Ever-Increasing Listed Tuition and Institutional Aid: The Role of Net Price Differentials by Year of Study

Over the last forty years, non-elite private institutions have steadily increased listed tuition and institutional aid. This practice has continued even though the net tuition revenue gains from incoming students have become minimal. We present a new explanation for why these yearly increases continue: The pricing structure of non-elite privates relies upon net price differentials by year of study that are generated through annual increases in listed tuition. We describe how the presence of transfer costs encourages the use of this pricing structure and then document the presence of this pricing structure using data from IPEDS and NPSAS. Similar analyses of public and elite private institutions reveal differences across sectors in the use of differential pricing by year of study.