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Tuition discounting at an all-time high

I've written before about the difference between sticker price and "net price," or what a student actually pays to attend college. We know sticker price has risen faster than inflation in recent years, but that net price has stayed fairly constant.

A new study from the National Association of College and University Business Officers (NACUBO) finds tuition discounting at a record high. The average discount reached 42 percent in fall 2008, a dramatic increase from the 39-percent discount rate in fall 2007.

That means the average student across all of private non-profit higher education paid about 58 percent of the published tuition and fees at a given school.

(Here is another layer of data for number junkies: 82 percent of freshmen received institutional grants in 2008, and NACUBO estimates the figure rose to 84 percent in 2009. The average grant covered 53.5 percent of listed tuition and fees in 2008 and should remain stable this academic year; in previous years, it has never covered more than half of the total.)

Tuition discounts are institutional grants dispensed to students who are either unable or unwilling to pay full fare. The most selective colleges tend to offer "need" aid alone, and several dozen of the top colleges have aid formulas that essentially promise low-income students they will be able to afford to attend.

Schools with smaller endowments and higher acceptance rates trade in "merit aid," a form of financial aid that the most selective schools eschew. Merit aid is dispensed according to a student's academic credentials or promise. Some critics deride it as aid to the middle class.

As anyone working the college admissions process knows, merit aid offers tend to rise and fall in proportion to how badly the college wants the student. A student good enough for the Ivy League will get generous merit aid offers from second-tier schools. In the current economic climate, a struggling family may be able to cut a deal to place a top student at a B-list school for pennies -- or at least dimes -- on the sticker-price dollar.

Tuition discounts have spiked over the past two decades, causing list price to sail far above net price. Discounts averaged 27 percent in 1990, rose to 39 percent in 2002 and remained steady until fall 2008, when the downturn drove them up.

Schools typically felt they had no choice but to offer deeper discounts if they hoped to keep enrollments stable.

But all this discounting has "come at a high price," NACUBO writes. "Many independent institutions had to implement salary freezes, hiring freezes, staff reductions, and other cost-cutting measures in order to increase their spending on institutional grants."

"Grants" may, in fact, be a misleading term. What the colleges are really doing is charging students less. That means less tuition revenue. Net tuition proceeds fell 2 percent from 2007 to 2008, the study found. Colleges lost this money at the same time that their endowments were in free-fall.

Most colleges managed to fill their class, and some even reported record enrollments. But their budget officers can't have been happy about the end-of-year balance sheet.

I have asked several college presidents whether the current cycle of rising discounts and falling revenues can continue indefinitely, and the answer has always been no.

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By Daniel de Vise  |  April 9, 2010; 10:27 AM ET
Categories:  Access , Administration , Admissions , Aid , Finance , Liberal Arts , Privates , Research  | Tags: NACUBO study, college sticker price, college tuition discounts, college tuition student aid, discount rate, net price of college, student aid study, student financial aid  
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It's nice for college presidents to tell you that tuition discounting practices can't go on forever, but talk is cheap, and sticker prices for college are not. Due, in part, to tuition discounting, sticker prices have gone up more than the rate of inflation for longer than two decades. Some people do actually pay sticker price and they feel, rightfully so, like they are getting taken. Meanwhile, since money for discounts (often spun semantically as "merit aid") has to come from somewhere, the price for college continues to go up and up. Enough talk already, it's time for a college president to take a strong stand on providing a quality education at a lower sticker price. It has worked in every other sector of the economy, except higher ed.

Posted by: jboyle1 | April 9, 2010 1:09 PM | Report abuse

Those 18-20 are also adults. It's important for colleges and universities to decrease their sticker price so that the tuition discounts don't have to impact that college or university as much. They're being somewhat responsible by making sure low-income students who are accpeted get tuition grants so that the college or university can have that young woman or young man.

Posted by: LibertyForAll | April 9, 2010 10:46 PM | Report abuse

Tuition discounting results in patronage and substantial administrative costs.

And a complete screwing over of students:
1. unable/unwilling to fill out all the necessary forms at the necessary deadlines
2. that do not meet narrow definitions
3. from the middle class

Posted by: cprferry | April 10, 2010 1:56 AM | Report abuse

I love it. Going to college is now like buying a car. Now if we could only get the "invoice" price for college, we'd know what to negotiate for.

Posted by: 9t2hoo | April 10, 2010 11:33 AM | Report abuse

Private colleges are now only for the very rich or very poor...or for students who choose to go into massive debt. My child is a very high achieving student, but since our income is high compared to the national average, (it pretty much has to be if you want to live in the DC area,) we haven't been offered much of a discount at any private school. Paying 20K for a good state school vs. paying 50k for a is pretty much a no brainer.

Posted by: prnt23 | April 12, 2010 11:06 AM | Report abuse

Thanks for using the term "discounting" in relation to colleges. I don't think most people realize that's what it is. It's really no different from the high/low pricing strategy that consumer goods companies have been using for years - set a high list price to generate money from people who don't care about the price, then use that money to market and coupon/discount to people who are more price sensitive or have more options to choose between. The problem is that after a while, it becomes a pretty inefficient system - money gets spent to set up, manage and advertise the promotions rather than just lowering the price so more people could afford the item. And the people who don't know to look for discounts or compare and negotiate across schools end up paying more than they should. The most unfortunate thing is when colleges shift money from need-based aid to merit-based discounts so they can attract students with high test scores and grades to make the schools' statistics and rankings go up. It's a pure marketing play. Unfortunately, the people who lose out in the end are the first generation and less affluent students who generally don't have the top grades and test scores, and now have access to a lot less money than they used to when tuition was reasonable and grants were about affordability, not about building the school's brand name.

Posted by: dawn-wise | April 12, 2010 11:56 AM | Report abuse

Higher education is now just like big business. An enormous amount of money is spent to lure students to apply. My sophmore child has received over 75 pieces of mail from colleges so far. Many have no interest in admitting him; they simply want him to apply so that they can reject him and thus brag about their high "selectivity" index.

Posted by: prnt23 | April 12, 2010 12:56 PM | Report abuse

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