I can read your mind. You probably take last year’s tuition, look at how much your expenses will increase, and raise tuition by that amount. Problem solved, right?

Then why doesn’t it work?

It doesn’t work because the tuition colleges set carries almost no resemblance to what students actually pay. Of course, state and federal grant programs can offset their cost, but both public and private institutions use their own aid as discount to make college affordable. This, for instance, shows the effect institutional aid has on gross tuition, reducing revenue off the published tuition by as much as 70% at these anonymous, randomly selected four-year private colleges.

And, of course, it’s important not just to consider what you get, but what students and parents pay out-of-pocket, either via cash or loans. Consider your predicament if you’re at the four-year public institution indicated by the red mark in this Midwestern state: The cost for a family with income under $30,000 per year is still (after several years of decreases) still $11,000, while one of your competitors is showing a price of about $4,000 (which still seems high.)

So, you might be thinking, let’s just lower the cost to our average net, or average price, and eliminate institutional aid. Think again, as it’s a very difficult exercise. If you try to do this for new students only, you’ll have three classes of students who expect the new lower tuition AND (because people don’t understand that institutional aid is a contra revenue) who want to keep their “scholarship.” This doesn’t even take into account the appeal of the “consumer psychology trap” where higher reference prices still convey the perception of quality.

The key, of course, is striking a balance between one approach where you first consider costs, and another where you first consider the market’s willingness to pay. But regardless, it’s likely that many colleges will be forced to think differently about what they charge, how they communicate net cost, and how they align costs and revenue.