Disquieting Discounting

April 5, 2012

Discount rates at independent colleges and universities increased to nearly 43% for full-time first year students NACUBO reported this week, basing its conclusions on an annual survey.  A news story about the findings is in today’s Inside Higher Ed.

For the uninitiated, this means that independent colleges and universities collected only 57% of the (sticker price) tuition they charged first year students.  The discount rate of 42.8% in 2011 compares with a discount rate of 37.7% in 2001.  This is not a good trend for such colleges and universities trying to balance their budgets. Net of the discounts, average tuition per first year student increased less than the inflation rate from 2010 to 2011.

90% of the financial aid offered first year students did NOT come from endowment earnings — meaning it was simply money not collected.  Not surprisingly, those institutions with very much larger endowments drew more of their financial aid from those endowments.  But most independents simply do not have the endowment resources to support discounting on such a scale.

Nor is all this good news for low or moderate income families seeking to send their sons and dollars to college.  How can this be? Don’t the higher discount rates mean that more financial aid is being awarded?  Yes, but with discount rates being pushed higher, colleges and universities are trying every strategy imaginable to attract students with the ability to pay.  Perversely, this means offering discounts to students from higher income families through merit aid.  The trend away from need-based aid continues.

Putting the frosting on the bad news is the revelation that even with higher discounting, half of independent colleges and universities showed either no growth or declines in enrollment.

About Doug Bennett

Doug Bennett is Emeritus President and Professor of Politics at Earlham College. He has a wife, Ellen, and two sons, Tommy (born 1984) and Robbie (born 2003).
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