<p>The way I see it, it’s really about price elasticity. Most colleges are businesses, revenue-driven. Students are customers and tuition is the primary revenue source. They sell seats in a classroom, much like an airline, a theater, or a hotel sells you the use of a place. Their inventory is perishable in the same way – the seats are filled for a payable period of time, or not. They announce a “sticker price”, but they know that they will not sell out at sticker price.</p>
<p>There are 20 or so schools at the top of the heap, for whom this does not apply. They are endowment-driven, not tuition-driven, and they could sell out at full sticker price. We’re not talking about them.</p>
<p>The colleges do not view all potential customers equally. This road runs both ways – high schoolers and their parents do not view all colleges equally, either. Some applicants will make it easier for the college to do better in the future, by enhancing the school’s stats and prestige, thereby promoting the college to future applicants. Some applicants may have weak stats, but they are potential significant donors. I think of “development cases” as people who can afford to pay the full sticker, plus significant gifts. Those applicants (or their parents) understand that the applicant is a bit weak, academically, for the school in question, and they need to come in waving a fistful of cash, to get in.</p>
<p>Here in the northeast, among the academically weaker, tuition-driven private colleges, it is commonplace for them to offer dollar credit against the bill, unrelated to financial need – call it merit money, or call it a discount – to bring the price down to where they clear the market. Some hand these “merit” grants out like water at a marathon. I am under the impression, from lots of reading about this subject over the years, that the schools use this as a marketing tool or enrollment management tool. They want to keep their stated sticker price high – so they don’t seem like a second-rate, bargain bin institution – but they don’t clear the market much at those prices, so they bring the price down to where it needs to be, while simultaneously flattering many of the accepted applicants with a portion of unsolicited “merit money”. The schools I’m thinking of, almost never get down below about $35,000, so they’re using the tool to bring in people who are still paying good money (and who have cheaper options at the state schools if they can get in).</p>
<p>A lot of these schools have admissions standards LOWER than the nearby state directionals. I have seen kids who were barely qualified as applicants to NJ directionals, get $5000 or $10,000 in unsolicited “merit” money from small, tuition-driven privates. The directionals in NJ are $25,000 in-state. By contrast, the privates in question are sticker-priced at $40,000 to $45,000. So, even with the seemingly commonplace merit money, the directional is cheaper, but may have stiffer admissions standards.</p>
<p>This practice brings the real price down to the level where the school can move its inventory – seats – and also may inspire the potential customer to feel that he or she is getting a bargain, and has been singled out as special. This is sort of like what car dealers do. Or the TKTS booth in Times Square. Airlines also adjust their price up and down as they’re selling the seats on a plane, I guess in response to the airline’s perception of the price elasticity of the seats, while the selling period is open. Similar concept.</p>
<p>I guess this is morally neutral, whether it’s called a “discount” or a “merit scholarship” (although the way the colleges spin it, and the element of flattery, does seem a little manipulative). I think in the pure economic sense, “discount” and “price reduction” are both fair terms. The use of those term does not diminish the academic achievements of any student who may have been offered one. The fact that some parents are offended by the term “discount”, only illustrates the fact that people respond emotionally to the announcement that “your kid has been found to have special merit”. And, fair enough – it is individualized; it’s not like a discount at Macy’s, that must be given to any shopper. But sometimes they do seem very widespread, if that matters.</p>