The college tuition scam …

Much has been made in recent years about how the cost of going to college has exploded, at a rate far outpacing inflation or any other reputable index.

Meanwhile, enrollments are down especially at private colleges and universities.  Many of these are seeing enrollment drops of up to 9% or more from previous years. 

So how can these be increasing the cost to attend dramatically at the same time they are scrambling to fill seats?  Surely smart people in academia realize there’s a link between supply and demand.

If anything, you would expect them to be cutting prices or adding more value to fill those seats.  That’s Marketing 101, right? 

They are smarter than you imagine.  I’ll explain.   

Rising college tuitions have been blamed on soaring salaries for professors, instructors and administrative staff; the seemingly endless construction of ever more extravagant facilities; and the reluctance of any responsible body to rein in profligate spending.

That’s only part of the story.

I think much of the increase comes from colleges and universities taking advantage of students’ ready access to ever increasing student loans and the gullibility of parents and students who don’t recognize they’re being scammed.

Easy money often makes for poor decisions. So does falling prey to practices that would normally bring the wrath of the FTC for deceptive marketing but are ignored for some reason in academia.

I’m talking about a widespread tuition scam intended to make parents and students think they are getting a super deal on a great school when they aren’t.

If you want to move more product – in this case seats – you have a sale. That’s what’s quietly going on across the country in a lot of private colleges and universities. Only it’s not really a sale; they are pumping the tuition cost so their deep discounts seem too good to resist. 

Think about it this way:  If you saw a dress shirt priced at $10 you’d think it was cheaply made and low quality.  But put an SRP of $85 on the very same shirt, mark it down to the same $10 and you’d think it’s a hell of a bargain.

The problem is, if you normally sell it for $10 and jump it to $85 just for the sale, you’ll probably hear from consumer fraud agencies. But not if you’re a college or university.    

Villanova – a very well-respected private Catholic university near me – has a posted tuition price of $47,000 a year.  Yet with all the grants, merit awards and student employment opportunities available the average award total to qualifying students is $37,600 a year.  

So now you’re looking at less than $10,000 annual tuition – still high, but it looks like an almost 80%-off sale to the parents of prospective students. What a deal. 

In this specific case, for a school the caliber of Villanova it actually is.

You’re getting a school that’s nationally known with a good reputation at a price that’s half the cost of a school that practically no one other than past graduates ever heard of.    

Seriously, Villanova’s half the price of a lesser school? You bet. 

I know of one tiny college not far from here that posts annual tuition and fees of over $40,000.  It has less than 2,200 undergrads and is not known for anything in particular. It’s not a bad school as tiny liberal arts schools go, but otherwise unremarkable. 

Everyone I know who attended this school got a whopping big scholarship that cut their tuition by more than half.  I know their parents thought they got a super deal and bragged about how much they saved.  But I would wager that only someone from Nigeria or Uzbekistan who stumbles across this school ever pays the full rate.

I looked it up.  About 98% of the school’s undergrads get financial aid, averaging almost $20,000 a year, by this school’s own published stats.  So – on average – the actual market-clearing price paid is closer to $20,000 a year, not $40,000. A perpetual 50%-off sale. 

Still, way too much for a school almost nobody’s ever heard of.  But maybe I missed something. Maybe it’s an exclusive school; maybe it’s hard to get in.   

Folks, this is not an exclusive school by any measure – about 72% of those who apply for admission are accepted. That’s really high.  For comparison, the University of Florida only accepts 47% of its applicants, and those applicants have higher SAT and ACT scores on average.  But its posted in-state annual tuition is only about $6,300.  (Snowbirds beware: out-of-state tuition at UF is about $28,000.)

So what’s the better deal?  Let’s see: you can go to a big state university like UF for about $6,300 or less; a smaller well-regarded school like Villanova for a bit more; or pay through the nose for a tiny little school in the middle of nowhere with no national reputation.     

First, asking $40,000 or more a year for tuition at some of these little schools is ludicrous. Cutting it to $20,000 doesn’t make it any less so.  Unless you’re sending your kid off to a big-name private college or an Ivy League school with top-flight faculty it’s preposterous.       

If you want to know how some kids graduate with hundreds of thousands in student loans and others closer to the average of $29,000 (which, BTW, is the real average student loan debt on graduation), this is a major clue.  At the “discounted” price of $20,000 a year for tuition alone at some of these tiny unremarkable colleges, it’s easy to see how someone could run up a $100,000 + student debt after four years when they add in books and room and board. 

A college education can still pay substantial benefits over time. And a degree from some places can have a much higher value than others, particularly when someone is just entering the job market.  For example, Wharton graduates will automatically get more attention from recruiters and potential employers than b-school grads from schools they never heard of.  As much as I’d like to believe UF’s business school grads are top tier, I’m also realistic enough to know a UF business degree just won’t have the curb appeal of one from Wharton either.   

So choice of schools can sometimes justify a higher tuition. But over inflated tuition alone doesn’t make a school necessarily better or even in the same league.  It can also be a foolish extravagance to indulge the whims of an 18 year old who views college as a rite of passage instead of a serious investment in their future.

Especially when you’re fooled by the sticker price into thinking you’re getting a much better deal than you really are.