While researching paying tuition for the next four years, I discovered an odd benefit that some colleges offer the very wealthiest families. Maybe others know about it, but it was completely new to me. They will lock in this year’s tuition for all four years if you’re able to pay $200k+ in tuition in one single payment at the start of freshman year. Nominally, that’s a savings of $15-25k over four years of college, assuming a 3-4% annual tuition increase. Among the Ivies, it seems that at least Harvard, Columbia, Dartmouth and Cornell offer this tuition lock-in/discount.
The rationale for high tuition sticker prices is to generate sufficient revenue from high-income families to provide financial aid for middle and low-income students. If that is the case, why provide a discount that big to families that do not need it? It seems like giving financial aid to the richest of the rich who are the least price sensitive.
I assume the schools say their endowment managers will earn more from the prepayment than the discount. But, it really feels like reverse Robin Hood. How many colleges offer these single payment discounts? Is it pretty common or is it a rare phenomenon? Do public colleges offer this too?
Some schools do offer this, or even better freeze the tuition so you don’t have to pay it up front but get the benefit of the year 1 price. That’s a benefit for all students, not just the rich ones.
I don’t think prepaying is a good deal. If you could take the AOTC, you’ll only get it for 1 year rather than 4. If you need to transfer and get a refund, you won’t have the fund to pay another college and may have to take a gap semester or year.
And I don’t think tuition will go up by $15-25k. My daughter’s has increased about $2k per year, just over $9 for all 4 years.
Your argument makes no sense. Why shoudnt a discount be offered for a lump payment? Rich people aren’t obligated to pay for the poor although that’s already happening through financial aid.
Once the poor feel so entitled they believe it’s the rich peoples jobs to help them, that’s when socialism occurs.
Once the rich have constructed an inherited-wealth aristocracy that keeps everyone else poor, that is when the poor desperately grasp for any alternative, even very dubious ones like communism.
My company offers significant discount for software update/maintenance to any customer who is willing to sign a 3-year contract (vs yearly). I wouldn’t call this “financial aid.”
Public institutions can not offer discount. It’s against the law. This is one of the reasons why it’s difficult for USPS to compete with UPS, FedEx, … (it can’t give volume discount to, say, Amazon).
Public schools offer discounts all the time. Instate tuition rates to OOS students. Payment plans without finance charges. Free/reduced tuition for faculty and staff or their families.
It locks in the family and student so that there is far less likelihood of “transfer” or other talk when the kid hits some bumps along the road and allows the institution to invest the funds as it sees fit instead of waiting to receive said funds. The folks receiving merit or Faid are NOT eligible for these pre-payment options (even if they had the funds). It also helps with “cash flow” as they allow those who can’t readily come up with a huge amount more time to pay on a monthly basis instead of full pay at the beginning of each term. It’s another option, having the U assume the burden of whatever tuition increases there will be from the date the payment is made until the sums are needed.
Seriously, the concept of tuition discounting as financial aid is absurd. I agree with the posters that they are giving a break to people who will lock and load for all four years. Pretty common in business for contracts that are longer than a year. .There are also colleges that “lock” the tuition cost for all four years and the increases are born by the incoming class each year
I don’t think this the forum for political debates. FYI - Every institutional grant is a discount. The Ivies have sticker prices of $70k+ COAs are all need blind and full-need and give over half of the students financial aid with very large average grants/discounts. These aren’t schools with any shortage of demand or fear of students transferring to other schools. In theory, they could substantially lower the cost of tuition and collect the same revenue if they did not provide those grants/discounts. But, the universities choose to finance the aid they give to moderate and lower-income students by charging wealthier full-pay families more. The business model they follow is to charge wealthier families as much as they are willing to pay and provide generous discounts to those that can’t afford the sticker price. It’s not my characterization of their model, it is theirs. And if that’s the case, I don’t see any reason to cut a financial break for the wealthiest of the wealthy who can afford to pay four years of tuition all at once.
Back to my original question, is this a common practice at other universities?
As I tried to indicate earlier, it’s not really a discount if it has to be paid in advance. It’s a great way for the college to secure those tuition payments and supplement their coffers.
Let’s assume your 3-4% increase per year. Any investment firm handling the college’s endowment should be able to beat that rate. They in essence borrow the tuition payments from the family and put it to work, earning the college (and costing the family) more the standard tuition rate.
I did this. It was good for me, and it was good for the college because of the different risk profiles between me and the college.
When your child starts college, the money for all 4 years needs to be invested in something safe. This means cash or cash equivalents. The returns on these are small. The college on the other hand can take bigger risks because of their endowments. They will add it to the endowment and put it to work immediately more likely than not racking up larger returns than tuition inflation.
For me, I got an after-tax return on investment of tuition inflation for a cash investment.