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Tuition discounting & Reed College... whither the private sector?

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Reed College, Tuition Discounting, and the Future of Private Colleges & Universities

Reed College is controlling the tutition discount rate by increasing enrollment of new freshmen who can afford a $50K per-year cost without an increased college contribution.

NACUBO last released a tution discount report in May 2009, based on a survey for discount rates for the entering freshmen class in 2007. At that time, NACUBO reported little change from the previous year. The average discount rate based on responses from 253 private sector schools was 39.1 percent, up slightly from the 37.8% of the previous year, as reported by 367 participants. (Should one wonder what was happening that so greatly decreased the respondents?)

Since most schools don't talk much in public about their discount rates, not everyone understands quite what this means. Simply put, many colleges and universities are not getting anywhere near the published tuition price from the enrolled freshmen class. On average, they received just over 60 percent of the "sticker price" charged. The rest went back to the students as scholarships and grants to "discount" a cost that students and their families either would not (merit aid) or could not (need-based aid) pay to attend a particular institution. How much wiggle room is left for even higher discount rates?

The current economic plague has put new stress on the discount rates at private sector schools. We've heard quite a bit about application and deposit rates that suggest that enrollment at many if not most private sector schools is strong despite the current state of the economy. What we haven't heard much about yet is the impact on the discount rate.

If you're a betting person, expect the average tuition discount rate to rise. The question is how much capacity individual schools have to raise it to maintain enrollment numbers and academic profiles without pushing already stressed budgets to the breaking point.

Reed College: Limited Admission for "Needy Students"

Reed, for instance, was just favored by this New York Times headline: "College in Need Closes a Door to Needy Students." Reed can no longer afford to admit as many students who need "tution discounting" without serious cuts in other parts of the college's budget that the trustees are not willing to make. As a result, the economic profile of Reed freshmen in 2009 is about to rise. (Reed College president Colin Diver has published a letter to alumni and parents about the NYT article and Reed's overall policy on financial aid awards, which never included merit awards.)

Expect more changes. Expect that not all colleges can meet the challenge of controlling the discount rate while reaching previous goals of enrollment size and profile. A likely result? Fewer students or a higher admission rate the lowers the academic profile. NACUBO reports that in 2007 the colleges with the highest discount rates were those with the lowest tutions and lowest enrollments. They face the greatest challenge.

The NYT article reports that Reed is hoping for a rapid economic improvement so that the current financial aid changes are only temporary. While we all hope for that, I'd not bet on it as a strategy for the future for private sector institutions.

That's all for now.

  

 

 

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2 Comments

I have a one little quibble with this,

"...a cost that students and their families either would not (merit aid) or could not (need-based aid) pay to attend..."

Much of the merit aid is awarded to attract students to increase the "academic reputation" or increase rankings. Many of these families could pay more but don't have to because the institution chooses to direct scholarship funds without regard to the economic circumstances of the family.

Yes and thanks for the clarification. I agree.

My somewhat cloudy point is just what you have said more clearly... colleges/universities do this from what I'd call "reputation deficiency desease" so that they have to lower the cost with "merit" aid to people who otherwise would not consider the price sufficient value vs. reputation of the school.

That's why the best chance for a merit award is with those who are in the top 10 percent or so of the applicant pool... or, even better, above that top 10 percent.

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