By Joelle Fredman, NASFAA Staff Reporter

Private, nonprofit institutions are spending almost half of what they collect in revenues and fees from undergraduates to offer tuition discounts. While this helps to soften the sticker price of attending college for students, it also puts institutions in a financial bind and has not been shown to increase enrollment rates, according to a new report from the National Association of College and University Business Officers (NACUBO).

In its "2017 Tuition Discounting Study," NACUBO found that institutional tuition discount rates have and continue to grow at a much faster rate than net revenues, which have remained flat and in recent years even begun to slowly decline.  

Between the 2006-07 and 2015-16 award years (AY), the average discount rate for first-time freshmen at private, independent institutions rose by 9.4 percent, from 35.1 percent to 43 percent, and NACUBO estimated that this figure will jump to 49.9 percent in AY 2017-18.

This trend held true for all undergraduates as well — between 2006-07 and 2016-17, discount rates rose by 8.1 percent, from 35.1 percent to 43.2 percent, and is expected to jump to 44.8 percent for the current award year.

Further, while the sticker price for schools has risen by 42.1 percent for freshmen, from $26,075 in 2008-09 to $37,040 in 2017-18, institutional tuition discounts for students have risen faster — by 77.6 percent — leading the net tuition rate for students to have grown by only 18.8 percent.

The amount of money these institutions collect per-student in net and fee revenues, however, has remained flat or grown at much lower yearly rates than institutional grants since AY 2011-12, (following a slight recovery after a large dip in AY 2008-09 due to the recession.) NACUBO projected that these revenues will actually decline by one-tenth of 1 percent for AY 2017-18.

While ideally, according to NACUBO, revenue from tuition and fees would rise faster than grant aid to cover the costs of tuition discounts, instead “rising discount rates may influence much slower net revenue growth at most campuses. Said another way, increased aid to students has largely offset gross tuition price increases.”

This phenomenon causes issues for schools, especially four-year private, nonprofit schools because they receive 35 percent of their funding from these sources and a lack of funds may “limit institutions’ ability to fulfill their educational and public service missions,” according to the study.

“As students and families evaluate the value of higher education and their college-going options, they should keep in mind that the vast majority of undergraduates attending private colleges receive financial aid from their institutions, and that this aid covers well over half the tuition price,” said Ken Redd, NACUBO senior director of research and policy analysis. “While this is good news for students and their families, it also means that tuition revenue at these schools remains very constrained.”

Further, NACUBO found that tuition discounts have not been shown to improve enrollment rates. In fact, around half of the 440 schools that NACUBO surveyed saw no change or a decrease in enrollment during the 2016-17 academic year, despite grant increases and institutions’ efforts to increase revenue through student “recruitment strategies” and “retention strategies.” And 66 percent of survey respondents even cited “price sensitivity,” or “the degree to which price changes in tuition and fees” as a potential cause of low enrollment rates.

“Considered together, these factors—increasing discount rates, strained growth in net tuition revenue, and weak enrollment trends—warrant questions about whether tuition discounting practices are sustainable,” the study’s authors write. “Given the trends revealed by this year’s ‘Tuition Discount Study,’ many chief business officers and other campus leaders will have to balance institutional mission of providing access to a quality postsecondary education at an affordable price with the need to increase tuition revenue. How these challenges are addressed will vary from campus to campus.”

Publication Date: 4/30/2018

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