Private Progressive Mechanisms #2

In an earlier post I argued that the Financial Aid process is a private progressive pricing mechanism.  Here is Evan Soltas arguing an equivalent point:

  • What has happened is a shift toward price discrimination — offering multiple prices for the same product. Universities have offset the increase in sticker price for most families through an expansion of grant-based financial aid and scholarships. That has caused the BLS measure to rise without increasing the net cost…To distill my point: current sticker price increases reflect almost entirely cost discrimination, not increases in net cost.

He’s exactly right, and exactly right to observe:

…the potential for more price discrimination is pretty limited — there is certainly the possibility that the inflation-adjusted sticker prices rise further, but I’m not confident in the market’s ability to bear, say, a $75,000/yr. or even $100,000/yr. tuition. And I am certainly aware of the consequences of the Pell expansion.

My point is that the FAFSA mechanism for determining your place in the price scale is:

  • a disincentive to save for college (and to a lesser degree retirement)
  • discriminates against homeowners in more expensive parts of the country
  • is extremely crude in considering lifetime earnings/ability to pay

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