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What you should know about scholarships and tuition discounting

What you should know about scholarships and tuition discounting

Many students and their families tend to think of scholarships as something they earn through an awesome GPA, amazing test scores, winning an essay contest, or excelling at an extra-curricular activity. They may also believe that scholarships are difficult to obtain, or that they have to spend a lot of time finding and applying to scholarships from a variety of sources.

The truth about scholarships is that the vast majority of them are distributed from the colleges themselves. And while scholarships are still mostly thought of as being awarded based on merit, the reason you may receive a scholarship from a college has a lot more to do with the enrollment goals of the school then with your personal merit.

How Colleges Distribute Financial Aid

When you fill out the FAFSA, the government reviews the state of your family’s finances, and assigns you an “Expected Family Contribution” which is a dollar amount it is deemed reasonable for your family to pay towards college costs.

Colleges use the information you have reported on the FAFSA, as well as your EFC to determine what your financial need is. The calculation goes something like this:

College Sticker Price – EFC = Financial Need

The college is supposed to then meet your financial need through a combination of government aid (if you quality), and school aid (any combination of grants, scholarships, work-study or loans from the school).

Sounds simple enough, but what most families don’t realize is that colleges often have many different factors motivating what students they accept and which they deny, and how financial aid packages are organized.

Tuition Discounting as a Way to Optimize Enrollment

Scholarships from the students perspective is often seen as a gift rewarding them for their achievements. It’s exciting and flattering and can do a lot to sway a student toward accepting a college offer.

Scholarships from the colleges perspective is a way of discounting tuition to specific students who help the school meet their enrollment goals.

To the college, a scholarship is essentially marketing dollars. They know the emotional response most families have to scholarships, and that it can go a long way towards a student choosing their specific institution over a competitor.

According to a study from the Lumina Foundation, tuition discounting is a common practice across almost all colleges and universities.

Institutions use the discounts for a variety of purposes, but generally their goal is to manage or tailor enrollment for one or more reasons: to increase racial, ethnic or income diversity on their campuses or to woo students who have shown superior academic performance or other special skills.

Although it’s exciting to receive a scholarship from a college, students should keep this in mind as they compare financial aid packages, especially since a scholarship still may not make a financial aid package affordable if it’s accompanied with a lot of loans.

The Dark Side of Tuition Discounting

There are several ways families can use tuition discounting to their advantage when it comes to applying to college and negotiating financial aid packages. If their student would be a minority on campus they may have a leg-up on the competition.

To see an example of this in action, check out this list of colleges that favor men or women in admissions recently published by The Washington Post.

However, sometimes tuition discounting can have the opposite affect the school intends. Here are some of the dark sides of tuition discounting that have affected a great many families.

1. THE STICKER PRICE OF COLLEGES IS ASTRONOMICAL

In order to offer aggressive discounts to students, colleges must start with very high sticker prices. The extremely well-off students who do pay full price are actually subsidizing the cost of education for their middle-class and low-income peers.

But even though most families do not pay the huge sticker price colleges advertise, the price still has the effect of discouraging low-income families away from applying to the school even if that student is high-achieving.

As pointed out in a report from The Atlantic, lower income families do not have access to good information to compare schools, and often don’t have a good understanding of the way schools discount tuition or provide financial aid.

Families eliminate good college options because they don’t understand the extent to which need-based aid can reduce their actual costs.

In actuality, many of those high-performing, but low-income students are likely eligible to receive a great deal of financial aid at the very schools they are too intimidated to apply to.

2. LESS FINANCIAL AID IS AVAILABLE TO THE NEEDIEST STUDENTS

The same study from the Lumina Foundation found that even though colleges intend to increase diversity on their campus, using tuition discounting to do so often backfires.

Many colleges end up using their limited financial aid resources to attract students whose families can afford to pay a greater share of tuition. Their reason may be ultimately to get more money flowing in to provide more support to all of their students. However, what ends up happening is that there are fewer opportunities for low-income students to attend the school affordably.

Think about it. A school gets more return for its money if it can give away four $5,000 scholarships to students they believe are likely to succeed at their institution, than by awarding one $20,000 scholarship to a particularly needy student.

Getting a measly financial aid package is more likely to happen at a school that is considered “need blind” and engages in the practice of “gapping” or “admit-deny”. By giving a student a small financial aid the school intends to discourage the student from attending. Unfortunately many students do not take this hint and over-load on student loans in order to afford their “dream” school.

If financial need is a big concern for a student, they are better off applying to colleges who have pledged to meet the full need of their students.

3. PAYING FOR COLLEGE A COMPLETELY CONFUSING EXPERIENCE

Paying for college is a bit like buying an airplane ticket: everyone has paid a different price to be there, and you usually have no idea how much more or less you paid than anyone else.

Colleges practice tuition discounting in order to boost diversity at their schools, encourage high-achieving students to their institution, and to court higher-income students who are more able to pay a greater portion of tuition. Many colleges are likely well intentioned in this practice, as they need to manage their resources well in order to be able to offer financial aid to students who need it.

However the result is an extremely confusing experience for low, middle and upper-class families alike. Some college counselors even have difficult reading and understanding financial aid packages that list loans as part of a student’s “award”.

Although tuition discounting may not be the most fair practice, at this time it is a common practice.

This can allow them to apply to colleges strategically in order to get better access to aid. They also put themselves in a better bargaining position if they want to request additional aid from the college.

By Carly Stockwell