Thus, the only observable market differentiation in higher education is that of prestige and price, both of which are highly correlated. However, the disparity does not stop here. At a given level of prestige, an institution appeals to their best customers by adjusting its price to meet the enrollment demands of the college or university. The implicit assumption is that no one ever truly pays the full cost of education at any institution. State appropriations, endowments, and student financial aid provide significant subsidies to higher education, which lowers the price for all students.
Some subsidies benefit all students, whereas others benefit targeted groups.
This has been the main institutional pricing strategy. Thus, the value proposition is altered so that one dollar of tuition is exchanged for less than one dollar of discount. One way to accomplish this is by subsidizing the interest on a private loan. Clearly, there is a powerful financial advantage or leverage for institutions in this kind of transaction. The benefit is enormous for both the family and the institution.