College tuition and scholarships: who pays what

From Arnold Kling, Price Discrimination Explains College Tuition:

He points out that list prices for tuition mislead the public in many ways. For example, he reports that although average full tuition at private colleges rose 33 percent from $27,000 in 2004 to almost $34,000 in 2020, average tuition paid actually edged down, from $15,000 to $14,000. Scholarships and grants increased over those fifteen years.

This agrees with some of my earlier posts about how the student loan debt crisis may be overblown or misleading. Due to generous financial aid and other discounts, the amount actually paid is much less than the quoted price. It would seem as if there is a sort of cognitive dissonance by the ‘anti-college movement’ in having to reconcile that college is a ripoff due to excessively high tuition and at the same time that very few students are paying said tuition in full.

Also, it’s trendy, on either side of the aisle, to complain about how college is too expensive or how America spends too much on education. And then you see how it’s different elsewhere, such as much less flexibility even if the schools are ‘better’. The extra cost is the flexibility, amenities, and accommodations (like IEPs, tutoring, remedial classes, organizations/clubs, etc.) that you don’t typically see elsewhere, in addition to tons of scholarships and other aid in the US.

In Germany, sure college is ‘free’, it’s more like ‘sink or swim’ , and much more testing and other screening in terms of who is admitted. Also, unlike in Germany, college acts as a sort of social network, particularly if it’s a top-tier college, which can open the door to various networking, business, or other career opportunities after graduating. Same for the huge wage premium of having a college degree, which is much more lucrative in the US compared to elsewhere (the top 5% of earners in the UK earn at least $100k/year, compared $343k/year in the US–a big difference). Even if Americans seem to be overpaying for college, the rule that ‘you get what you pay for’ still holds true, broadly speaking.

When you have an overwhelmingly fixed-cost business, price discrimination is the best solution. Charge a low price to the customer who is most likely to be driven away by a high price, and charge a high price to the customer who is more willing to pay a high price.

Makes sense. But this part is way off:

Colleges also want to offer attractive scholarships to students whose parents are likely to give generously to the school. “Legacies” get scholarships for that reason.

Unless I am missing something obvious, how is a discount a deciding factor when legacy donors have hundreds of thousands of dollars or even millions to spend in the hope of tilting the odds even slightly in their children’s favor? For top colleges, the cost of tuition is irrelevant as far as legacy donors are concerned. Athletic scholarships however are more common, even for low-ranking colleges, because athletes are like free labor that bring revenue and prestige to the school, especially for basketball and football.

By the same token, colleges do not want to induce children in poverty to attend. They try to offer scholarships to students of poor families that fall just short of what would be a sufficient discount needed to entice those students to enroll.

Again, this is probably wrong. Top colleges like Harvard, but also even mid-ranking schools, love to give talented but low-SES applicants very generous, if not full, scholarships. Due to the positive correlation between IQ and career success, such students are more likely make a lot of money later in life by leveraging the credential, and subsequently become large donors. Many of the top donors to Harvard and Stanford grew up in modest means or are the sons of immigrants, who made a lot of money in the private sector after graduating.

So who is paying full tuition? Typically, out of state students and or foreign students.