Price Check at Sewanee

U. of the South cuts tuition by 10%, seeking to reverse both rising discount rate and increased spending on merit aid. Could other private colleges follow?
February 17, 2011

The University of the South on Wednesday announced that it is cutting total student charges (tuition, fees and room and board) by 10 percent -- one of the more dramatic shifts in tuition policy announced by a competitive private college in recent years.

Total charges this year at Sewanee are just over $46,000. Some private colleges have in the past had major tuition cuts: Muskingum University cut tuition by 29 percent for the 1996-7 academic year and Blackburn College cut tuition by 15 percent for 2008-9. But the private colleges that have tried this strategy are generally not institutions that compete for students with leading public and private institutions.

Sewanee's decision is based in part on competition with public flagship universities and in part on the conviction of the new president, John McCardell, that current economic trends for liberal arts colleges like his are "unsustainable" and may even represent "a slow death scenario."

For the last three years, McCardell said in an interview, Sewanee has lost more admitted applicants to the University of Georgia than to any other institution. The university also loses significant numbers of applicants to the Universities of North Carolina at Chapel Hill, Tennessee at Knoxville, and Virginia. "More and more families are telling us that they are basing their decision on price," he said. The tuition cut is based on "what the marketplace is telling us."

The tuition cut, McCardell said, is designed to bring Sewanee's total costs in line with out-of-state rates at the publics with which it competes. For 2010-11, full costs for an out-of-state student at Georgia would be around $38,000, so a modest increase there for next year would make Sewanee competitive on sticker price.

The current dynamic, McCardell said, is for Sewanee to spend heavily on merit aid for top students who are admitted both there and to far less expensive public institutions. And that has forced up the discount rate -- the percentage off sticker price that reflects the various forms of aid provided to students -- to a trajectory he said can't continue. For this fall's class, the discount rate was 45 percent, up from 37 percent two years earlier (before the economy nosedived in the fall of 2008).

McCardell stressed that it will be difficult to predict the exact impact of the move on the university's finances -- at least until the university sees who accepts admissions offers this year. And in future years, he hopes there will be more applicants.

But Sewanee does expect to see its discount rate drop "by several percentage points" as all financial need is "recalibrated" and as less money is needed for the university to compete with the discounts or low prices offered elsewhere. That, in turn, should make it possible for the university to allocate more of its aid to low-income students. Sewanee does not meet the full need of all students, and currently 40 percent of its aid budget is awarded on bases other than financial need.

While 30 percent of students pay the full sticker price, McCardell said that trend line is not positive for private liberal arts colleges. "Others are wrestling with similar issues," he said. "As we raise our fees, we see declines in number of full-paid students. We see a slow death scenario. None of us are going to die next year, but in the long run it's unsustainable."

While McCardell said he thinks a shift in the pricing dynamic will make Sewanee stronger in the long run, he said that the university projects a $3 million decrease in tuition revenue next year. He said that the funds could be made up through a slight increase in the spending on endowment income or, preferably, "by our donor base and new donors who might want to support a courageous decision of this sort."

Sewanee's move comes at a time of widespread public anxiety over college costs -- concern that is showing up in the decisions of some institutions that do not lack for applicants willing to pay top dollar. Middlebury College last year set a voluntary ceiling on tuition increases: 1 percent on top of any change in the Consumer Price Index. (While McCardell is a former Middlebury president, he was already retired from the position when the institution made that move.) Princeton University in January announced an unusually small tuition increase (1 percent) for next year.

Richard Ekman, president of the Council of Independent Colleges (of which Sewanee is a member), called the move "very bold." He said that the university may have found a way to deal with "the perception, even among affluent families, that college costs too much." The tuition cut is "a more eye-catching way to change the appeal of Sewanee than the usual one-by-one crafting of financial aid deals for students."

Jerome A. Lucido, executive director of the Center for Enrollment Research, Policy, and Practice, at the University of Southern California, said that Sewanee was undertaking "a very interesting experiment."

"Cynically," he said, one could view it as "a real time experiment in price elasticity for certain students and maybe that's all it is." But Lucido said that there is also "at face value" another interpretation that could be more significant and "laudable."

Sewanee, Lucido said, has been engaged in the common practice of private institutions, in which they create "an inflationary spiral that occurs when we provide lots of aid and our competitors do the same and we are simply giving it away, often to students who don't need it." With its model, Sewanee could show the way to spend more aid dollars on needy students -- while also making the institution more attractive by closing the sticker price gap with its competitors.

While Sewanee "is just one institution," Lucido said, "this is the kind of step that is needed from a system point of view."


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