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Grinnell College... the high cost of brand position

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Finances, Brand Strength, Sustainable Economic Models... Grinnell Struggles with Brand Position

Grinnell College is one of the rare residential liberal arts colleges with an endowment of more than one billion dollars (nearly $1.4 billion in 2012). And it also has, the president has recently admitted, an unsustainable financial model. 

What's up with that?

The answer illustrates how much things have changed since 2008 for even the best endowed colleges and universities. It also casts light on the perilous existence of many liberal arts colleges with much lower endowments struggling to maintain enrollment levels and academic profiles without sinking under a rising tuition discount rate.

Grinnell College: Tuition Discount Rate is over 60 Percent

The tuition discount rate at Grinnell is over 60 percent. The formal definition from the National Association of College and University Business Officers: "Institutional grant dollars as a percentage of gross tuition and fee revenues." 

To recap: Grinnell takes in less than 40 cents of new revenue per dollar from a freshmen class. It has to give the freshmen class a discount of more than 60 cents on every tuition dollar to maintain the enrollment level and academic profile it seeks. 

That's the model the president described as "unsustainable." And if that model is not sustainable for Grinnell, imagine the perilous situation of many other colleges for whom much if not all of the discounting is not supported by any real money. Nearly all have endowment much less than half of what's enjoyed by Grinnell.

Grinnell deserves credit for an unusually public discussion of the problem that started last fall with campus talks about whether or not it would continue "need blind" admissions. The real question: how are we going to realize more income from our students so we can discount less and preserve our endowment? 

Sustainability Imperative: More Wealthy Students

The answer adopted by the Board of Trustees and announced on February 23 retains the "need blind" admissions policy for the next two years, increases loan levels students will be asked to take, and recruits more "wealthy" students who can pay a higher percent of the tuition and fees. The goal is to move the discount rate to about 53 percent. 

Jon Boeckenstedt at DePaul University just wrote a marvelous blog post on how this would lower economic diversity at Grinnell. The college will offer what it no doubt hopes are modest merit scholarships to enroll additional students who can pay much more of the tuition than most present students are paying. Just how high that amount will have to be to enroll wealthy students with high academic profiles is a true test of brand strength.

Inside Higher Education outlined the plan quite well. You can also read the formal announcement of "Grinnell's Financial Future and Enrollment Management Strategies."

Merit Scholarships are Essential to Traditional Brand Position for Many Schools

The Grinnell situation illustrates the virtual impossibility of eliminating merit "scholarships" at most colleges without an acceptance of lower enrollment and/or lower academic profile. If you search for "Kenyon College president on merit aid" the first two results are:

The president of Kenyon College has joined a small group of other presidents to eliminate financial aid based on "merit." Her college is forced by the marketplace to do the opposite to meet enrollment goals. The Kenyon College endowment in 2012 was just under $180 million.

Traditional Brand Position and Potemkin's Village

Brand position in higher education is based on many things, but prominent among them is admissions selectivity and the academic profile of new freshmen. Many schools have always had to invest much more of their own money to  achieve and maintain selectivity and high profiles than others in their professed competitive arena. That created an illusion of brand position comparable to the facades built along a Russian river to impress noble visitors.

In the new reality of our post-2008 world where most family income levels have been stagnant or fallen and most endowment levels are not growing, more colleges have learned just how strong the desirability of a degree from their institution is compared to an ability to pay or a willingness to incur debt. Traditional brand strength has fallen. Since 2008 discount rates have risen at most not-for-profit colleges in the private sector.

Will Grinnell Win the Game? Check in Two Years

With a discount level of over 60 percent, Grinnell is playing a challenging game. It is fortunate that the new plan requires a discount rate reduction to only 50 percent. Enrollment professionals know what often happens when efforts are made to seriously reduce tuition discount levels while maintaining enrollment and academic profile. 

We will see in two years if Grinnell is one of the rare schools that can do all three.

That's all for now.

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