Tuition Discounting at Private Institutions Hits Record High, NACUBO Reports

By Owen Daugherty, NASFAA Staff Reporter

Private colleges and universities are offering more tuition discounts  than ever before — reaching a record high in 2019-20 as they responded to financial pressures arising even before the novel coronavirus outbreak, which “could prove to be the most titanic economic force to affect the higher education sector in decades,” according to an annual study by the National Association of College and University Business Officers (NACUBO) released today.

The 2019 NACUBO Tuition Discounting Study, released Wednesday, found that the 366 private, nonprofit colleges and universities surveyed reported an estimated 52.6% average institutional tuition discount rate for first-time, full-time, first-year students and a 47.6% discount for all undergraduates. 

“This finding suggests that for every dollar of undergraduate tuition and fees charged, schools awarded nearly 48 cents to undergraduate institutional grant aid recipients,” the report said. By comparison, the discount rate for first-time, full-time freshmen was 42% nearly a decade ago in 2010-11, and 36.4% for all undergraduates.

The difference between the sticker price and the discounted tuition that a majority of students pay at private institutions comes from grants, fellowships, and scholarships, meaning the institutions forgo roughly half the revenue they would have otherwise collected had they charged students full price on tuition. Overall, the report found that among private institutions, discount rates have increased dramatically as student aid rates also have risen.

Nearly 90% of all first-year undergraduates received some form of institutional grant aid, the report found, covering on average almost 60% of the published price of tuition and fees. Among all undergraduate students, roughly 82% received some form of institutional grant aid, which covered about 55% of the tuition and fee sticker price on average.

Additionally, nearly 80% of the grant aid brought down the cost of college for students with demonstrated financial need. 

“Even before the COVID-19 crisis, private colleges and universities were significantly discounting tuition and fees, and some institutions were struggling with enrollment and net revenue,” said Ken Redd, senior director of research and policy analysis at NACUBO, in a statement. “The study provides an important historic benchmark to consider as we head into an unprecedented era in higher education finance.”

Tuition discounting at these institutions is far from a “fail-safe solution” when it comes to enrollment. Some schools offering tuition discounts still saw first-time undergraduate enrollment decline. Over the past four academic years, among survey respondents, enrollment went up for roughly 46% of institutions and decreased for about 47% despite increases in tuition discounting.

Roughly three-quarters of respondents said they had already changed or planned to utilize new student recruitment strategies in an effort to increase enrollment, while more than 40% of survey respondents added new programs to improve enrollment and degree attainment, and a small portion lowered their tuition and fee “sticker price.”

“These changes could allow schools to assume greater control of their aid budgets while remaining attractive to more potential students,” the report said.

A majority of the grants awarded by the institutions went to students in the form of need-based aid, while on average, the combined total of only need-based aid and merit aid used to meet students’ need was approximately 79.6% across all institutions.

“This result [suggests] that many private, nonprofit universities are attempting to meet students’ [needs] when distributing this aid,” the report said. “However, it is important to note that institutions can set their own criteria for determining financial need, and that the [report] does not take into account student demographics … to discern which students receive institutional aid.”

The report also highlights the student aid rate, which is the average institutional grant awarded as a percentage of the sticker price for students who receive aid, and how it measures institutional aid over time compared with increases in tuition and fees.

Notably, student aid rates for first-time undergraduates have increased to almost 60% for first-year students and 55% for all recipients.

“This means that the majority of students and their families ultimately pay much smaller shares of tuition and fees, on average, than what’s published,” the report said. “Coupled together, the percentage of students receiving aid and the average institutional grant relative to tuition and fees suggest that institutions are providing more aid to more students.”

Susan Whealler Johnson, president and CEO of NACUBO, wrote in the report that the sustainability of tuition discounting had already been questioned long before the COVID-19 pandemic. 

“A multitude of challenges now lie ahead, as colleges must simultaneously address their long-standing tuition pricing, revenue, and enrollment challenges and contend with the new obstacles and ambiguities introduced by the COVID-19 pandemic,” she said.

 

Publication Date: 5/20/2020


David S | 5/25/2020 4:20:54 PM

Not sustainable though. The high tuition/high discount model relies on a portion of full payers, and even in the best of economic times, the more you raise tuition, the fewer full payers you'll be able to attract. Reduce the tuition, reduce the discount rate, you'll get more full payers...and some good PR, probably an increase in applications. Fight the Chivas Regal effect!

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