Why Top Universities Are Slashing Costs to Attract More Students
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Last week saw a wave of announcements from top U.S. universities ranging from the University of Texas to MIT to Brandeis. The news certainly caught the public’s attention: they’re offering free tuition to students from lower- and middle-income families. The rollout of these programs at first might seem like a coincidence, but there's likely more at play. These announcements came just a few weeks after each university’s early action deadline, which reveals some potentially important information about the current state of college admissions.
It’s unlikely that these schools are suddenly becoming more generous—they’re likely just responding to an economic reality. These schools, and many others, are grappling with the looming “enrollment cliff” that’s facing the country’s higher education system. The timing of these tuition offers is likely strategic: universities are using price as a lever to increase the quantity demanded for spots in their programs—nothing more, nothing less.
Boosting the Quantity Demanded (not Demand)
Before we get too far, we should take a moment to distinguish between two concepts that are often mixed up: demand and quantity demanded. Economists refer to demand as the entire relationship between the price of a good or service and the quantity that consumers are willing to purchase at different price levels. Demand considers how prices influence consumer behavior across the entire market. Factors like consumer income, tastes, and the prices of related goods can shift the demand for a product.
On the other hand, the quantity demanded is much more specific. It’s the number of units of a product consumers are willing to purchase at a particular price, assuming all other factors remain the same. So, when universities offer free or reduced-price tuition to low-income students, they’re not changing the demand for their programs. Instead, lowering the price is an attempt to increase the number of students (quantity demanded) interested in enrolling at that lower price.
Price Discrimination is a Good Thing
This decision to lower prices for one group of students is a textbook example of price discrimination—a strategy where sellers charge different prices for the same product based on a consumer’s willingness and ability to pay. We’re currently seeing an example of third-degree price discrimination, which occurs when sellers set different prices for different groups based on observable characteristics, like family income.
Selective universities typically have inelastic demand, meaning that price increases don’t significantly affect the number of applicants. But by offering free tuition to students from families earning less than $100,000 or $200,000—depending on the university—these schools target students with elastic demand. The hope is that by reducing the sticker price for these price-sensitive students, they can increase enrollment without affecting the overall demand for their prestigious programs.
This pricing strategy ultimately benefits both the universities and students. The schools can attract more students from these price-sensitive groups, helping fill seats and dorms. Meanwhile, students get access to a more affordable education, easing the financial burden that often accompanies higher education costs.
The Financial Incentive Behind Free Tuition
The fact that these announcements all came out around the same time raises a key question: Why now? These institutions have historically enjoyed strong demand but now suddenly want to offer significant financial aid to attract students who might have been priced out just a few years ago. While these universities have framed their actions as equity-driven, it’s hard to ignore the timing of their announcements. The reality is that these universities could have made this move much earlier if their true motivation was simply to increase access. The fact that they’re doing it now suggests something else is at play.
The major costs of running a campus are largely fixed. Staff, infrastructure, and facilities need to be paid for regardless of whether the university is short 200 additional students or not. Dormitories and dining halls, however, only generate revenue when they’re occupied. By offering free tuition to low-income families, universities hope to attract more applicants and fill these spaces. This strategy is likely less about improving accessibility and more about making sure the seats, dorms, and dining halls stay full, ensuring their financial sustainability.
The Timing of the Announcement and the Enrollment Cliff
The timing of these tuition announcements a few weeks after their early action deadlines is telling. By mid-November, university administrators know how many students have applied for the upcoming academic year under this, and it’s likely that the numbers were much lower than expected. I have to imagine that announcements are likely a response to the enrollment cliff.
If Fall 2025 enrollment looks unsustainable given the current price, administrators probably decided to scramble and make sure they have enough students in the Fall. Over the next decade, the number of college-bound students in the U.S. is expected to continue shrinking, driven by a decline in birth rates. With fewer students in the pipeline, university administrators realize they can’t rely solely on their reputation or prestige to attract applicants.
Fewer students means less demand for college seats—particularly at selective institutions accustomed to high demand. These schools are facing a tough challenge: how do you fill classrooms and dorms with academically qualified students when fewer students are applying? Offering free tuition for a select group of students is a way to increase the number of applicants from price-sensitive groups, especially as the cost of college continues to rise and skepticism about the value of a degree grows.
Final Thoughts
I don’t doubt that there are university administrators who care about addressing the equity issue, but their job is also about filling seats. The full cost of college for students includes more than just tuition; room, board, textbooks, and other fees can quickly add up. The reduction in tuition at top-tier universities is undoubtedly a welcome development for many low-income families, who often face significant barriers to higher education.
As with any financial aid program, the true impact will depend on how universities match these tuition reductions with broader recruitment strategies. Will they focus on outreach to underrepresented communities? Will they ensure that more low-income students have access to not just financial aid but also the support systems needed to thrive in an elite academic environment?
The consensus view is that America will hit a peak of around 3.5 million high-school graduates sometime near 2025 [The Chronicle of Higher Education]
In Spring 2022, 2.99 million students graduated from high school, a 7% decline relative to the Class of 2018 (the largest graduating class) [Education Data Initiative]
The median family income of a student from University of Texas at Austin is $123,900, and 56% come from the top 20 percent [The New York Times]
After adjusting for inflation, the average net tuition and fees paid by first-time full-time in-state students enrolled in public four-year institutions peaked in 2012-13 at $4,340 and declined to an estimated $2,480 in 2024-25 [College Board]
Over 500 private, nonprofit four-year institutions have closed in the last 10 years, three times the number from the previous decade [The Wall Street Journal]