[leplen]

Price discrimination in the form of scholarships and the "show us exactly how much money is in your wallet" scam they call "need-based-aid" allowing universities have essentially perfect price discrimination and to gobble up the entire consumer surplus is definitely a big part of it.

Imagine any other service where they demanded your bank statements before they told you what they would charge you, and the impact that would have on sticker price.

[SkipperCat]

I've always wondered why the family that pays full price for tuition does not get the tax credit for their charitable contribution to some other student whom they subsidize.

If I donated $20k to a university, I'd get to write that off as a charitable contribution in my taxes. If I pay full tuition and 1/3 of that goes to a student needing aid, I get no deduction.

[rendang]

It's typically the opposite of what you say - the true expenses/student that a private university pays is much higher than even the richest kid pays (difference made up for by the endowment's income)

So the better question is why they don't raise prices such that the rich kids have to pay the true full price & have more money for aid for the less-rich.

[StressedDev]

I have a hard time believing this. Every course I took in college had at least 15 people and usually 30-50 people. Large classes like Calculus 1-2, Linear Algebra, and Differential Equations had at least 300 people. There is no way you cannot pay the salary + legitimate overhead for 1 profess, and 1-10 TAs with these class sizes. My guess is a lot of the money does not go to instruction but goes to administration, sports palaces (stadiums), luxury dorms, etc. Colleges used to be MUCH cheaper in the 1950s, 1960s, and 1970s. The education was just as good but cost far less.

The big problem with colleges today is they are "non-profit" in name only. Instead, of giving profits to shareholders, they are giving them to employees and insiders. This hurts students and the United States. However, colleges do not care because they, their employees, and friends benefit.

[brianwawok]

How much has state aid changed in 40 years? That’s also big

[wakawaka28]

Sports more or less pays for itself in most cases and even brings in profits. That's why even public colleges have active sports programs. You are right about other luxury amenities. But even basic facilities cost pretty serious money, even if they are only built every 50-100 years or so. If I had to estimate, I'd say no school currently pays more than 25% of tuition on actual teaching. Administrators and luxury facilities account for most of the other spending.

The real cause of these escalating costs is easy credit for tuition. There would simply be no big market for the current overpriced programs if people couldn't get loans regardless of outcomes. I would like creditors to have to prove how the students will pay for the median salary of a person with the same degree before loaning the money. You should not be able to borrow hundreds of thousands of dollars for stupid stuff that will never pay off.

[onlypassingthru]

There is exactly 1 college sport that typically pays for itself and every other sport at the university, with the slight possibility of a second sport contributing to the coffers ONLY if the college is a D1 school and competes regularly in March Madness.

For those unfamiliar with American college athletics, American Football is the money maker via shared revenue from broadcasting rights and Men's Basketball can be a net cash flow positive also via broadcasting if they're an elite team. Every other sport is a net cost for the school because nobody watches all the other sports shown on ESPN Ocho.

[wakawaka28]

Football is the most profitable and most colleges do make money on it. https://sports.usatoday.com/ncaa/finances Not only is sports usually profitable on the surface but it draws donations and new students. Administrators aren't as stupid as you think. Sports need not cost a huge amount of money. Stadiums used for one sport can easily be used for other purposes instead of letting it lay fallow in the time between football games.

It always amazes me that people simultaneously say that colleges are sharks when it comes to maximizing tuition and minimizing expenses, while also saying that sports are objectively a waste of money. They aren't stupid. If sports wasn't a desirable thing to invest in, they wouldn't do it. We could make the same complaint about luxury amenities too. The fact is that colleges have to compete with each other, and they charge enough to pay for everything.

Could tuition be lower if not for all of these luxuries? Maybe so. Should core education get more money? Perhaps. It certainly used to bother me that sports got more money than academics. But I really get that it's a legitimate business decision to allocate some money to sports. I don't even like sports much but I would not cut it out if I were them.

[ecshafer]

sports only pays for itself in a minority of highly successful schools, and even then typically only Football or Basketball. So sure Penn State and Auburn football pull a profit, but the vast majority do not. Last I checked on these, the number of schools was <20 that were profitable.

[wakawaka28]

You're wrong about that. See this for example: https://sports.usatoday.com/ncaa/finances

Not only is sports usually profitable on the surface but it draws donations and new students. Administrators aren't as stupid as you think.

