College administrators are calling it "let's make a deal."
For many of the country's talented students, choosing a college has become a lot like buying a car. The sticker price at elite institutions is soaring - but the actual cost is a matter of negotiation. And with colleges scrambling to fill their classrooms, more are offering aid to strong applicants regardless of need, thus drying up funds more quickly for the rest of the pool.
Frank Turner, a freshman finance major at Washington's Howard University, is a case in point. He was a much-sought-after National Merit Scholarship finalist, but eschewed 10 scholarships at other schools to enroll at Howard. The reason?
"I got a couple of nice phone calls from Howard's president, the promise of a laptop computer, and full room, board, and tuition," Mr. Turner says.
Navroz Udwadia, a student at Columbia University in New York, had six Ivy League schools competing to attract the internationally ranked tennis player and straight-A student.
"The offers ranged from $8,000 at Brown to $19,000 at Cornell," Mr. Udwadia says. "I was surprised."
The bidding war for bright students like Turner and Udwadia has never been fiercer. One reason is demographics. The ranks of new high school graduates dropped from 3 million in 1980 to 2.5 million this spring, according to the National Association of College and University Business Officers.
"The applicants most likely to benefit from these changes are top students who may get aid even if they don't need it," says an admissions official at a highly selective school in the Northeast. "We've been awarding more generous aid packages than in previous years to be certain that our yield - the number of accepted applicants who choose to come - remains high."
Another reason for the increased competition for the best and the brightest students can be traced to a 1989 charge of Ivy League price-fixing by the Justice Department. For years, Ivy League schools shared financial information about students who had been admitted to more than one Ivy league college. Financial-aid packages in the "overlap group" were then adjusted and brought to rough parity, which prevented a bidding war from taking place.
After a federal court decision in 1992, this collusive practice was forbidden. Now, a student admitted to two Ivy League schools receives two different financial-aid offers and has some bargaining power.
"If we think we can understand how that school came up with their offer, we would certainly try to get in the ballpark," says William Schilling, the director of financial aid at the University of Pennsylvania in Philadelphia. "I've seen differences of $5,000 in some cases."
But each time a school succeeds in snaring a sought-after student, other universities fight back. Some colleges offer partial scholarships, unasked, to wealthy, high-achieving students because they assume that competing schools will too.
The last few years also have seen the advent of a practice dubbed "dialing for dollars." During April and May, financial-aid officers say, their phones ring off the hook, as students call to say, "Another school gave me a better deal. Can you match it?"
"With academically like schools, more often than not the answer is 'Yes'," says Bonnie Fitzpatrick, a guidance counselor at Bethesda-Chevy Chase High School in Maryland.
This game of "let's make a deal" has had the unintended effect of raising financial-aid budgets at universities across the country - and contributing to tuition creep. Washington's George Washington University is one example. In 1989, GWU's financial-aid budget was 15 percent of undergraduate revenue. Now it is 40 percent, part of a calculated effort to attract better students.
While this practice has helped raise the average SAT scores of incoming freshmen at many schools - including GWU - it also has sometimes led to a school's limited resources being spent on students who don't need aid.
"Financial-aid awards are a zero-sum game," says one college president. "If I award a full scholarship to a computer whiz from an affluent family, that's one less scholarship I can offer to a bright middle-class kid who probably needs the money more.
Such a student is then often forced to take out loans to attend that school or settle on a less prestigious college that costs less. There's been some speculation that happened this year in the Ivy League. Fewer students applied to seven of the Ivy League schools, with Harvard and Yale reporting 8 percent decreases from last year.
Karl Furstenberg, Dartmouth College's dean of admissions, acknowledges that increasing cost may have played a role in what he terms a one-year market correction. Total costs at most Ivy League schools run about $30,000 a year.
The Ivy League's loss is often a gain for students. Students are enrolling at schools where they feel they will get their money's worth. And many institutions are responding with innovative sales pitches.
Middlebury College in Middlebury, Vt., has a new three-year degree to help cut student costs. Clark University in Worcester, Mass., is giving students with at least a B-plus average one year of graduate work free. Indiana University is offering to pick up the tab for students who need a fifth year to earn a degree because required courses were not always available. Some schools are allowing families to pay all college costs at the beginning of the freshman year - thus avoiding large tuition increases.
College officials say that the number of tuition incentives, guarantees, and discount deals cropping up on campuses is unprecedented.
"The result is that bright students are now finding new ways to pay for a college education," says Ms. Fitzpatrick, the guidance counselor. "The kids are pretty savvy and they know when they have some leverage."
But administrators say change is on the horizon, as the number of high-school graduates is forecast to rise after nearly 20 years of declines.
"That will make filling beds and classrooms a much easier task for colleges and may eliminate this 'buyers market' for students," says an official with the National Association of Independent Colleges and Universities. "We will certainly see a huge reduction in dialing for dollars."
On the Upswing
Scholarship budget as percentage of tuition revenue
George Washington University
University of Virginia*
Johns Hopkins University
*Figure is based on aggregate undergraduate and graduate revenue
Source: Individual Institutions
Tuition Payment Options
UNFORTUNATELY, the options for paying for college are not expanding as quickly as the price, but there are more possibilities now than there used to be. Here are a few:
Prepaid tuition plans. At least nine states, among them Massachusetts, Pennsylvania, and Texas now offer plans through which families can lock in a tuition at today's rates as long as they pay a set amount between now and the day the child starts.
Cash-value life insurance. A lesser-known, but equally viable plan for families in states without prepaid tuition programs. Families accumulate premiums until a child is college age, then withdraw the money (which has been accumulating interest) tax-free. Parents can also borrow against the value of the policy itself.
PLUS Loans. With federally insured Parent Loans to Undergraduate Students, parents can borrow up to the college's total cost, minus any aid received. The loan carries a variable interest rate, capped at 9 percent.
College grants. Schools will give tuition discounts, particularly to the most desirable students. Financial planners recommend applying to several competitive schools and seeing if your favorite will hike its grant once it sees you've been offered a better deal.
Many colleges also offer work-study programs and pay-as-you-go plans.
Personal savings. Planners recommend stock mutual funds for parents of younger children, with a move to safer investments once the college-bound student reaches 14. These might include bank CDs or series EE Savings Bonds. A financial planner can help you decide whether your investments are better off in your own or your child's name. Typically, colleges figure in 35 percent of the child's assets in determining aid, versus less than 5.6 percent for parents.
Grandparent's discount. Grandparents' assets aren't included by colleges in figuring family assets, so they won't hurt aid eligibility. In addition, each year, grandparents may pay tuition directly to the school, as well as give $10,000 directly to the child, gift-tax free.