The National Association of College and University Business Officers (NACUBO) released its biennial tuition-discounting survey in April. The results indicate that increasing discounts may be the canary in the coal mine for serious financial difficulties looming for private colleges.
The headline from the NACUBO press release is that discount rates for private higher-education institutions are up from 46.4 percent to 56.2 percent in the last 10 years. (The numbers in question apply to first-time undergraduates.) NACUBO defines the tuition discount rate as “the total institutional grant aid awarded to undergraduates” by colleges and universities, as “a percentage of the gross tuition and fee revenue the institution would collect if all students paid the full tuition and fee sticker price.”
In addition to the higher discount rate, the number of students receiving some kind of “grant” rose from 88 percent 10 years ago to 91 percent this year, and the amount of the average grant rose from 53.1 percent to 62.1 percent.
Lower tuition is good for students and families, of course, but enticing students with cheaper fees can be extraordinarily damaging to colleges’ bottom lines. As NACUBO puts it,
Private colleges often advertise high sticker prices compared to public institutions. To enroll students who are unable or unwilling to pay those high prices, colleges employ tuition discounting strategies that subsidize a fraction of the sticker price through financial aid grants. As the competition for students gets more intense, private colleges will be pushed to increase their tuition discount rates in order to enroll the same number of students.
NACUBO tells us what these increasing discount rates have meant for institutions: “After accounting for inflation, net tuition and fee revenue decreased by 5.4 percent per first-time undergraduate and by 5.9 percent among all undergraduates.” Net revenue is what institutions have left to cover their costs, and it is going down.