course, this is counterintuitive to the narrative most Americans have come to understand and operate under, but data from the College Board report backs up Currell’s argument.
At a four-year public college, the sticker price tuition and fees were around $8,400 for the 2006-2007 academic year, but the average net price the students paid after scholarships was around $3,700. By comparison, published tuition and fees for the 2022-2023 academic year increased to nearly $11,000, while students on average actually paid $2,200.
The same goes for four-year private schools: In the 2006-2007 calendar year, tuition and fees were priced around $32,000, but students paid closer to $18,000 after scholarships. In the 2022-2023 academic year, tuition and fees rose to $39,000, but students paid even less—around $15,000.
Even when taking inflation into consideration, the rate at which college tuition has risen still outpaces the consumer price index (CPI), a measure which is used as a proxy for inflation. In the past 20 years, college tuition and fees have grown twice as fast as the CPI, according to an October report by BestColleges. From September 2001 to September 2021, CPI inflation was nearly 54%, while tuition inflation was 66%.
Currell provides another example of the same kind of “high-sticker, high-discount” practice in his article: car dealerships. Everyone knows that the markdown price of a vehicle—the reduced price cited during special sales—is the real price, but the practice continues because people are responsive to the belief that they’re getting a deal, so the illusion of a discount is enough.
Currell notes that this pricing strategy is largely being used by mid- to upper-mid-tier colleges.
“This game is not being played at the community college level or the community technical school level,” he said.
Effect on the poor
The effects of this pricing mirage is most felt by students from low-income families. Schools have no incentive to offer more generous “scholarships,” or rather discounts, to poor students when rich students can cover more of the published cost. Rather, colleges focus on giving these scholarships to better students, who disproportionately come from wealthier families. Roughly 84% of first-time, first-year undergraduate students receive financial aid in some form as of 2021, according to the Education Data Initiative.
“The impression that college is ruinously expensive has induced unnecessary anxiety in millions of families and scared many students away from college entirely,” Currell wrote. “It has also led to a confusing national conversation about student debt, since nobody can figure out what college really costs or whether students are paying too much.”
Because students don’t know how much they’ll actually be paying when they’re applying for colleges, the assumption that it will cost upwards of $50,000 per year leads people to take out crushing debt, Currell argues. Just look at the 44 million borrowers who take on an average of over $37,000 in student loan balances, totaling over $1.6 trillion in national student debt.
“This is possible because certain Federal Student Aid loan facilities allow it,” Currell wrote. “But the real root cause is that many families simply believe there is a $200,000 tollbooth on the road to the American dream, so they sign the loan forms.”
No single school can fix this “merry-go-round,” according to Currell. But a good start, he says, is for colleges to collectively agree to be more transparent in their tuition pricing. The College Cost Transparency Initiative, which is partnered with 400 institutions, is trying to provide clear and accurate information on college pricing in an increasingly complex financial aid system so as not to unnecessarily scare potential applicants and induce them to take on too much debt.
“Once you introduce false information into a market and it’s become embedded in there, you will discover that it is harming people in ways you never imagined,” Currell said. “When people start lying to each other and then everyone blinks and says, ‘Okay, I guess we have to run with that,’ it starts to grow like a weed.”