[Vegenoid]

> If I had to estimate, I'd say no school currently pays more than 25% of tuition on actual teaching.

Is this based on anything at all? Any direct experience you have, any sources?

I don’t mean to be rude, and I don’t expect everyone to have expertise on something just to talk about it - but when people start using numbers as evidence for their claims, I think a higher standard is warranted.

[rachofsunshine]

I had the same reaction you did, so I looked up the state university budget breakdown [1] for my home state of Florida. In 2021-2022, the most recent year for which they have final numbers, 35.6% of expenditures went to "E&G". That's "Education & General", which according to them is defined as:

"The Education and General budget funds the general instruction, research, and public service operations of the universities. A large portion of the system’s 2022-2023 beginning fund balance reserves ($420.8 million) is dedicated to meeting the 7% reserve requirement set forth in Section 1011.45(1) of the Florida Statutes. Additionally, millions of dollars have been reserved by the SUS to cover the costs associated with the hiring of faculty, maintenance of facilities and equipment, the maintenance of each university’s financial software system, various research enhancement programs and initiatives, and the potential for budget reduction shortfalls."

So this includes both the "actual teaching" and research and other related spending.

We can get more information on page 45, which provides a breakdown of that 35%: 61% of it (~22% of total) is "instruction and research", i.e., at most 22% of the total budget (and probably much less, since FL's public university sector is fairly research-heavy) is spent directly on instruction.

That's probably a little unfair, since instruction needs things like facilities and other admin expenses even in a system that isn't bloated, but the previous poster's 25% number passes a sanity check at least to my eye.

In case you're wondering, the other two big categories of expenses are C&G ("contracts and grants" - so more research expenditures mostly) and "local funds" (a weird mix that includes things like student activities, athletics, and financial aid).

[1] https://www.flbog.edu/wp-content/uploads/2022/12/2022-23-OB-...

[true_religion]

Most undergraduate degrees don’t really require much in the way of infrastructure.

I went to school as an English major. I struggle to see why the cost of tuition has gone from 6k per semester when I attended to 35k now 20 years later.

Did salaries grow 6x?

[lupire]

You not liking how the money is spent doesn't mean the money's not spent on the product being sold to you. Tuition grants you access to the campus resources.

I don't like the CEO of global corp making a billion dollars, but it's still part of the price of the globowidgets that I buy.

At expensive schools, those large classes are usually much smaller.

[lukev]

Given a typical professor's salary, it is... difficult to imagine that this is true, at least not without fantastically bloated administrative and overhead costs.

[CPLX]

> fantastically bloated administrative and overhead costs

Indeed. Go check the trends on the ratio of non-teaching staff to students at these major name colleges.

[ckrapu]

“non-teaching staff” includes all the research scientists, postdoc, and techs that help make the research happen. These universities are not especially good at teaching compared to SLACs. They are exceptionally good at research.

[CPLX]

That’s not what most of these people are doing.

https://www.mindingthecampus.org/2023/01/05/more-employees-t...

[seanmcdirmid]

Those people are paid for out of research grants, not tuition.

[gumby]

I don't know -- MIT's tuition and educational expenditures roughly match (it's a slight loss). Of course it's also a minor percentage of the budget.

Tuition at my partner's New York private high school (she graduated 35 years ago) just hit $61K. OTOH my own high school (also private) spends over 70K/student and charges 20K tuition, though tuition revenue/student is under 10K. This might be an example of the subsidy.

[floor2]

No that's not the better question.

If private universities are truly spending so irresponsibly and profligately that their sticker price isn't covering their expenses, then their entire administration should be thrown out and replaced. It's only incompetence or corruption that could excuse such costs.

[AgentOrange1234]

Throwing out the entire administration and then only replacing a small fraction of it would work even better!

[vernon99]

That’s the only thing that bothers you? :) How about we outlaw the price discrimination described in the parent comment? I think everything else just pushed the conversation deeper in the weeds and does us all a disservice.

[gnicholas]

So no more youth ticket prices, senior discounts, etc.? Price discrimination is a very commonly-used tactic, and it goes by many different names.

[rgovostes]

Senior discounts: When the median US senior citizen is significantly wealthier than younger adults, absolutely yes. https://www.cnbc.com/2023/10/28/americans-median-net-worth-b...

