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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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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