Somebody can correct me, but a lot of students make mediocre grades that are not high enough to keep their scholarships. I had a fraternity brother who lost a full scholarship, and I suspect it is far more likely for average students to be unable to meet the academic requirements. So after a year, the choice is that the parents can pay more for them to stay with their friends or they can leave. Many parents will just pay more. But if the tuition is just lowered, that revenue is lost forever.