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Why buying a car is so similar to buying a private college education

Updated: May 26, 2022

First, I recognize comparing the not always savory car sales process to the hallowed college and university enrollment decision may seem a little off-putting. While the products are very different, like a car or higher education, the sales processes are very similar. Please, allow me to explain.


Jeff Hulett‘s background includes Higher Education, Banking, and Auto Lending. He has advanced degrees in mathematics, finance, and economics. Jeff's experience includes applied behavioral economics in the business context. Jeff is the Executive Director of the nonprofit organization Definitive Social. Our mission is to help people make a better life through better decisions.


College pricing is very interesting and sometimes quite complicated. In my experience, state-funded public college pricing is the most straightforward and transparent. They publish a rate card. Generally, their pricing guidelines are regulated by their state Department of Education. On the other hand, private college pricing may be complicated and confusing. Many colleges’ pricing approaches may be considered in the microeconomic context of price discrimination. This enables a pricing strategy to capture consumer surplus and increase college profit margins.

Some private schools price students individually. By doing so, the college is able to more closely price each student at the college’s profit-maximizing indifference price. In such a pricing scheme, the final college price may not be known until the end of a prospective student's college decision process. This process may cause prospective students to feel they lack control and lack confidence.

Price discrimination in college admissions is not a new challenge. In fact, the results of a recent Google Scholar search revealed over 47,000 articles. The top-cited articles were from institutions such as:

For this article, we focus on economic discrimination. This is related to, but not the same as, discrimination specific to minority communities. Economic discrimination may happen to anyone, regardless of social class.


The Car (College) buying sales process, a pricing play

To help explain college price discrimination and consumer surplus, the following is a more common pricing discrimination-based car buying example. As related to the college admissions decision, car buying is a helpful explanatory example because:

  1. Economic discrimination is commonly expressed in the car sales process, and

  2. People are often more familiar with the car sales process.

The following is my decidedly “not ready for theater” playbill! The intent is to connect the dots between car buying and college buying.

Please note, our play connects the "Car Buying Process" ↔ to the "College Admissions Process"

“The Cast” - our story's participants:

  • prospective car buyerprospective college student

  • car dealership salespersonadmissions officer

  • dealership sales manageradmissions director

“The Stage Crew” - our story's information assets:

  • car list price or "MSRP"price on the private college’s internet page

  • car optionsprivate college’s educational and support options

  • additional car sales incentivesadditional grant and scholarship incentives

  • car buyer financial and personal informationthe student’s financial / FAFSA and applicant/family profile information.

  • car sales targetsincoming freshman class pool size

”The Play” - Our car (and college) sales process story:

How to read this play: Please read it twice. In the first reading, read only the car narrative by ignoring the words in parenthesis and smaller font. In the second reading, read the college narrative by substituting the smaller font parenthesis words for the bolded words. Compare the two readings. Your comparison should reveal that distinctly different products like cars and higher education may share a strikingly similar price discrimination-enabled sales process.

A car dealer’s (A private college's) pricing starts with the car’s baseline list price, or "MSRP" (the price on the private college’s internet page). The dealer (college) will then provide different options to the prospective car buyer (prospective college student) to adjust the price depending on the car options package. (private college’s educational and support options, such as rooming options, food options, etc) A car dealership salesperson (An admissions officer) provides the initial car price offer (initial tuition and grant package).

Then, the real negotiation starts, when the dealership sales manager (the admissions director) will provide additional incentives (grant and scholarship incentives) to help close the deal. Organizations are generally incented to close the deal and give up as little margin as possible. The sales manager (The admissions director) will consider both the prospective car buyer's (the prospective college student’s) ability and willingness to pay the car price and may adjust per your individual economic profile. (the college price and may adjust per the student’s family FAFSA-based financial profile.)

Timing is important as well. As one gets closer to the commitment date, the salesperson (the admissions officer) may be authorized to adjust incentives depending on the target pool size of existing sales commitments. If car sales are (the incoming freshman class pool size is) below target near the end of the dealership reporting period (the college decision date), the sales manager (the admissions director) may sweeten the sales incentives.

Now, it is up to you to decide!

Our play's hero may be exhausted at this point! Making the college decision takes months and sometimes years to a) gather the information, b) evaluate the criteria and alternatives, and c) make the best decision. Please read on to learn how our hero finds success...


For prospective college students and their families or caregivers, this process may create a confusing, confidence-reducing decision environment. Behavioral economists refer to "sludge" as organizational processes causing consumer barriers to making good decisions. Certainly, the sales process described above contains "sludgy" elements. Especially, since each college may follow substantially different information and decision processes. Sludge is especially challenging given the beneficial college buyer is often a 17-year-old high school student. Neuroscience teaches us that a 17-year old is likely not yet fully equipped to make such high-impact financial decisions. This sludge-enabled process contributed to the creation of college counselor consultants and college ranking services industries.

Also, the economic concept known as the “agency dilemma” is at play in the college decision. While the 17-year old may be less suited to make the decision than their caregivers, it is ultimately the prospective college student that receives the benefit (a good job-enabling college degree) or the risk (no job, no degree, and/or a big loan). In most economic transactions, the alignment of beneficiary and decision-maker generally enables better economic outcomes. The potential agency dilemma challenges may be overcome via the prospective college student’s commitment. That is, they should have “skin in the game”-like agency regarding the college decision. This includes understanding the associated benefits and risks of their college decision. A better college decision will likely be rendered when the high school student perceives ownership over the decision.

It has become a tradition for more wealthy and time-pressed families to hire private college counselors. Private counselors are expert "sludge breakers" and guides for college decision-making. They guide their counselees through the complex process of gathering, analyzing, and comparing college information to make an informed college decision. For the vast majority of Americans, a private college counselor is out of financial reach. For everyone else, a college decision smartphone app like College Xoice® is a powerful and much lower cost college decision "sludge breaking" alternative. College Xoice® provides tools to educate and help manage the college information gathering and decision process. This includes an intuitive, age-appropriate process to understand college alternative benefits and risks. While a private college may start at a higher price, a savvy prospective student may be able to negotiate the price to the equivalent (or better) than in-state public college prices.

Overcoming economic discrimination found in complex sales is challenging. Car and college costs may have serious long-term implications for the buyer's financial health. Traditionally, the supply side (car dealers or colleges) has had the upper hand in price negotiations. Both sludge and the agency dilemma may cause buyer decision-making challenges. Decision solutions like College Xoice® will help level the economic playing field.


For More Information

College Decision:

Economic discrimination:

Behavioral economics, "Sludge," and the agency dilemma:

Brain and decision-making

  • Hulett, Our Brain Model, The Curiosity Vine, 2020 - The 17 year-old generally faces two neurobiological decision-making challenges. 1) Their brains are significantly impacted by the hormones otherwise helping their body’s prepare for adulthood. Higher hormone concentrations are not well-suited for decision making. 2) The executive control functions, found in the brain’s pre-frontal cortex, do not fully develop until our mid to late 20s. Executive control helps ground our decision-making process.

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