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Tuition Discount Rates Reach New High: A Good News/Bad News Event?

Tuition Discount Rates Reach New High: A Good News/Bad News Event?

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Last week, the National Association of College and University Business Officers (NACUBO) released the preliminary results of a study of the average tuition discount rates issued by private, non-profit colleges for the 2020-2021 academic year.

This document, “2020 Tuition Discounting Study,” is available for free to staff at participating institutions and for purchase by non-participating members and anyone else who is interested. Final tuition discount rates for 2019-20 from 361 private non-profit NACUBO-member institutions are included along with the preliminary rates for 2020-21. I opted not to pay the $750 for the report and read Emma Whitford’s coverage for Inside Higher Ed instead.

The big news in the report is that the average tuition discount rate for freshmen attending private colleges in 2020-21 reached an all-time high of 53.9 percent. The distribution of the discounts can vary widely, but keep in mind because this figure is an average, there are institutions with average discount rates that are greater or lower than 53.9 percent. Within the group of freshmen attending private institutions, the discount rate offered to students can vary as well.

As Ms. Whitford points out, “rising tuition discount rates can depress net tuition revenue per student if a college does not raise its sticker price in lockstep or line up other sources of funding to pay for financial aid grants.” Tuition discounting is a complex process designed to assist a college in attracting a target group of applicants. Overall, the average discount rate in 2020-21 increased to 48.1 percent, a 2.2 percentage point increase from 2019-20.

It’s safe to say that one of the reasons for the jump in the average discount rates awarded to freshmen entering college in 2020-21 was the COVID-19 pandemic. At the same time, it’s no secret that there are fewer traditional-age students graduating from high school and going to college. While some observers of higher education trends may hope that this year’s rate is an aberration, there are indications that it may continue due to greater competition to enroll traditional-age students.

The survey indicated that baccalaureate institutions used higher discount rates than master’s, doctoral, and special-focus institutions. The average tuition discount rate in 2020-21 for freshmen at baccalaureate institutions was 58.4 percent, while master’s and doctoral educational institutions reported 55.3 percent and 50.2 percent, respectively. Special-focus institutions reported an average discount rate of 38.5 percent for the same period.

Sometimes, an increase in the tuition discount granted to students may be offset by an increase in the tuition and fees. For that reason, average net tuition is tracked as well. Unfortunately, that number declined by 2.6 percent in 2020-21, the largest decline in the past 10 years.

I have observed the steady increase in the average tuition discount rate for the past two decades. When it first approached 40 percent, I discussed the rate with a few college CFOs. “It’s not a problem at 40 percent,” I remember one of them saying. “It’s only an issue when it gets to 50 percent.”

Well, it’s now well over 50 percent with no signs that it will go back. Whenever I want to find out more about the average tuition discount rate for a college, I use College Navigator, the reporting tool hosted by the U.S. Department of Education. For every college and university that participates in the Federal Student Aid program, there are reporting requirements that are tracked and published.

After entering a college, I click on the Financial Aid section. Here, I can find out the percentage of freshmen who receive aid, how many receive federal and state grants and loans, and how many receive institutional grants.

For one private college that I track, 100 percent of its freshman class of 415 received institutional aid in 2018-19. The average amount of aid received was $34,006. Tuition and fees for that year totaled $43,260. The discount rate for this institution was 78.6 percent.

How does the institution make it on such a high discount rate? A very high percentage of its students live on campus, and the annual room and board charges of $11,430 are not discounted.

However, even when room and board is included, the average discount to freshmen is 62.2 percent. Clearly, this institution is unable to attract any full-pay students and has to offer an extremely high discount rate to attract the 415 students who enrolled in 2018-2019.

Remembering that the 53.9 percent tuition discount for 2020-21 is an average for all private institutions, clearly colleges like the one I’m tracking would make many “close watch” lists. As you can see from the example I provided, it takes a while for the current year information to be published by the Department of Education, which is why NACUBO conducts its annual survey.

Prior to the pandemic, there were a number of articles and books predicting the demise of colleges and universities that were tuition-dependent. After the pandemic, more articles surfaced.

So far, the number of closures or mergers announced has been much less than the 15-30 percent predicted by experts. My guess is that some of the federal funding delayed the financial impact.

With the focus of the Biden administration and several states on funding community colleges, look for the smaller, tuition-dependent private colleges with high tuition discount rates to struggle more. It appears that the greater question may be: what is the tuition discount and student enrollment tipping point?

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Wally Boston Dr. Wallace E. Boston was appointed President and Chief Executive Officer of American Public University System (APUS) and its parent company, American Public Education, Inc. (APEI) in July 2004. He joined APUS as its Executive Vice President and Chief Financial Officer in 2002. In September 2019, Dr. Boston retired as CEO of APEI and retired as APUS President in August 2020. Dr. Boston guided APUS through its successful initial accreditation with the Higher Learning Commission of the North Central Association in 2006 and ten-year reaccreditation in 2011. In November 2007, he led APEI to an initial public offering on the NASDAQ Exchange. For four years from 2009 through 2012, APEI was ranked in Forbes' Top 10 list of America's Best Small Public Companies. During his tenure as president, APUS grew to over 85,000 students, 200 degree and certificate programs, and approximately 100,000 alumni. While serving as APEI CEO and APUS President, Dr. Boston was a board member of APEI, APUS, Hondros College of Nursing, and Fidelis, Inc. Dr. Boston continues to serve as a member of the Board of Advisors of the National Institute for Learning Outcomes Assessment (NILOA), a member of the Board of Overseers of the University of Pennsylvania’s Graduate School of Education, and as a member of the board of New Horizons Worldwide. He has authored and co-authored papers on the topic of online post-secondary student retention, and is a frequent speaker on the impact of technology on higher education. Dr. Boston is a past Treasurer of the Board of Trustees of the McDonogh School, a private K-12 school in Baltimore. In his career prior to APEI and APUS, Dr. Boston served as either CFO, COO, or CEO of Meridian Healthcare, Manor Healthcare, Neighborcare Pharmacies, and Sun Healthcare Group. Dr. Boston is a Certified Public Accountant, Certified Management Accountant, and Chartered Global Management Accountant. He earned an A.B. degree in History from Duke University, an MBA in Marketing and Accounting from Tulane University’s Freeman School of Business Administration, and a Doctorate in Higher Education Management from the University of Pennsylvania’s Graduate School of Education. In 2008, the Board of Trustees of APUS awarded him a Doctorate in Business Administration, honoris causa, and, in April 2017, also bestowed him with the title President Emeritus. In August 2020, the Board of Trustees of APUS appointed him Trustee Emeritus. In November 2020, the Board of Trustees announced that the APUS School of Business would be renamed the Dr. Wallace E Boston School of Business in recognition of Dr. Boston's service to the university. Dr. Boston lives with his family in Austin, Texas.

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