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Already Discounting at Record Levels, Educators Ask Where to Next?

July 26, 2017

 

 

 

Private colleges and universities are discounting their tuition at the highest rates yet, according to a new report from the National Association of College and University Business Officers (NACUBO). As a practice, discounting is commonplace at most public and private nonprofit institutions, where even full-pay students are often subsidized. But while designed to encourage higher enrollments and greater access to higher education, discounting can also have a significant impact on the overall financial health of today’s colleges and universities.

 

The Cost of Expanding Aid

A long-established and rising trend, discounting occurs when an institution weighs its published tuition fees against institutional grant aid for enrolling students. The findings of the 2016 NACUBO Tuition Discounting Study, published earlier this year, revealed that through the extension of grants, scholarships and fellowships, institutions were averaging an estimated 49.1 percent tuition discount rate for first-time, full-time students in 2016-17 — the highest in the history of the survey. The economic implications of these findings underscore the fact that for every dollar the institution receives in freshmen gross tuition revenue, nearly half is being used for grant-based financial aid. In each of the past 12 years, private colleges and universities have increased their freshmen tuition discount rate, culminating in this year’s record-high estimate of nearly 50 percent,” said Ken Redd, Director of Research and Policy Analysis for NACUBO. “As the findings from the 2016 NACUBO Tuition Discounting Study suggest, many private colleges are greatly expanding their aid programs to meet the needs of more students and families, but these financial aid expenditures are contributing to a financial strain for some institutions,” he added.

 

It’s that financial strain that’s concerning analysts in higher education, and many college business officers. It would also seem that discounting falls short of its intended goals. From the responses received from 411 private, nonprofit institutions that participated in the NACUBO survey, it was determined that overall enrollments did not always improve — and tuition revenue was straining to keep up. Although the difference is made up through a combination of government subsidies and revenues from endowments and other private sources, the continuation of some of those funding sources is also in doubt.

 

Better College Pricing Models

Until better financial models are found, the trend of increased discounting is likely to continue. According to NACUBO’s Redd, students and families now have greater financial need since the Great Recession, while competition for new students continues to grow. “There’s nothing I can see on the horizon that will lower or dissipate those two trends,” he said. Some colleges have now so diluted their revenue that even when they raise tuition fees, they fail to generate new net revenue — the admission price of college has dwindled to less than the average cost of educating a student.

It’s become a tricky balancing act for colleges and universities needing to attract self-funded students who can bring revenue to the campus, without precluding enrollments from those students with less ability to pay. The increase in discounting by higher ed institutions parallels another rising figure, the nation’s $1.31 trillion debt in student loans, and confirms that the need for a better solution to funding college is not only essential, it’s critically overdue.

 

Full copies of the 2016 NACUBO Tuition Discounting Study are available for purchase from the NACUBO online bookstore.

 

 

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