Campus discount rates keep on rising, and why that matters

Private colleges and universities now offer the highest discount rates in recorded history, according to NACUBO.  What on Earth does this mean, and why does it matter?

Tuition discounting describes what students actually pay, rather than what a university’s sticker price says.  You see, private campuses offer discounts – i.e., scholarships and grants – to some students, in order to reduce their payments.  So if a college tuition is $20,000 per year, and the discount rate is 25%, the typical student really pays $15,000.  Since that’s a kind of average, some students will pay even less, and some even more.

Across the United States, as of 2017 the average tuition discount is now 44.2%.  For first-year students, it’s 49.1%.  The typical student pays almost one half of what published tuition is.  This is the highest discount on record:

Discount rates 2005-2017_NACUBO

If we look at it from an institution’s perspective, “or every dollar in gross tuition revenue from those freshmen, institutions used nearly half for grant-based financial aid”.

Breaking down the numbers a bit,

the percentage of first-time, full-time freshmen receiving institutional grants rose to an estimated 87.9 percent in 2016-17. That was up from 87.2 percent the year before. The average institutional grant for such freshmen rose to be worth 56.3 percent of tuition and fees, up from 55.4 percent.

What does this mean for higher education?

  • Our published tuition figures are way, way off for many students.  Media accounts nearly always use the published numbers, without noting discount rates; this artificially adds to anxieties about price and debt (as Bob Archibald notes in this Future Trends Forum last year).
  • This reflects schools’ rising desperation to recruit students, when demographics have turned against campuses serving traditional-age people and as general financial pressures escalate.
  • High discount rates also express the reality of widening income inequality.  It’s the 1%, more or less, who pay that tuition sticker prices.  Everyone else receives some discount.
  • Higher ed financing is about as transparent as health care – i.e., not very.

Further, let’s look ahead.

Is this sustainable over the next few years?  That is, can colleges and universities keep raising tuition *and* discount rates, aiming to score both wealthy students and learners in large enough numbers to provide enough revenue to keep the lights on?

For some institutions increasing discounts yield decreasing total revenue.  That is not sustainable.  According to NACUBO, “39.1 percent of respondents reported declining enrollments in both their first-year class and total student body, up from 37.5 percent last year.” IHE adds that

[w]ell over half of survey respondents, 57.7 percent, said their institutions experienced a decline in total undergraduate enrollment between the fall of 2013 and the fall of 2016. Just over half, 50.2 percent, said they experienced a decrease in enrollment of freshmen. A large portion, 39.1 percent, reported decreases in both total undergraduate and freshman enrollment.

A further futures concern speaks to  how will the wealthy react to this continued payment unevenness.  Will the 1% embrace a spirit of noblesse oblige, or will they grow to resent it?  If the latter occurs, I can imagine certain campuses becoming largely preserves of the rich.

Smaller campuses might be more in danger than larger ones.  According to Inside Higher Ed, “[t]uition discount rates were highest among small institutions and lowest for comprehensive universities.”  Will little schools get forced into bad places when they can’t realize larger institutions’ economies of scale?

(via Inside Higher Ed)

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