Study Snapshot: Tuition Discounting at Small, Private Baccalaureate Institutions: Reaching a Point of No Return?
 
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For Immediate Release: April 28, 2017

Contact:
Tony Pals,  tpals@aera.net
(202) 238-3235, (202) 288-9333 (cell)

Victoria Oms, voms@aera.net
(202) 238-3233

Study Snapshot: Tuition Discounting at Small, Private Baccalaureate Institutions: Reaching a Point of No Return?

Study: Tuition Discounting at Small, Private Baccalaureate Institutions: Reaching a Point of No Return?
Authors: Luke Behaunek (Simpson College) and Ann M. Gansemer-Topf (Iowa State University)

This study will be presented at the AERA 2017 Annual Meeting
Session: Tracing the Labyrinth: Exploring the Interaction Between Campus Governance and Public Policy
Date/Time: Friday, April 28, 10:35 am

Details:

  • Tuition discounting (TD), where institutional grants are used to subsidize a student’s educational expense, has become a common practice at four-year institutions. Almost every four-year private institution uses TD in admissions offers. TD’s impact on enrollments, financial aid, and budgets continues to increase, raising concerns about the long-term sustainability of the practice.

  • Analyzing U.S. Department of Education data on 448 small four-year liberal arts colleges from 2003 to 2012 showed that over that 10-year period—while enrollment, tuition, and the numbers and amounts of institutional aid grants increased—average yield and SAT average score declined. Net tuition revenue increased but lagged behind increases in tuition revenue.

  • In 2003, 158 of the 448 colleges (35 percent) awarded institutional grant aid to 95 percent or more of their incoming first-year students, with 56 (12.5 percent) awarding it to 99 percent or 100 percent of incoming students.

  • In 2012, 262 colleges (58 percent) awarded institutional grant aid to more than 95 percent of their incoming first-year students, with 170 (38 percent) awarding it to 99 percent or 100 percent of those students.

  • The number of colleges awarding institutional grant aid to 95 percent or more of first-year incoming students increased more than 65 percent, from 158 colleges in 2003 to 262 in 2012. The number of institutions awarding to 99 percent or 100 percent of students increased 26 percent, growing from 56 in 2003 to 170 in 2012.

  • The analysis found that institutions were funding more grant aid from their general operating budget. The unfunded discount rate—the amount of tuition and fees covered by institutional grant aid from an institution’s operating budget—increased from 23.6 percent in 2002 to 30.6 percent in 2012. Unfunded grant aid grew at an annualized rate of more than 6.1 percent. 

  • The funded discount rate—which represents grant aid covered by funds solely dedicated to the purpose—declined from 8.1 percent in 2003 to 5.8 percent in 2012. Funded grant aid grew at an annualized rate of 0.3 percent.

  • Although institutions have increased pricing levels and made small gains in enrolling more students, the net tuition revenue gains have been minimized greatly by increases in institutional grant aid awards through unfunded sources.

  • In addition, the average number of applications increased more than 57 percent from 2003 to 2012, from 1,633 per institution to 2,574. However, the average admitted rate fell from 68 to 61 percent. The average yield rate decreased by 11 percent over the 10-year period.

  • The average fall enrollment of first-time, first-year students increased slightly from 338 in 2003 to 352 in 2012. The average percentage of minority student enrollment increased 8 percent, from 24.8 percent to 32.8 percent, and the percentage of Pell Grant recipients increased from 38 percent to 42 percent.

  • Study results suggest that simply increasing tuition discounting may not result in increased tuition revenue and that at some point tuition discounting may result in decreased tuition revenue.

  • The researchers note that as tuition prices and tuition discount rates increase there is an increasing disparity between “sticker price” and actual cost to the student, making it more difficult for students and their families to truly understand their cost of education. This practice particularly impacts low-income, first-generation, and under-represented students.

  • The researchers also note that financial aid and enrollment strategies are complex and based on institutional goals and contexts. Therefore, it is not feasible or appropriate to suggest one tuition discount number or percentage at which institutions will no longer see increases in tuition revenue. Institutional leaders, instead, are encouraged to ask, “have we reached the point of no return?” based on their unique set of institutional factors when they examine their TD policies.

  • The study was limited in that the researchers did not account for institutional selectivity, which impacts enrollment, value among college consumers, and tuition and revenue trends.

To receive an embargoed copy of a full paper, or to talk to paper authors, please contact AERA Communications: Tony Pals, Director of Communications, tpals@aera.net, cell: (202) 288-9333Victoria Oms, Communications Associate, voms@aera.net, cell: (505) 850-3907


About AERA
The American Educational Research Association (AERA) is the largest national interdisciplinary research association devoted to the scientific study of education and learning. Founded in 1916, AERA advances knowledge about education, encourages scholarly inquiry related to education, and promotes the use of research to improve education and serve the public good. Find AERA on Facebook and Twitter.

 
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