France grants free museum admission to adults under 26, which strikes me as a better policy than charging the highest price to access cultural works to the people who (a) have the least earned wealth, (b) the least lifetime exposure to those things.

[gnicholas]

Yep, I think senior discounts are partly/largely about willingness to pay, not ability to pay. For example, senior citizens aren't the target demographic for most movies. Theaters get full freight from the 18-45 crowd, who want to see the movies the most. Then they entice senior citizens to come watch movies that they don't love by giving them better pricing.

Same applies for theme parks, where the target audience is young adults and families with small kids.

I'm not defending any of this — just pointing out that price discrimination is sometimes about ATP, and sometimes about WTP.

[anamax]

Senior discounts are also used to smooth out/move usage.

"Seniors pay 20% less for movie tickets at Tuesday at 1 pm" sells tickets that few people with jobs would buy, regardless of price.

[seanmcdirmid]

The deal with being a senior, your net worth is falling, not rising. You basically have whatever you earned and saved before 65 plus some social security. Somebody who is only worth only $300k at 70 and is pretty healthy is in a lot of trouble if they live to be 85. Some better social safety nets would make this less of a concern, but we really don’t have those.

[anon373839]

Demand for university degrees is relatively inelastic, though, so people will do what they have to do (pay exorbitant tuition for their kids, take on exorbitant loans for themselves) to get access to the kind of life opportunities that elite degrees provide. That, in my mind, makes it more unseemly - especially since many of these schools don’t actually need the money.

[desmosxxx]

Nuance can be introduced. Allow aged based price discrimination but not descrimination that is based on actual income numbers?

[meetingthrower]

100%. There are revenue management consulting firms that boast of increasing price realization by 15%+ by managing admission rates, communication patterns, and "scholarship grants" to optimize bottomline price.

When the marginal cost of each student is probably $20K, anything over that is awesome. So even if you give a $30k "merit scholarship" to a full pay student you are making bank, as you are still clearing $50K+ as a university.

Perverse outcome of this is that the richer students will get more "merit aid."

Also, Ivy leagues + Stanford and MIT are a cartel, and don't give merit aid. So they use the "need based" aid system to even more increase their price realization from the richest folks.

(Ask me how I know: parent who went way too deep on this, and is now stroking a $85K check to an ivy.... lol.)

[gnicholas]

What makes you say the marginal cost of each student is $20k?

[amluto]

Is the marginal cost even well defined?

A lot of the expensive universities operate near capacity, where capacity is limited by housing, zoning, lecture hall space, capacity of the departments, etc. They have costs that look marginal (housing, teaching, food) and costs that look fixed (administration, management, some IT expenses, libraries). But, due to the approximately fixed class sizes, this whole breakdown seems a bit fictional.

[lupire]

Seems reasonable, as that's about what K-12 costs at a public school.

[rightbyte]

Uni has to be way cheaper than K-12? The teacher density is way lower in uni and TAs are not FTE.

[gnicholas]

OTOH, you don't get room and board at a public school, and the facilities are much less complex (in terms of labs and other specialized buildings).

[danielheath]

That number is preceded by the word “if”, right?

[gnicholas]

It is not. I don't think it said "if" before, but it certainly doesn't say it now:

> When the marginal cost of each student is probably $20K

[happytiger]

It’s the same system California is putting in place with income-based energy billing.

Income-based billing is rife for abuse!

[maxrecursion]

The main political realization I had with growing up lower class, still live in poorer areas, and making it to being high income is that basing government programs around income is terrible policy.

1. It's extremely unfair

2. It punishes those working to get ahead

3. It creates 'welfare cliffs' where people become worse off for getting jobs. Losing Medicaid is the best example of this.

4. It makes the program exponentially more expensive to maintain because you have to hire people to track who gets it and who doesn't, look for fraud, monitor for when the income threshold needs changed, etc..

It's just terrible policy all around. We learned this during covid. It's so much easier to write people a check and tax the the high earners more to make up for them getting a check.

[lupire]

What we learned from COVID is that it's absolutely disastrous to send everyone a check, because most of that money gets stolen. Better to give away resources that are valuable to consume but expensive to transact in.

And what we learned from taxing high earners is that the highest earners hide their money and don't pay the expected taxes.

