The average tuition reduction at private, nonprofit colleges hit a new high last year, according to new research from the National Association of College and University Business Officers.
Discount rates for new undergraduates reached 54.5%, according to preliminary estimates from the NACUBO 2021 Tuition Discount Study, released Thursday. This number is up from the previous year’s record high of 53.9%.
Simplified, this means that colleges forgo about $54.50 for every $100 charged for tuition.
NACUBO defines the institution’s tuition discount rate measured in the study as “the total institutional grants awarded to new undergraduate students as a percentage of gross tuition and revenue that the institution would receive if all the students paid the sticker price”.
While the 54.5% number may be an all-time high, colleges have been steadily moving toward that number for years.
The discount rate for all undergraduates — not just freshmen — at private colleges is 49%, according to the NACUBO report.
Unpack the numbers
NACUBO figures show an increase of almost 10 percentage points in the average institutional tuition discount rate for all undergraduates since the 2012-2013 academic year.
The results of the 2021 NACUBO Tuition Reduction Study are based on responses from 359 private, nonprofit colleges and universities. The study focuses on institutional grants, meaning external funding from public or private entities is not included in the report.
A total of 82.5% of undergraduate students from all colleges surveyed received institutional aid, which, according to the NACUBO report, “covers an average of 60.7% of published tuition and fees.”
Institution-funded financial aid comes from a variety of sources, NACUBO found. Most of the aid (54%) came from non-dedicated sources, such as general unbudgeted funds; 31.2% came from institutional reserves; 9.9% came from endowment income/withdrawals; and 4.9% came from fundraising and donations.
New to this year’s study is a look at college tuition discounts based on selectivity. The results, according to a NACUBO press release, indicate that “institutions that admit the smallest percentages of students discount their published tuition less.” According to the report, colleges that accept less than half of their applicants have a discount rate of 44.8% for undergraduates, compared to 58% for all institutions.
“More students are receiving scholarships, and scholarships as a percentage of tuition and fees are now higher than they have ever been in the recorded history of our data collection,” which dates back to the mid of the 1990s, explained Ken Redd, senior director. research and policy analysis at NACUBO.
The main takeaways from the report seem to vary depending on the audience. For consumers, this can be interpreted as a positive sign that financial assistance is readily available, even for families who are not generally eligible.
“I think a lot of families think they don’t have the right income levels or other characteristics to even apply for financial assistance. But what our data shows is that more than ever, families shouldn’t take it for granted that they won’t be eligible for financial assistance, certainly institutional financial assistance, and financial assistance covers a portion of increasing price of tuition,” Redd says.
What this means for higher education
Across higher education, the NACUBO report often generates pessimistic narratives, with some experts warning of unsustainable tuition cuts and declining revenues that will eventually drive many colleges into bankruptcy, especially those who are already in financial difficulty. Others say the reality is more complex and that tuition discount rates are just one piece of a complex financial puzzle.
Kent Barnds, executive vice president of external relations at Augustana College, who also oversees the admissions office, takes a more optimistic view of the NACUBO report. He thinks other metrics are more important and that focusing on tuition discount rates is not a good way to assess financial health.
“I think it’s just an unhealthy measure of what’s going on in higher education as a whole. I think what we should probably look at is the strength of the balance sheets,” Brands said. “Are colleges and universities still hiring people? Do they give people pay raises? Are they investing in new programs? And I don’t think the discount rate, because it’s such a narrow measure, is a very good measure of the overall financial health of an institution.
At Augustana, the tuition discount rate for this year’s incoming class is 71.8%, up from 73.1% last year, but Barnds says “net income per student has increased by 700 $”.
Net tuition revenue, the amount of money a college receives for each student, is a mixed bag for respondents to the NACUBO study survey. While that number is up 0.6% for all undergraduates, it’s down 3.2% for undergraduates.
Adjusted for inflation, that figure has “increased year-over-year, but is still down 2% from five years ago,” according to NACUBO’s press release, which notes also a stable listing.
Beth Akers, an economist and senior fellow at the center-right think tank American Enterprise Institute, said the study offered a mix of good and bad news. While this shows that discounts are readily available to consumers, many students and families still have no idea what college will actually cost due to the confusion created by sticker prices that few end up getting. pay, she said.
“On the one hand, we see these very expensive institutions giving discounts that allow less well-off students to attend when they otherwise wouldn’t. And that’s a good thing,” Akers said. “On the other hand, when you have this very heavily discounted pricing model, you have very non-transparent pricing, which ends up deterring many students from even applying to the school. I think the lack of transparency that the tuition reduction supports and continues is problematic.
At this point, she said, the college sticker prices are essentially fictitious. Ditto for discount rates.
“So we’re essentially getting the appearance of a discount created by institutions artificially inflating the sticker price that they display on their website,” Akers explained. “So if you increase your price by $10, but then increase your discount by $10, your price and your discount have increased, but you have not changed anything in the accounting of this institution.”
Although she criticizes the lack of transparency in college pricing models, Akers notes that making higher education more affordable is a good thing.
For Barns, reducing tuition fees improves access and affordability. While rising tuition discount rates may be a source of anxiety for some higher education administrators, he suggests it signals a commitment to helping students in need.
“I guess there are probably two ways for consumers to interpret this,” Barnds said. “The first is how it’s often interpreted in the media, that it’s the start of a downward spiral for all of higher education because colleges give so much. But I think another interpretation is that colleges and universities are making access and affordability a priority.
And whether college administrators see it simply as a cost of doing business or a sign of impending disaster for the sector, tuition reduction patterns are unlikely to change in the coming years, experts say.
“If I were an administrator reviewing this information, I would realize that to be competitive with other institutions, I need to be aggressive with my rebates and continue to adopt this model and use it more in the years to come” , says Akers. “I think, if anything, it will set institutions collectively on a path to greater use of discounting in the future.”