The College Tuition and Admissions Probability Estimator
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College is expensive. We all know that – and that is why parents come to financial advisors to talk about how they’ll pay for it. What you and your clients’ families may not be aware of is that the posted tuitions are rarely the price anyone pays. College tuition discounts vary widely and the methodology used to calculate tuitions is not disclosed by any college.
Making sense of college tuitions is almost impossible. It was designed that way by the consultancies who advise over 1,000 of the largest colleges in the U.S. on how to construct their tuition models in order to maximize revenues. These are multi-variant, dynamic revenue models which share many attributes with airline pricing models.
Wait a minute – are we talking about taxpayer-funded educational institutions?
Yes, and understanding the mechanics of the pricing systems of colleges can be a very high-value service for financial advisors.
Here’s a crucial point to understand when you are in the market for a college education – you won’t start with a base price and then add on options. With college tuition, everyone starts at full price – the sticker price – and then tries to figure out what aid, scholarships, grants and so forth might be available. You start high and then the onus is on you and the family to figure out what aid and discounts might be available to you to bring the price down. The smiling face in the ”financial aid” office may not do much more than hand you a stack of forms to fill out. As a reference point, the average net price tuition at public colleges is roughly 50% of the sticker price. The discounting is even greater at most private colleges.
What is the underlying discount methodology? Let’s work through the discount structure by way of example. Assume that we have an advisor who is working with the Jones family as they plan to send Billy to college. The Jones have about 10 schools they’re contemplating for Billy, one of them being University of California, Irvine (UCI). The sticker price for UCI (in state) students is $15,800. Know that, in principle, a rich student with poor grades who is accepted will pay close to $15,800. Conversely, a poor student with excellent grades will pay little or no tuition. Now, we’ll get our hands dirty and explain what happens for those who reside in between those two extremes.