Historically, officials from 23 elite northeastern colleges with selective admis

Question

Historically, officials from 23 elite northeastern colleges with selective admissions policies and high tuition met each spring to compare financial aid packages for more than 10,000 common applicants. The meetings, known as “overlap,” were designed to eliminate any differences in the financial aid packages offered by the various colleges. What would you predict would be the effect on the net price (tuition less financial aid) paid by applicants to the colleges participating in the Overlap meetings? Are there any factors that would work to undermine the ongoing viability of the Overlap practice? If so, what might these factors be?

Explanation / Answer

Since, the differences in the financial aid packages were eliminated but the tuition fees varied between the colleges, the net price,which is the tuition less financial aid, would vary among colleges participating in the Overlap meetings. So, we see that colleges with higher tuition fees would have a higher net price and colleges with lower tuition fees with a lower net price. Now, financial aid is generally paid based on merit or the financial need of the student. Hence, students specially with poor financial background would apply more in the colleges with lower tuition fees and consequently the colleges with lower tuition fees would see high demand from the students than the colleges with higher tuition fees and it would result in market disequilibrium. The net price would ultimately go up for colleges with lower tuition fees and fall for colleges with higher tuition fees.

Yes, there are factors that would undermine the ongoing viability of the overlap practice. The factors that would work to undermine the ongoing viability of the overlap practice are:

1) Market Disequilibrium resulting from the mismatch in demand and supply,

2) Colleges with lower tuition fees would get more meritorious students with poor financial background than the colleges with higher tuition fees and hence the quality of the students would vary more between the colleges.

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