As private colleges and universities struggle to increase their enrollment and improve their financial situation, they continue to increase their tuition while also increasing the amount that they discount the price. The latest report from the National Association of College and University Business Officers (NACUBO) indicates that 91% of new full-time freshmen receive institutional financial aid and that the average award is equal to 62% of the institution’s tuition. Overall, institutions are receiving only 44 cents on each dollar charged from new freshmen while receiving 49 cents on each dollar charged from continuing students. The difference between the average paid by new students vs. continuing students is accounted for by the fact that most schools hold the aid that they award to students’ constant throughout their time at the college while increasing the published tuition each year. Thus, as schools increase their tuition, the returning students pay the full increase often amounting to increases of 6 to 10 percent or more per student each year rather than the average 3% or so announced tuition increase. This practice certainly contributes to the low graduation rate from many colleges; the average six-year graduation rate from private colleges and universities is only 68% and finances are the most commonly given reason for dropping out of college.
We find that the weaker schools, defined as those with acceptance rates of 51% and above are discounting significantly more than the selective/highly selective schools, defined as those schools which are accepting fewer than 51% of their applicants. The less selective schools are using discounting to persuade more of their applicants to choose to attend their institution as they are valiantly trying to fill up their classes. The selective/highly selective schools receive a median net tuition of $29,429 per student compared with the less selective schools which receive only about $17,500 per student. Furthermore, the selective/highly selective institutions award significantly more of their financial aid based on student financial need compared with the less selective institutions which tend to award most of their institutional financial aid based on merit and other student characteristics beyond need. In addition, the selective/highly selective institutions tend to have significantly larger endowments than the other private institutions further dividing the resources available to these institutions and truly bifurcating the industry between the “haves” and the “have nots.”
Over the course of the last ten years, while tuition has increased at most institutions, net tuition per new freshman has stayed relatively constant and even declined at some institutions. Thus, schools are rarely benefiting from the increases in their published price while discouraging many students from looking at these schools because they are unaware of the extensive discounting that is going on. This situation has led some schools to reduce their tuition or do a tuition reset as it is often called. The schools realize that their published price is discouraging students and their families from even looking at the institution because they are unaware of the significant discounts that are available to them. Unlike stores which often advertise 50% off all merchandise or off specific items, colleges are far less transparent. You often see web pages which say generous financial aid is provided but to find out what you will get, you need to apply, get accepted and then you will be given your award. Since 2012, 65 private colleges and universities with enrollment of 500 students or more, that I know of, have reduced their tuition, and commensurately reduced their discount rate. Several more schools are planning price resets for fall 2024. Schools use this strategy to increase the number of students who will consider them, and this approach has been successful for more than 80 percent of the schools which have reduced their published price.
Beyond price resets, schools have been and are continuing to experiment with alternate discounting strategies to attract more students. Some offer to match the in-state tuition at public flagship institutions for students with certain academic credentials such as the Oglethorpe Flagship 50 program. Others offer programs targeted to specific populations of students such as students from a certain geographic area or students whose family make less than a certain amount and are eligible for Pell grants or students whose parents work in certain professions. These are ways that schools lower their price to certain populations of students before students have applied to the institution without reducing their price to everyone. There are other schools which guarantee all students a minimum level of institutional aid, but students don’t usually find out about this until they have gotten beyond the school’s published price and this doesn’t have the same impact on increasing the numbers of students who look at a school as a price reduction. Changes to pricing strategies can help schools increase their enrollment but more important for schools is insuring that they are offering students the majors that they want, a variety of sports and other co-curricular activities, appropriate facilities, and a strong value proposition.
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