[maxrecursion]

The money that was stolen wasn't sent to everyone. You can't steal money sent to everyone. It was the PPP 'Paycheck Protection Program' money that was stolen where tons of small businesses filed to get that money when it wasn't needed. That's not the same thing at all as putting money in the same bank accounts that file tax returns, which is the example I was providing.

[lupire]

CA tried something very close to that

https://www.npr.org/2022/10/18/1128561539/pandemic-fraud-bil...

https://edd.ca.gov/en/about_edd/fraud-response/

[diego_sandoval]

> because most of that money gets stolen.

Huh? I'm out of the loop on this.

[hypothesis]

Not OP, but here is some data:

“We estimate that SBA disbursed over $200 billion in potentially fraudulent COVID-19 EIDLs, EIDL Targeted Advances, Supplemental Targeted Advances, and PPP loans. This means at least 17 percent of all COVID-19 EIDL and PPP funds were disbursed to potentially fraudulent actors.”

https://www.sba.gov/document/report-23-09-covid-19-pandemic-...

IRS also covered some:

https://www.irs.gov/newsroom/irs-criminal-investigation-rele...

[chii]

a program administered with poor oversight (may be due to time constraints or whatever reason) doesn't make that program a poor policy decision.

I think means tested welfare can backfire a lot in ways that locks people into dependency on the welfare and not look for a higher paying job.

[wakawaka28]

I don't remember all that well but I think there aren't really sharp welfare cliffs with financial aid. The expected contribution of you and your family is subtracted from the total cost, and you are eligible for aid to pay the rest. The money you get from working is supposed to be more than your financial aid deduction anyway. So say if you made an extra $10k, it ought to reduce your financial aid by less than that.

>It makes the program exponentially more expensive to maintain because you have to hire people to track who gets it and who doesn't, look for fraud, monitor for when the income threshold needs changed, etc..

We already have a system for that. It's called the IRS. The cost of a basic fraud detection system is less than the actual fraud would be of course. They have to worry about things like people enrolling and never going to class.

>It's just terrible policy all around. We learned this during covid. It's so much easier to write people a check and tax the the high earners more to make up for them getting a check.

It isn't easier or fairer to write everyone a check, because quite a lot of people don't need any help. The average wagie is not going to seriously be disincentivized from working a meaningful way because it might disqualify their kid from certain financial aid. The whole point of financial aid is to give hope to the hopeless and help the struggling, not give everyone benefits whether they need it or not. Taxing people who don't have kids to pay for people who can afford to pay their kids' tuition seems wrong all around.

[maxrecursion]

Healthcare is the easiest example. A birth of a child could easily cost 10k with health insurance, and that is only if there aren't complications, it's free with medicare. 10K is a pretty massive cliff.

If you have a large family losing Medicaid is easily thousands of dollars added to your new budget, and that's just counting out of pocket costs towards the massive deductible most healthcare care plans have now. You add the premium costs it is an obscenely a lot more money you are paying for what is free if with medicare

[wakawaka28]

Hot take: If you can't afford insurance you shouldn't be having a dozen kids, or at least shouldn't complain when others don't want to subsidize that. But $10k per kid for an average of 2 kids in a lifetime does not exactly make for a huge cliff. The income limit for Medicaid is so low in most places, getting any kind of job will disqualify you. But the money from the job will be of more utility than some bare minimum free healthcare. There's no way that a few healthy kids costs thousands per month. Maybe insurance could if you had more than 2 kids, but most people don't even need that much insurance. I never had medical insurance in my life until I got my first job out of college.

There may be some people who believe they will lose money overall by working, but they're usually wrong. Do taxes and losses of freebies reduce the marginal benefit of working more? I'd say so. But in most cases it is still a net benefit to work more.

[maxrecursion]

There is no way to say this without sounding rude, but you clearly don't understand how insane healthcare costs are when you have kids.

Premiums alone could be close to a 1k a month for a family plan. At best you're paying 500 a month in premiums, and that is guaranteed to have a 5k+10k deductible before anything is covered by insurance. Then you will probably still have a co-insurance.

The notion that Medicaid is so crappy is some terrible insurance is propaganda. Free vs paying tens of thousands of dollars, and still be flooded with medical bills, is all you need to know which one is better.

