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The average tuition discount at private nonprofit colleges hit another record high last year, according to a new National Association of College and University Business Officers study.
Discount rates for first-time undergraduates reached 54.5 percent, according to preliminary estimates from the 2021 NACUBO Tuition Discounting Study, released Thursday. That number is up from the previous year’s record high of 53.9 percent.
Simplified, that means colleges forego about $54.50 for every $100 charged for tuition.
NACUBO defines the institutional tuition discount rate measured in the study as “the total institutional grant aid awarded to first-time undergraduates as a percentage of the gross tuition and fee revenue the institution would collect if all students paid the sticker price.”
While the 54.5 percent number may be an all-time high, colleges have been marching steadily toward that figure for years.
The discount rate for all undergraduates—not just first-year students—at private colleges is 49 percent, the NACUBO report shows.
Unpacking the Numbers
NACUBO figures show a nearly 10-percentage-point increase in the average institutional tuition discount rate for all undergraduates since the 2012–13 academic year.
The results of NACUBO’s 2021 Tuition Discounting Study are based on responses from 359 private, nonprofit colleges and universities. The study focuses on institutional grant aid, which means that outside funding from public or private entities is not included in the report.
In total, 82.5 percent of undergraduates at all surveyed colleges received institutional aid, which the NACUBO report notes “covered an average of 60.7 percent of published tuition and fees.”
Institutionally funded financial aid comes from a variety of sources, NACUBO found. Most of the aid—54 percent—came from undedicated sources, such as unbudgeted general funds; 31.2 percent came from institutional reserves; 9.9 percent came from endowment earnings/withdrawals; and 4.9 percent came from fundraising and gifts.
New in 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.” Colleges that accept fewer than half of their applicants, the report found, have a 44.8 percent discount rate for first-time undergraduates, compared to 58 percent for all institutions.
“More students are getting grants, and the grants as a percentage of the tuition and fees price are now higher than it’s ever been in the recorded history of our data collection,” which dates to the mid-1990s, explained Ken Redd, senior director of research and policy analysis at NACUBO.
The top takeaways from the report seem to vary according to audience. For consumers, it can be interpreted as a positive sign that financial aid is readily available, even to families who don’t usually qualify.
“I think a lot of families think that they don’t have the right income levels or other characteristics to even apply for financial aid. But what our data are showing is that more than ever, families should not take for granted that they won’t qualify for financial aid, certainly institution-based financial aid, and financial aid covers a greater and greater share of the tuition price,” Redd said.
What It Means for Higher Ed
Across higher education, the NACUBO report often generates doom-and-gloom narratives, with some experts warning of unsustainable tuition discounts and shrinking revenues that will ultimately drive numerous colleges out of business—particularly those already struggling financially. Others say the reality is more complex and that tuition discounting rates are only 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 the more optimistic view of the NACUBO report. He believes other metrics matter more and that focusing on tuition discount rates is not a sound way to evaluate financial health.
“I think that this is just an unhealthy measure of what’s happening in higher ed over all. I think what we probably should be looking at is the strength of balance sheets,” Brands said. “Are colleges and universities continuing to hire people? Are they giving people compensation increases? Are they investing in new programs? And I don’t think that the discount rate, because it’s such a narrow measure, is a very good measure of overall financial health for an institution.”
At Augustana, the tuition discount rate for this year’s entering class is 71.8 percent, down from 73.1 percent last year, yet Barnds says “net revenue per student is up by $700.”
Net tuition revenue, the amount of money a college receives for each student, is a mixed bag for survey respondents in the NACUBO study. While that number is up by 0.6 percent for all undergraduates, it’s down by 3.2 percent for first-time undergraduates.
Adjusted for inflation, that figure has “increased year-over-year but is still down two percent from five years ago,” according to the NACUBO press release, which also notes flat enrollment.
Beth Akers, an economist and senior fellow at the center-right think tank the American Enterprise Institute, said the study offers a mix of good and bad news. While it shows that discounts are readily available for consumers, many students and families still have no idea what attending college will actually cost because of the confusion created by sticker prices that few people actually end up paying, she said.
“On one hand, we’re seeing these very high-cost institutions giving discounts that enable less well-off students to attend when they wouldn’t otherwise. And that’s a great thing,” Akers said. “On the flip side, when you have this very heavily discounted pricing model, you have very nontransparent pricing, which ends up deterring a lot of students from even applying to school. I think that lack of transparency that tuition discounting supports and continues is problematic.”
At this point, she said, college sticker prices are essentially fictional. Ditto for discount rates.
“So we basically are getting the appearance of a discount created by institutions artificially inflating the sticker price that they post on their website,” Akers explained. “So if you raise your price by $10, but then increase your discount by $10, both your price and discount have increased, but you haven’t changed anything about the accounting at that institution.”
Though she’s critical of the lack of transparency in college pricing models, Akers notes that making higher ed more affordable is a good thing.
For Barnds, tuition discounting boosts access and affordability. While climbing tuition discount rates may be a source of anxiety for some higher education administrators, he suggests it signals a commitment to helping needy students.
“I guess there are probably two ways that consumers could interpret this,” Barnds said. “One is the way that it’s often interpreted in the media—that this is the start of the downward spiral for all of higher education because colleges are giving away 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 as just the cost of doing business or a sign of impending doom for the sector, tuition discounting patterns are unlikely to change in the years to come, experts say.
“If I were an administrator looking at this information, I would realize that in order to be competitive with other institutions, I need to be aggressive with my discounting and continue to embrace that model and use it to a greater degree in coming years,” Akers said. “I think that, if anything, it will set institutions collectively on a path towards using discounting to a greater extent in the future.”