An important aspect of college costs in America is the huge gap between the prices universities list and what many students actually pay. Schools charge high prices to soak the rich, while lower- and middle-income students are eligible for large amounts of aid.
An interesting new study highlights a predictable side effect of this setup. The high “sticker” prices are readily available pieces of information for anyone trying to find a college to attend, while the lower “net” prices are harder to figure out and vary from student to student. As a result, a higher sticker price can dissuade students from applying even if they won’t pay that price themselves.
The researchers study this by looking at schools that promise to meet students’ full needs. In theory, students eligible for aid shouldn’t care at all when these schools’ sticker prices go up, because they’re paying solely based on their ability to anyway — but this is not the case. “A 10 percent increase in sticker prices at a public flagship generates around a 1.2 to 1.8 percentage point reduction in the likelihood of applying to an institution, as proxied by sending SAT scores to that institution,” the paper reports. “Importantly, we find little difference in that impact between students likely to be eligible for financial aid at schools that meet full need compared to those that do not. Since aid-eligible students should not respond to changes in sticker prices at meet-full-need schools, we interpret these results as evidence of sticker shock.”
For those trying to make college more accessible to low-income students, it’s a Catch-22: A higher list price will extract more money from rich students that can be used to subsidize poorer students, but it also discourages the poorer students from coming.