Can differential pricing help reduce the cost of higher education?

From time to time colleges and universities play with a form of differential tuition pricing publicly.  Some schools  charge more for credits above a certain number to encourage students to graduate rather than hanging on and taking more and more classes.  Others charge higher tuition for certain majors--business being the most common.  And many, including Westminster, charge different rates for different graduate programs based on the willingness and ability to pay of students interested in those programs.  (So, for example, students in the MBA pay a higher tuition rate than those in the Masters of Teaching program.)

Colleges also employ differential pricing in quieter ways--providing different amounts of scholarships and institutional aid to students in order to shape the class and meet revenue targets.  And, by raising tuition each year while holding scholarship amounts steady, many schools run a differential pricing model that assumes that the longer a student is enrolled, the more that student is willing to pay to go to school.

That may be the case, but poor retention rates after the first year, and long times to graduation suggest that this model of differential pricing hurts many students.  And because schools rely on it in order to meet revenue goals (that is, their budgets are built around the assumption that the gap between tuition and aid will increase as students move through the institution, thus increasing revenue), it is a significant impediment to reducing the cost of higher education.

So what if instead of raising tuition for students each year of their enrolled period, tuition declined as a student moved through the institution?  The first year would be the most costly, but each year thereafter, tuition would decline by, say, 5% for students in that cohort.  As a result, seniors would be paying 15% less for tuition than they did as freshmen.

There are several potential benefits to this model.

• First, it allows individual institutions to reduce costs to students in a way that is predictable and fair. 
• Second, it rewards students for staying in school, and encourages experimentation in learning throughout the curriculum, rather than supporting the sort of curricular narrowing that usually takes place. 
• Third, it supports retention through the entire four-year experiment,thus providing stronger revenue.
• Fourth, it aligns revenue with expenses.  (Here I am assuming that the freshman year, with its focus on advising, counseling, mentoring, learning communities, retention, the co-curriculum, etc. costs the student more per credit hour than do upper division years.  I expect this is the case in all disciplines except the sciences where the costs of labs increases through a student's experiences.) 
• Fifth, it calls new students and their families to really engage in the first year, with the understanding that success in the first year will make the later years less expensive.
• Sixth, it changes the onus of timely graduation from the student (who often has to fight through the system to complete in four years), to the institution, who will now have an incentive to ensure that curricula make it possible for students to have significant learning while moving speedily to graduation.
• Seventh, done right, it can help colleges simultaneously earn enough revenue and reduce the costs to students of attending college.