Witnesses describe ‘unfunded discounting’ as widespread pricing scheme that can leave students footing peers’ scholarships

At a House Education and Labor subcommittee hearing, witnesses described “unfunded discounting” — the practice of setting high tuition and then offering large institutional scholarships that are not directly funded — as a common pricing strategy that can leave some students effectively subsidizing others.

Lee Wishing, vice president for student recruitment and chief marketing officer at Grove City College, told the subcommittee that some institutions set sticker prices “well above their actual cost” and use the difference to offer large scholarships. “A university sets its sticker price at $65,000, but its actual break even cost to educate a student is only $35,000,” Wishing said. “Essentially, students who receive smaller scholarships are unknowingly subsidizing those who get larger ones.”

Wishing described the effect on students who receive smaller awards: they may borrow to cover the higher net price, carry excess debt and, if scholarships require maintaining minimum GPAs, risk losing aid and being forced to pay the inflated sticker price or to drop out.

Justin Draeger, senior vice president for affordability at Strada Education Foundation, said enrollment tactics and pricing opacity erode public trust and “work against the school’s interest” over time. Draeger emphasized the need for clear, early “all-in” price information and for institutions to change enrollment incentives that encourage price inflation.

Members pressed for more detail on the role of private consultants and enrollment-management firms. Representative Brian Fine and others described demonstrations in which data models predict the exact amount a student will pay and questioned the ethical implications. Wishing said these firms are “big name companies in the higher ed space” and that the models are widely used, calling the overall system “jaw dropping” when demonstrated.

Witnesses and members also noted that price discrimination relies on data the federal government collects via the FAFSA. Andrew Gillen, research fellow at the Cato Institute, said colleges can access detailed financial information about applicants and use it, along with the order in which students list schools on their FAFSA forms, to shape offers.

Committee members asked whether the practice is confined to private or faith-based schools; Wishing said it is “widely practiced” across institution types though not universal. He said Grove City does not practice unfunded discounting, charging what he described as a “break even price” and funding scholarships through endowment and donors.

Members and witnesses characterized the practice as a market-failure symptom that disproportionately harms middle-income, first-generation and low-income students who lack the resources to absorb surprises in net price.

Ending: Lawmakers and witnesses urged steps to reduce individualized price manipulation — including more transparent net-price disclosures and reforms to enrollment-management incentives — and signaled further congressional scrutiny of vendors and institutional pricing practices.