CHICAGO — Butterflies congregated on a bush as Griffin Badalamente walked past the carefully cultivated lawns and flowers on the University of Chicago campus. In addition to its reputation as an international powerhouse in the field of economics and a home to multiple Nobel laureates, the school has grounds that are designated as an official botanic garden.
The privilege of attending is costly, at $57,642 for the 2019-20 academic year. It’s already one of the most expensive colleges in the country. But in less than a decade, by 2025, students like Badalamente could expect to pay more than $100,000 per year, based on projections by The Hechinger Report using annual college cost growth rates from 2008 to 2018. That would likely make the University of Chicago the first college or university in the United States to break the six-figure mark. Three other schools — Harvey Mudd College in California, Columbia University in New York and Southern Methodist University in Texas — are projected to cost almost as much.
“That’s not surprising,” Badalamente said, laughing. The third-year student is studying computational neuroscience and receives a small National Merit scholarship, but otherwise his family pays the full price of attendance. “My parents make enough money luckily for me to pay the full tuition,” Badalamente said. Paying more than $100,000 for tuition, fees, books, room and board and other expenses is “more money than it should cost, but I guess if it’s subsidizing people who wouldn’t have that opportunity, I feel a little bit better about it.”
Students like Badalamente and their families are key to a tuition strategy that began in the offices of small, liberal arts colleges, but which has now conquered the enrollment offices of most private four-year schools.
While rising education costs and more amenities and luxury housing have played a role in pressing up the cost of college attendance, a great deal of college tuition inflation has been driven by an enrollment strategy that relies heavily on tuition discounting. With it, schools identify families willing and able to pay their advertised tuition or “sticker price” through savings or loans, and use them to balance out the costs of students who would be more likely to enroll at other institutions due to financial concerns or academic competitiveness.
The strategy is also known as price-discrimination — in which prices change based on who is paying and when — and has long been used to sell goods and services. It is why we are told to buy plane tickets three months before we want to take a flight. But unlike airlines, which may increase prices once the plane is nearly full and seats are harder to come by, colleges strategically drop their prices to get enough students to show up each fall.
In theory, tuition discounting can help admissions officers shape undergraduate classes to include more low-income students and students of color. But a study published this year by Luke Behaunek, now dean of students at Simpson College in Indianola, Iowa, and Ann Gansemer-Topf, associate professor at Iowa State University, questioned the strategy’s effectiveness.
Looking at data from 2003 and 2012 for 448 small private colleges, the study found that higher tuition discounts did not correlate with increased low-income or minority student enrollment. In fact, instead of going to high-tuition, high-discount institutions, low-income and minority students became concentrated in schools with the lowest discount rates. The schools that increased their rates of discounting most over the period studied failed to bring in more low-income or minority students than the other institutions in the sample.
“Students — low-income, underrepresented minority — still look at sticker price,” Gansemer-Topf said. “Even though institutions will say, ‘No, no, you probably won’t pay that.’ ”
In order for colleges to manage the complex financial math behind tuition discounting, many have turned to enrollment management companies that provide software to game out their strategies. Ironically, one such firm, Ruffalo Noel Levitz, found that the tuition discounting strategy its products make possible is creating a barrier to enrollment for many of the students it is supposed to help.
A 2016 survey of rising seniors and their parents by the firm found that half of respondents said they would never consider a school with high tuition. In fact, higher-performing students were more likely than average students to rule out colleges with a high price tag — by 52 percent to 47 percent. Asian students were the most likely to refuse a school with pricier tuition out of hand, at 58 percent, followed by African American students at 53 percent.
At the University of Chicago, the percentage of first-time freshman undergraduates who receive Pell Grants, federal financial aid for low-income students, fell from 15 percent in the 2010-11 academic year to 10 percent in 2016-17, according to data from the National Center for Education Statistics, even as students were paying thousands less in tuition as a result of increased tuition discounting. The number of U.S. students of color enrolling as first-time freshmen in the fall did rise slightly, from 39 percent to 41 percent.
A spokesperson for the university declined to comment.
Tuition discounting not only fails to support loftier goals like diversifying a campus. There are signs that it has put less-competitive institutions in a bind, as not all universities have the demand that schools such as Chicago do. To hit their enrollment targets, many less-competitive schools discount tuition until the advertised price becomes virtually meaningless. In 2006, federal data showed that 91 four-year colleges and universities reported awarding institutional aid to all of their first-year students, meaning that no freshman was paying the advertised tuition at the school. By 2016, there were 316 schools where no incoming freshman paid the sticker price.
While need-based aid has existed in the U.S. for nearly as long as there have been universities, in the past, most of those grants came from existing pots of money held by the universities, such as endowment income, or were tied to gifts from individual donors. Kalamazoo College in Michigan is one of the schools where the practice of tuition discounting began, back in the 1980s. David Breneman was president of the small liberal arts school.
“At that time, on the ledger on the revenue side, if a school had a thousand students enrolled they treated that as if they had a thousand full-pay students,” said Breneman. “Then on the expense side, they had a category for financial aid.”
The amount of financial aid would be drawn up when the budgets were set before the beginning of the academic year. But by the next spring, Breneman said, his admissions office would inevitably find a few dozen students at risk of transferring or dropping out over financial concerns. The U.S. was going through a demographic shift similar to the one worrying small colleges today, as the declining birth rate in the 1960s meant that there were fewer 18-year-olds in the 1980s. Lowered demand made filling seats harder. An economist by training, Breneman calculated that if a couple thousand dollars in financial aid could secure nearly $9,000 in tuition by enrolling a new student or retaining one at risk of leaving, it made financial sense. He found the money.
