Heavily subsidized doesn’t mean money losing.
The marginal (next) student costs less to serve than the student before. It’s like flying a plane - if you have one passenger and take off, you have 95% of the cost incurred. Each subsequent passenger costs almost nothing. Same with students. Once you have a certain number, adding another student this very low cost. So you can make a profit from them at very low tuition. This is the case with almost all services- there’s a descending log curve relationship between average cost and number of students. So student 4000 costs half or less of student 500. Which means at a significant discount you can make a profit from student 5000. As long as you have a way to price tier. And financial aid is a great way to price tier.
Example, if you make beer at $3 a bottle and Bob will pay $5 for it and Shirley will pay $10. What’s the optimal price? At $5 a bottle you sell 2 bottles but make $4 profit. At $10 a bottle you sell 1 bottle but make $7 profit. But if you can price tier and sell to Bob at $5 and Shirley at $10 (their indifference point), you maximize both price and volume - 2 bottles sold and $9 profit. The key is being able to discover the price indifference point for all customers and price tier in a way that doesn’t undermine your way to sell at higher prices to people with a higher indifference point. Again financial aid and partial merit scholarships are perfect for this.
And of course cost decreases with volume so the actual effect is even greater.
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