COLLEGEVILLE, Pa. — John Strassburger, the president of Ursinus College, a small liberal arts institution here in the eastern Pennsylvania countryside, vividly remembers the day that the chairman of the board of trustees told him the college was losing applicants because of its tuition.

At Ursinus College officials determined that tuition was too low to draw enough students. So they raised it, and applications surged.

So early in 2000 the board voted to raise tuition and fees 17.6 percent, to $23,460 (and to include a laptop for every incoming student to help soften the blow). Then it waited to see what would happen.

Ursinus received nearly 200 more applications than the year before. Within four years the size of the freshman class had risen 35 percent, to 454 students. Applicants had apparently concluded that if the college cost more, it must be better.

“It’s bizarre and it’s embarrassing, but it’s probably true,” Dr. Strassburger said.

Ursinus also did something more: it raised student aid by nearly 20 percent, to just under $12.9 million, meaning that a majority of its students paid less than half price.

Ursinus is not unique. With the race for rankings and choice students shaping college pricing, the University of Notre Dame, Bryn Mawr College, Rice University, the University of Richmond and Hendrix College, in Conway, Ark., are just a few that have sharply increased tuition to match colleges they consider their rivals, while also providing more financial assistance.

The recognition that families associate price with quality, and that a tuition rise, accompanied by discounts, can lure more applicants and revenue, has helped produce an economy in academe something like that in the health care system, with prices rising faster than inflation but with many consumers paying less than full price.

Average tuition at private, nonprofit four-year colleges — the price leaders — rose 81 percent from 1993 to 2004 , more than double the inflation rate, according to the College Board, while campus-based financial aid rose 135 percent.

The average cost of tuition, fees, room and board at those colleges is now $30,367. Many charge much more; at George Washington University, the sum is more than $49,000.

But aid is now so extensive that more than 73 percent of undergraduates attending private four-year institutions received it in the school year that ended in 2004, not even counting loans.

“We can cushion the sticker shock,” said Amy Gutmann, president of the University of Pennsylvania, which distributes aid on the basis of financial need. “We focus on both middle-income and low-income families.”

So net prices vary widely on a given campus. On some, as many as 90 percent of students receive support, primarily from the college itself or the federal government.

And financial need is not the only basis for it. Many colleges, competing for the students with high grades and standardized test scores that help a college rise in rankings guides, offer merit aid ranging from a few thousand dollars to a full scholarship.

But officials of private colleges and universities say they fear that unless other steps are taken, the middle and upper middle class could ultimately be squeezed out.

“Eventually, if we’re going to keep raising tuition at rates much more than the increase in family incomes, then something has to be done to make the places more accessible to the middle class,” said Ronald G. Ehrenberg, director of the Cornell Higher Education Research Institute.

As it is, some students may not even apply to private colleges, scared away from the start by tuition and unaware of the available discounts. After all, tuition and fees at public colleges and universities — though growing recently at a faster pace than those at private institutions — remain vastly lower, at an average of $5,836, the College Board says.

It can be argued that everyone studying at a private liberal arts college is getting a discount. At institution after institution, officials say they offer an education costing tens of thousands of dollars more than even the college’s “sticker price.”

Take Swarthmore, the elite college half an hour’s drive from Ursinus. With an annual budget of $106 million to educate just under 1,500 undergraduates, Swarthmore spends about $73,690 a student. But its tuition, room, board and fees in the last academic year were little more than $41,000.

“The half of our student body whose families are paying the full sticker price are paying $41,000 for something that costs $73,000,” said Suzanne P. Welsh, the treasurer. “So they’re getting a great discount.”

The other students receive a bigger subsidy: on average, aid totaling more than $28,500, most of it from the college itself. (Swarthmore limits its aid to students with financial need, but that can mean those from families earning $150,000 a year if, for instance, there are circumstances like having multiple children in college.)

What makes it all work is Swarthmore’s $1.3 billion endowment, which throws off enough income to cover 43 percent of the operating budget.

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The biggest expenditure at liberal arts colleges is for salaries and benefits. With competition for big-name professors becoming more intense, faculty salaries have increased. So has the pay of college and university presidents, more than 100 of whom now receive at least $500,000 a year.