I know dozens of people with medicaid and they absolutely refuse to lose it, especially the ones with large families. If you, or someone in your family, have chronic health issues then you are basically guaranteed to be paying 10k in healthcare premiums and deductibles when you lose Medicaid and get private insurance.

[amluto]

> It isn't easier or fairer to write everyone a check, because quite a lot of people don't need any help.

Why not? If you give everyone the same subsidy and adjust taxes accordingly, then the welfare cliff disappears, a marginal dollar of income is genuinely valuable, and a screwup in how someone’s need is measured doesn’t matter so much. As an added bonus, wealthier and more influential people might use more social benefits and thus apply pressure to make them better.

> Taxing people who don't have kids to pay for people who can afford to pay their kids' tuition seems wrong all around.

Why not? Healthy, well educated are a massive, and even essential, benefit to society. If nothing else, they’re the future taxpayers! Why, exactly, should their parents be the ones to bear almost all of the cost of producing them?

[wakawaka28]

>Why not? If you give everyone the same subsidy and adjust taxes accordingly, then the welfare cliff disappears, a marginal dollar of income is genuinely valuable, and a screwup in how someone’s need is measured doesn’t matter so much. As an added bonus, wealthier and more influential people might use more social benefits and thus apply pressure to make them better.

There's no such thing as a perfect calculation for this. There is essentially no welfare cliff now. What you're proposing is to tax "wealthy" people so much that they have no choice but to lean on social benefits, and expect them to be thankful for the opportunity to participate in the welfare system. You say it very optimistically but it is actually an awful thing.

>Why not? Healthy, well educated are a massive, and even essential, benefit to society. If nothing else, they’re the future taxpayers! Why, exactly, should their parents be the ones to bear almost all of the cost of producing them?

Parents of kids get most of the benefits of having those kids. That's why they bear the cost of it. I can't believe I have to explain this... Other people's kids will not help me with my bills or tend to me when I'm sick. If they are somehow taxed to pay for my existence, I expect them to avoid that as much as possible. My own kids on the other hand might actually care about me, even with all the moral decline we have seen in out culture.

[imtringued]

>It isn't easier or fairer to write everyone a check, because quite a lot of people don't need any help

Is this some kind of joke? You pay taxes on that check, which means you effectively get less money as you earn more. Do people really not understand how negative income taxes work? The system is the same in terms of net payouts compared to any means tested scheme, because you can turn the knobs any way you like.

[maxrecursion]

Exactly this. A check to the wealthy is basically a tax refund. The wealthy get a check every month already in social security, so it's literally already happening.

[wakawaka28]

Wow what an attitude... dO YoU nOt UnDERsTaND brO?

Whether you pay taxes on the check itself that 100% comes from taxes is kind of a separate issue. Unemployment benefits are like that and it's stupid. In some situations, Social Security gets taxed or reduced too.

It would not make sense to send a check to a middle class family because they don't need it. People of means who don't have kids and never set foot in a college also should not have to pay extra so that families that don't need help can get kickbacks on college expenses.

>The system is the same in terms of net payouts compared to any means tested scheme, because you can turn the knobs any way you like.

Ok, if you're proposing a means-tested scheme that's different from what I responded to. The other comment suggested sending a check to everyone. These are two entirely different plans. If you pay people who don't need it, you also have to tax them more. And those extra taxes would be unfair to some people. The right thing is to make people pay more for their own expenses when they can afford more, but on a sliding scale.

[weitendorf]

It's not just price discrimination, but the process of applying and choosing a college is essentially an auction process designed to benefit colleges over students. US colleges all band together to participate in a single coordinated system (FAFSA, college ranking systems, the common app, Early decision rules, etc.) , acting almost like a cartel, so they get away with it. If you view the college application process through the lens of Mechanism Design you can see that colleges hold all the cards and so the entire system is designed to their benefit: https://en.wikipedia.org/wiki/Mechanism_design

What exactly is unfair about the process?

1. The colleges which most heavily implement price discrimination are the most desirable to attend and also tend to accept large portions of their student body through Early Decision applications that don't allow apply to most (not all) of the other most desirable colleges. This means that accepted ED applicants have no recourse beyond either accepting or rejecting the proposed "aid package".

