When you take a course for which you will receive a passing or a failing grade, you may find yourself at the mercy of your teacher or examiner. If the grade will not be based on numbers but on whether the effort you made was sufficient, the fairness of the grade is not transparent. If you disagree with the grade you receive, it can be difficult to prove that your grade should be satisfactory instead of unsatisfactory. Some students find themselves failing courses with a pass-fail grading system after having a problem with a teacher. Unless the student has evidence of unprofessional behavior, this can be a very tough situation to overcome.
Under a percentile system, each student knows where he stands in the class. In a normal class, there are a few stragglers, a few students on top and the majority in the middle. With a pass-fail system, there is a less clear division between the students on top and the students in the middle. This can be discouraging for students putting in extra effort because it makes them feel like their effort is being unrewarded. In some cases, less competition can be a good thing because it helps students focus on learning more than competing, but it can be disadvantageous to the students who want greater academic challenges.
Without a percentile system, it is difficult for institutions of higher learning to assess where a student stands in his class. Institutions get so many applications that if every student had passing grades, they wouldn't be able to differentiate the brightest students from the average ones. A pass-fail course may look good as an extra passing grade, but it doesn't help as much on an application as a percentile score would. Pass-fail grades make it difficult for medical students to find residencies abroad unless they take further standardized tests.
The fairness of the system depends on the institution. Some colleges may operate using a pass-fail system with no transparency. If papers are not given back to students after marks are awarded, they have no way of knowing where they made mistakes. Sometimes a pass-fail system can fail students not based on their capability, but because of faults in the academic institution itself. Where another institution would pass students for knowing half the course, another may fail them for not knowing more.