Why Colleges Are Like Cable Companies

Comcast might be the most-hated company in America. Even in an industry that generally rates poorly with consumers, it still regularly fares worse on consumer-satisfaction measures than any other company except Time Warner Cable, which it is in the process of trying to acquire.

One reason people hate cable companies is unpredictability. When the statement arrives each month, the amount owed can be a total mystery. That’s because the companies lure in customers with low teaser rates, which later shoot up without notice. What starts as a good deal can quickly become a burdensome financial commitment.

But if consumers dislike the pricing games played by cable companies, why are people giving a pass to the colleges doing the same thing across the country?

Expensive four-year colleges, particularly private, nonprofit ones, often emphasize how few students pay the listed tuition. Rather, after receiving grants from federal or state governments and the institution itself, many have a heavily discounted and more-affordable “net price.”

The federal government has also bought into the importance of net price, hoping that explaining the true cost of college can help more families and students see that it is obtainable. Recent programs have mandated that colleges put interactive calculators on their websites and report data to the U.S. Department of Education. Net price is also the first metric on the College Scorecard released by the White House that is supposed to help students choose a college.

There’s just one problem. All the net price information is focused on what first-year students pay—the introductory rate. There is, however, no guarantee that money a college offers a freshman will be there again the next year. Much like that artificially low introductory rate from the cable company, the bill that shows up 12, 24, or 36 months later could be thousands of dollars higher.

Tuition increases are not the only thing to blame. Many colleges intentionally give less institutional grant aid to returning students, raising net prices for families by as much or more than they up the sticker price.

Data strongly suggest that some students are seeing significant reductions in the amount of aid they receive from their colleges year after year. According to data reported by public and private nonprofit four-year colleges to the U.S. Department of Education, 75 percent of full-time freshmen in 2012-13 received some kind of grant aid (including federal, state, and institutional). But just 63 percent of all other undergraduate students received any grant aid.

Not only are nonfreshmen less likely to get grant aid from their colleges, but the amounts they receive tend to be lower too. Of freshmen getting grant aid, the typical award was $11,867; for all undergraduates it was nearly $1,900 lower. The differences are even more pronounced at private nonprofit institutions, where an undergraduate can expect the drop to exceed $2,800 compared with full-time freshmen.

To be fair, a reduction in grant aid after the freshman year may sometimes be warranted. If a family’s income goes up then colleges may be better served spending limited financial-aid dollars elsewhere. Or part-time students may need less aid than those taking a full course load. Some colleges may also defend the practice on the unproven theory that upperclassmen are more likely to finish so it is better to front-load grant aid and avoid early dropouts.

But many of the colleges that appear to be practicing the Comcast model of higher-education pricing are overwhelmingly full-time institutions with traditional student bodies. Consider Drexel University, where 84 percent of students attend full time. The Philadelphia-based university is quite generous to full-time freshmen—93 percent of them get grant aid to the tune of $19,063 per aided student. But it’s stingier with the rest of its undergraduates, just 75 percent of whom get aid. The average allotment per other aided undergraduates is nearly $4,000 lower.

Many other private institutions appear to be following similar practices. Northeastern University undergraduates get $8,900 less in aid than a full-time freshman there and are 13 percentage points less likely to get grant aid. Data reported by New York University for U.S. News and World Report’s rankings show that it covers 73 percent of the financial need for its first-time full-time students, but just 60 percent for all full-time undergraduates.

Some public colleges appear to be engaging in similar pricing tactics, though it can be harder to tell because of larger numbers of part-time students and the lower prices offered to residents. At the University of Georgia, 92 percent of full-time freshmen get aid—13 percentage points more than all undergraduates. The University of Vermont has an even bigger gap—24 percentage points.

These pricing games may help universities make their finances work, but they could wreak havoc on family budgets. Students who can barely afford to attend college at the start will have a tough time kicking in several thousand more dollars later—which can lead to their taking on greater debt than expected.

It’s arguably worse when colleges offer bait-and-switch pricing than when cable companies do it. And that’s not just because of the greater financial stakes involved.

For one thing, the practice exposes the power imbalance between students and colleges. Higher-education institutions desperately want accepted students to enroll so they can meet revenue and enrollment targets. So they throw money at new students to entice them. Once a student shows up the dynamic shifts, and the student is a captive audience. College is no longer an optional expense for future success—students cannot easily cut the cord. Nor can they simply change colleges through a few phone calls and a couple hours of waiting. Transferring is an onerous process. It might even be more expensive than staying, since a new college might not accept all credits, and financial-aid packages tend to be worse for transfer students.

Colleges also cloak their pricing strategies in a false conception of merit. Awarding scholarship dollars tied to academic requirements, like maintaining a high grade-point average, gives colleges an automatic way to spend less money on students who do worse academically and can thus be deemed less deserving in their view. And it can do so regardless of what the consequences might be for low-income students or students of color.

There’s no easy way to get colleges to commit to providing multiyear aid packages with their own money. At best, students should carefully review their grants and find out which ones might change each year—and why.

Athletics provides one way forward. Conferences like the Big Ten are guaranteeing multiyear scholarships after recognizing that taking dollars away from students just because coaches weren’t happy with their on-field performances was unacceptable. The case for giving all students a similar guarantee will be harder. But everyone already knows that college is more than a one-year cost. It’s time that financial aid reflects that reality too.