Then there are the amenities sought by students: coffee bars, lavish new dormitories, state-of-the-art science laboratories and fitness centers.

“You’re trying to create the best educational experience for your students, and that costs money,” said Tom Tritton, president of Haverford College. “I sometimes say to parents, ‘I can make it cheaper if you want.’ ”

Still, none of this explains why colleges like Swarthmore and Ursinus — with different student-faculty ratios, endowments and reputations — end up with tuition and fees only a few hundred dollars apart, or less. Or why Harvard’s tuition and fees, at $33,709, are virtually the same as theirs.

One big reason is that institutions of higher learning watch one another.

In November, the finance committee of Swarthmore’s board of managers gathered at a Manhattan law firm and pored over a chart of tuition, room and board at more than 30 prestigious colleges and universities. They were pleased to see that Swarthmore was charging somewhat less than most of its competitors.

That kind of scrutiny led Bryn Mawr to a contrary sentiment, causing the college to raise tuition and fees this year by about 9 percent, their biggest jump in several years. Bryn Mawr officials say they made the decision after their research showed that the college charged less than its rivals and awarded more aid. The officials concluded that raising tuition would not deter applicants, because prospective students already assumed that Bryn Mawr cost the same as comparable colleges.

“The question was, Does that make sense?” said John Griffith, Bryn Mawr’s treasurer and chief financial officer. “Have we benefited at all from being the low price point? And the answer was no.”

Some of the nation’s bigger institutions have also found an incentive to raise prices. As part of an effort to improve its academic offerings and transcend its renown for football, the University of Notre Dame has raised tuition and fees by an inflation-adjusted 27 percent since 1999, to $32,900. In setting tuition, Notre Dame watches 20 other colleges and universities, including the University of Chicago, Emory and Vanderbilt.

“We’re setting it by our competitors,” said the Rev. John I. Jenkins, the institution’s president.

But Notre Dame’s financial aid has increased even more over the same period, with undergraduate scholarships up 107 percent after adjustment for inflation. This year the university is distributing $68 million.

Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. It also raised tuition and fees 29 percent, to $21,636. Most of the increase went back to students as aid.

As a result, 409 students enrolled in the freshman class this year, a 37 percent increase.

“What worked was the buzz,” said J. Timothy Cloyd, the Hendrix president. “Students saw that they were going to get an experience that had value, and the price positioning conveyed to them the value of the experience.”

Other colleges have tried the opposite. Muskingum College in New Concord, Ohio, cut tuition and fees drastically in 1996, to $10,285 from $14,240.

“We believed that if we lowered tuition, we would open access to the middle class” and “that we would continue to serve the higher socioeconomic-background students by becoming a best-buy institution,” said Anne C. Steele, Muskingum’s president.

Revenue increased, with enrollment of more students who could pay full price. Muskingum has also grown, to 1,600 undergraduates from about 1,000.

Yet the same strategy proved disastrous for North Carolina Wesleyan College. Ten years ago that college cut tuition and fees by 22 percent, to $7,150. But it attracted fewer wealthy applicants and more poor ones, who needed more aid even as the revenue generated from tuition declined.

“It didn’t work out the way it had been hoped,” said Ian David Campbell Newbould, the college’s president. “People don’t want cheap.”

But they do apparently want a deal, or at least the perception of one. Lucie Lapovsky, a consultant who was once president of Mercy College in New York, conducted a study asking students to choose between a college charging $20,000 and offering no aid, and one charging $30,000 and offering a $10,000 scholarship. Students chose the pricier option.

“Americans seem to like college on sale,” Dr. Lapovsky said.

Many administrators say that without raising prices, they could not maintain or expand economic diversity among the student body. In other words, making college more expensive for some enables less well off students to go.

But Brian Zucker, president of the Human Capital Research Corporation, a consulting firm that works with colleges, is suspicious of that argument, particularly given the growth of merit aid. He points out that many middle-class students borrow tens of thousands of dollars to attend liberal arts colleges and that at some, they may be helping defray the cost of a merit scholarship to a wealthier applicant.

“It’s not a given that the subsidy is going in any predetermined direction,” Mr. Zucker said. “We don’t know.”

TOMORROW: Students, recent graduates, college presidents and others talk about whether they think a private college education is worth its cost.