2. Highly desirable colleges aim for high applicant "yield" for rankings/planning, which in aggregate makes it so most of their accepted students only get into one highly desirable college. Even outside of early decision applicants, this puts applicants in a bad bargaining position - they must choose between either paying more for the ~single highly desirable college they got into or less for a less desirable college.

3. You cannot generally bid between colleges even if you got into comparably desirable/expensive desirable colleges (you can't tell Dartmouth and Brown that each is proposing a cost of $40k/y and have them bid against each other). This is because they essentially operate as a cartel. This limits downward pressure on prices.

4. The application process operates in rounds with fixed dates, there aren't really do-overs within a given year, and waiting for the next year changes the process (you're either a transfer or gap year applicant). This puts a lot of pressure on applicants to accept the least-worst option and doesn't give them the ability to react to a bad outcome by eg applying to more places after the fact.

5. The acceptance criteria are opaque and in many cases subjective (eg your application essays). Applicants need to hedge their bets and deal with a lot of uncertainty. Any accepted offer from a highly desirable college then feels like a gift and not worth squandering/negotiating.

6. As you mention, colleges know exactly how well you'll be able to pay, and because they act as a cartel that disallows bidding wars or negotiation + all the other forced scarcity/time pressure I mentioned, they can essentially extract as much from applicants as they want, up to their sticker price.

It's worth mentioning that not all competitive colleges participate in the cartel to the same degree as the Ivy League. When I was applying to colleges, I remember MIT and Caltech had Early Application (not Early Decision) processes, didn't make applying in those rounds as beneficial as ED colleges, and didn't have as many athlete/legacy "backdoors" as the Ivy League.

I also remember that Duke and Vanderbilt offered full merit scholarships to some students who might've received no need-based aid, which I was fortunate enough to benefit from and am extremely grateful for, even if it was probably a self-serving policy to poach applicants away from the Ivy League/improve yield.

[lupire]

The weirdest part in all this is that the people who architect the system are making essentially no money from it. All of extra tuition money just goes to pay random employees. A strange way for greedy provost to use ill gotton gains.

[chii]

i think it's because it's not designed to have this outcome - it's emergent upon the rules and incentives of the system.

There's advertising/marketing incentive to make the college experience like a resort on campus. There's bureaucracy in administration that just grows because it's in the interest of each department lead to manage more people under themselves (think office politiking).

There's perceived prestige of the students from brand name colleges similar to Veblen good (https://en.wikipedia.org/wiki/Veblen_good) which makes charging more acceptable.

[meetingthrower]

Beautiful reply. #3 can be pushed by aggressive negotiators, but requires "like for like" schools to make a mistake. Then you can leverage one school to ask for more money from another.

[KRAKRISMOTT]

A fairer system would be SAT score weighted by contribution and legacy status, it makes it nice and fair for everyone.

[kristopolous]

Traffic citations in some municipalities do this.

College shouldn't be structured like a punitive sacrifice for poor behavior

[mrgaro]

Pretty much every company who does not list prices publicly in their website does this. If the vendor recognizes your company name, the price will be bigger :(

[xtiansimon]

If you get food stamps or other services from the social safety net, then you have to show your financials. Requiring the same for educational subsidies seems to follow the same rationale.

[i_am_jl]

There's a difference between "Show us how much you have, we will give you more until you have enough" and "Show me how much you have, we'll raise prices until you can barely afford it with a high interest loan."

[deprecative]

That just goes to the immoral and unethical nature of means based assistance. It makes no sense to deprive people of aid because they make a dollar over some arbitrary line.

[xtiansimon]

And the low-hanging counter argument says there are limited resources in the social safety net, and an arbitrary line is necessary for the administration of such assistance.

[fishpen0]

Funny enough this is exactly how vendor engagement goes when you are publicly traded. They can see your books more or less and charge wildly different numbers to different companies. It has nothing to do with how much you use the product or the resources you'll use and everything to do with what they think you are worth. We've had so many calls where we're like "brand new product with team of 10 wants your thing" and they come back with a high 6 figure saas contract. It's so fucking annoying that they don't have to show their prices online and can make all their customers sign pricing NDAs

[exe34]

I suppose it's karma for all the companies that refuse to publish the salary being offered for jobs upfront.

[rahimnathwani]

  Imagine any other service where they demanded your bank statements

Many private K-12 schools do this as well.