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Discount Rates Continue to Climb

DISCOUNT RATES CONTINUE TO CLIMB
MAY 22, 2017

Tuition discounting at private colleges and universities is up again.  Tuition revenue is straining to keep up.  And enrollment is weak.  Those are the takeaways from the 2016 Tuition Discounting Study from the National Association of College and University Business Officers, which was released on May 19.  The study provides a look at how much colleges and universities are awarding students in scholarships and grants--and how much they are effectively undercutting their own tuition and fee sticker prices.  It also offers a glimpse at how such tuition discounts affect other key measures of college and university financial health.

The latest findings show no break from the long-established trends of tuition discounting.  The headline average institutional discount rate for first-time, full-time students hit an estimated 49.1 percent for 2016-2017, up from 48 percent the previous year.  For all undergraduates, the average institutional discount rate rose to an estimated 44.2 percent, up from 43 percent.  Both rates are all-time highs for the NACUBO study.

The tuition discount rate is defined as institutional grant dollars as a percentage of gross tuition and fee revenue.  In other words, a 44.2 percent  average institutional discount rate for all undergraduates means that more than 44 cents of every dollar is gross tuition revenue that colleges and universities counted never made it up to the bottom line because it was dedicated to financial aid.

Two major trends have been driving the increased discounting, according to Ken Redd, NACUBO's Director of Research and Analysis.  Students and families have continued to have higher financial needs in the years after the Great Recession of 2008-2009 than they did before it.  And competition for new students is growing as demographic trends point to a declining number of high school graduates in many parts of the country.

Tuition discount rates were highest among small institution and lowest for comprehensive universities.  The estimated average institutional discount rate for first-time, freshmen at small institutions was 50.9 percent in 2016-2017.  The rate for all  undergraduates at small institutions was 45.1 percent.

This is an alarming trend that concerns me deeply.  Every institution with whom I have the privilege of working through my consultative services fits into the category of being private, small, and faith-based.  While many of these institutions may not have discount rates as high as 45 or 50 percent, it is usually because their tuition costs are lower or they are offsetting their tuition and student fee revenue with donations.  It continues to be a difficult time as so many smaller institutions are challenged with respect to enrollment growth and financial health.  While most institutions desperately need students, they must be careful not to discount themselves out of business.

Larry J. McKinney
Higher Education Consultant
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