“Then my business officer, when the books were closed, would beat me up for breaking the financial aid budget,” he said. “And I would apologize and say, ‘Oh my god, I’ll never do it again.’ And of course we did it again every year.”
Though Breneman was working independently at Kalamazoo, similar schemes were being informally implemented at other private nonprofit colleges. Breneman would go on to write a book entitled “Liberal Arts Colleges: Thriving, Surviving, or Endangered?” that laid out a model for how colleges could think of these unfunded grants strategically and economically. “If there was any point to do what I did in my book it was to argue that, for these small colleges — well, any college with a shortage of students relative to the demand they want to fill — you’re just discounting,” Breneman said. “Don’t kid yourself that you’re doing anything else.”
Tuition discounting spread through higher education as a way to entice students who might otherwise be reluctant to pay full price. But to be able to afford giving out those deals, colleges and universities had to raise tuition. The complex math behind their soaring prices did not just ruffle the feathers of college financial officers. President George H. W. Bush’s Department of Justice began an antitrust probe of dozens of colleges in 1989 that compared tuition discounting strategies to anticompetitive price-fixing. Then, in 1997, Congress established a National Commission on the Cost of Higher Education to investigate the reasons for increasingly high tuitions.
The amount of institutional aid, according to the commission, had increased 178 percent between 1987 and 1996. The commission took a look at six possible reasons for college tuition inflation, including the increasing availability of federal student loans, and found that “there is slightly stronger evidence that increases in institutional aid have been one of the cost and price drivers” of tuition. “[I]t seems reasonable to conclude that tuitions could have increased slightly less had institutions not been putting these revenues into institutional aid.”
The ongoing spread of discounting has been aided by new technology. In the past, figuring out which students were “locks” — certain to enroll regardless of price — and which needed a sweetener in the form of aid, required scraps of data and some judgment. In his book, Breneman wrote of a clever method that one school used to determine a student’s commitment to attending the school — and thus how much or how little aid was necessary — in which the school sent prospective students postcards asking them to rank their top choices for college. If the institution was lower in the rankings, that meant it would need to deliver more aid, or give up on this student altogether. Software now uses the data schools have on applicants to help predict how much aid must be distributed in order to achieve enrollment targets.
“There are some pretty sophisticated algorithms that — based on the financial information, academics, how much interest you’ve shown in the college — will give you a pretty good idea of what someone is willing to pay,” said economist Robert Kelchen, author of “Higher Education Accountability.” “Are you emailing them? Are you visiting them? Colleges are trying to get a sense of, OK, if you’re really interested they may need to offer you less money.”
When demand is high enough that families who can afford it will pay virtually any price, discounting schemes can reduce tuition costs for other students to rock-bottom prices even as the school’s revenue remains robust. That is true for the University of Chicago, which first-year student Ella Cornwell from California chose over less-pricey University of California schools. “I’m an only child, my mom’s an only child, so her parents have had a college fund for me since the day I was born,” said Cornwell, who nonetheless received some aid based on her parents’ income.
Roughly 37 percent of Chicago undergraduates pay the full price by enrolling without some form of institutional grants, federal aid like Pell Grants or outside scholarships that cover all or part of tuition and expenses, according to federal data. But incoming freshmen from families earning less than $75,000 per year paid an average of less than $5,000 in total costs for the 2016-17 academic year. For families making between $75,001 and $110,000, average total expenses were $15,458. For the wealthiest families, those making over $110,000, the average total cost was roughly $40,000.
The university is certainly spending the money it’s brought in. It dedicated a new $81 million library — with less than a third of its cost funded by the building’s namesake donors — in 2011, adding its gleaming, postmodern-domed reading room to the campus’ Gothic and Brutalist edifices. It added a new 800-student residence hall and dining commons, to house students for the two years they are required to live on campus. It also manages a staff that receives more than $1 billion in salary, $230 million of which is for its roughly 1,350 instructional staff and faculty, according to federal data for 2017-18. Producing and employing Nobel laureates does not come cheap.
For less-elite schools, discounting can still bring some benefits, according to the paper from Behaunek and Gansemer-Topf. The average net tuition revenue per student at the small private colleges in their study grew by about 1.26 percent per year after adjusting for the increase in costs of instruction. That growth, along with concerns about signaling weakness to prospective students or losing control over enrollments, has kept many schools from scaling back discounting and lowering tuition prices. For Gansemer-Topf, the question is less about whether to use discounting, and more about thinking critically about its effectiveness.
“Institutions can’t just increase tuition because ‘We have to look good, we have to stay competitive,’ ” said Gansemer-Topf. “Are those assumptions current?”
This story about college tuition inflation was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for the Hechinger newsletter.
The Hechinger Report calculated future sticker prices for four-year institutions by using data on compound annual growth rates in total cost of attendance from 2008 to 2018, obtained from the National Center for Education Statistics, and projecting those numbers to the academic year beginning in fall 2025. The University of Chicago is projected to reach $103,248 by 2025 based on previous growth rates and its current tuition. Three other schools had a projected sticker price of $100,000 or more. Harvey Mudd College in California is projected to reach $102,508, while Columbia University in New York and Southern Methodist University in Texas are projected to reach roughly $100,000. (The Hechinger Report is based at, but editorially independent from, Teachers College at Columbia University.)