For Hendrix College, the past decade ushered in a series of unfortunate events.
A popular state scholarship program  that had paid full freight for about 50 Arkansans attending the college each year was cut back dramatically, and the University of Arkansas at Fayetteville was developing an honors college  that would compete directly with Hendrix for students. Hendrix officials argued that the college would have to intentionally reposition itself if it were to thrive in this new landscape. But the solution they arrived upon -- dramatically hiking tuition -- might have seemed counter-intuitive when discussions began in 2003, running against the grain of punditry suggesting that higher sticker prices drive students away from colleges.
Now well into the college's experiment, Hendrix officials say efforts to improve the educational experience for students -- coupled with big tuition increases and more discounting -- have borne fruit. Extensive market research suggested students and their parents would respond favorably to increases in sticker price, so long as they were coupled with greater financial aid and the further development of experiential learning programs that were already part of the college's ethos.
Responding to that research between 2005 and today, Hendrix has nearly doubled its tuition, to almost $32,000, while also developing an "Odyssey" program that requires students to complete a series of hands-on learning projects. Additionally, the college has upped its discount rate to a stunning 66 percent -- a rate that might induce panic attacks among trustees and presidents elsewhere. Indeed, Hendrix's discount rate is nearly 24 percentage points higher than the estimated 2009 national average , according to the National Association of College and University Business Officers.
While Hendrix's approach may have been unconventional, the results are clear: In the space of five years, the college grew enrollment by 43 percent, increased net tuition revenue by 60 percent and pushed freshman-to-sophomore retention rates to 88 percent – up 7 percentage points.
Karen Foust, Hendrix’s vice president for enrollment, said the college’s strategic changes have brought in more than new revenues. By growing to nearly 1,500 students in a short period of time, and adding new facilities like a wellness center, Hendrix has come to feel like a different place, she said.
“Part of what you can’t measure in dollars is just the energy that’s here,” Foust said.
Inherent in the college’s strategy are techniques that have come to define an arms race in higher education. Amid its growth spurt, Hendrix added a 100,000 square foot health and wellness center, complete with a climbing wall, pool and sand volleyball court. There’s also the new Student Life and Technology Center, which proved historic for its $26 million price tag – the largest capital project ever undertaken at Hendrix.
While Hendrix has mimicked some of its peers by upgrading facilities, college officials describe the programmatic developments as a unique outgrowth of the experiential learning that has long been a hallmark of the college. The Odyssey program requires all students to complete projects in three of five established categories , including areas such as artistic creativity and service to the world. With the help of competitive grants, students have addressed the challenges with approaches that are both traditional – designated courses for Odyssey credit – and quirky – an internship with a professional magician in Las Vegas.
Aiming to give students official credit for their work in the Odyssey program, the college records it on a separate experiential transcript upon graduation.
Faculty who helped develop Odyssey did so with full knowledge that their work was connected to a tuition strategy that would likely allow Hendrix to charge more, said Tom Goodwin, who chaired a task force that introduced a skeletal plan for the program.
“I think faculty were definitely aware it would be part of a publicity campaign to try to raise money and to try to raise interest in the college,” said Goodwin, a chemistry professor. “Can it be PR as well as educationally sound and beneficial? We think the answer is yes.”
While faculty grappled with how to implement Odyssey, administrators tried to discern the proper price point for a newly branded college. Enter Art & Science Group LLC , which conducted exhaustive research on what the market would bear. In a statistical analysis of students and families who might be interested in Hendrix, the group found an interesting and relatively consistent mindset: Families were more sensitive to aid being cut than tuition being increased. Specifically, they were more turned off by a $1,000 reduction in aid than they were to a $1,000 hike in sticker price.
“Sensitivities to differences in sticker price, sensitivities to differences in aid are not broadly consistent across institutions,” said David Strauss, principal for Art & Science Group. “They are idiosyncratic to an individual institution.”
Armed with market research, Hendrix trustees have approved two significant tuition increases in the wake of Odyssey’s launch. The first big hike came in 2005-06, when a 29 percent increase brought tuition to $21,336. Another hike came in 2009-10, when the college increased tuition to $29,970 – a 16 percent change. In each case, the college spared its current students from the major increases, holding those hikes to about 6 percent.
Hendrix Revenues Grew With Increased Tuition, Discounting
|Year||Annual Tuition||Tuition Percent Increase||Tuition Discount||FR Headcount||FR-Total Annual Net Revenue||Annual Increase||Percent Increase||Net Per-Student Tuition Revenue|
SOURCE: Hendrix College
*2010-11 are estimated amounts.
Smooth Tuition Hikes, Stable Discounting Would Have Meant Lower Revenues
|Year||Annual Tuition|| |
|Tuition Discount||FR Headcount||FR-Total Annual Net Revenue||Annual Increase||Percent Increase||Net Per-Student Tuition Revenue|
SOURCE: Hendrix College
The 2009 tuition increases were a big test for Hendrix’s strategy, which ran counter to what most colleges were doing at the time. Economic declines had many colleges on edge that big hikes could hurt enrollment in 2009, and the average increase that year for private, non-profit colleges was 4.3 percent – the smallest increases since 1972-73, according to the National Association of Independent Colleges and Universities. 
Along with a significant increase in tuition, Hendrix moved its discount rate to a high level – 66.3 percent. While freshman enrollment fell slightly in 2009, the college’s class of about 412 students was close to what administrators had targeted. More importantly, the college has discerned that its net tuition revenues are still higher than they would have been had the college changed nothing, keeping enrollment at the levels of the early 2000s and holding annual tuition increases at 5.5 percent.
“In other words, it worked,” Strauss said.
The strategy Hendrix employed, however, is not without critics. College presidents often privately grumble about the role tuition discounting now plays in higher education, and some see high discounting as a risky strategy . Above all, critics note that tuition discounting is more likely to benefit students with no demonstrated financial need -- and that appears true at Hendrix as well. Only about 25 percent of the college's institutional aid is purely need-based, but Hendrix officials note that a portion of the other 75 percent of aid defined as "merit-based" also benefits some families with demonstrated financial need.
Despite the lopsided balance in favor of merit aid, Hendrix officials argue that the college's tuition strategy has not had deleterious effects on the socioeconomic make-up of Hendrix's student body. On average, about 18 percent of the college’s students have been Pell Grant-eligible in the last five years. While that percentage is down from about 22 percent prior to the tuition hikes, officials note that the enrollment increases mean the college is still serving more Pell students in raw numbers – 269 last year, compared with 202 in 2005.
Jay Barth, a professor of politics who worked on the task force that developed Odyssey, said faculty were wary of any change that would price out students who’ve historically attended Hendrix.
“Some were concerned about the cultural change that might come with increasing the price,” he said.
While Barth says the Odyssey program has worked “surprisingly well,” he noted that some faculty were squeamish about market research that appeared to suggest some families had positive reactions to higher sticker prices.
“There was kind of a concern about was this about parents bragging their students went to an expensive school and got more scholarships,” he said. “Some of us were kind of disgusted by that.”
But Goodwin, who has been on faculty since 1978, said professors have had to adapt to the reality that their own careers are intertwined with the college’s market position.
“We [faculty] like to think we’re above all that stuff,” he said. “We don’t like to think of education as a business. It kind of taints what we’re about. But unfortunately in the real world you have to pay the bills. In this economic climate, some colleges are going under.”