Tuition Discount Metrics
Average tuition discount rates have stabilized overall, but rates continue slow growth at small institutions, according to the NACUBO 2007 Tuition Discounting Study.
By Patricia E. Steele
Faced with rising tuition and fee prices and increasing competition for academically talented students, over the past two decades many four-year independent (private not-for-profit) colleges and universities have turned to the practice of tuition discounting to meet their enrollment goals. Under tuition discounting strategies, colleges and universities use their institutional grants to aid students who might otherwise be unable or unwilling to pay to attend a particular institution.
While these discounts may be funded from a variety of sources, research from the National Association of Student Financial Aid Administrators has found that two thirds of the discounts provided by four-year independent institutions were funded through tuition and fee revenue (the collective amounts of tuition and fees students and their families pay). Tuition discounts may be offered to all students, but they are particularly attractive to prospective first-time, full-time freshmen, as colleges and university administrators who seek to fulfill their enrollment goals may target these potential students with larger grants to enroll at their institutions.
Tracking Tuition Data
Over the past two decades, the annual NACUBO Tuition Discounting Survey (see sidebar) has measured tuition discount rates and the percentages of first-time, full-time freshmen receiving these discounts at four-year independent institutions. While many public colleges and universities may also award institutional grants, independent institutions have been the focus of the NACUBO study because they award the lion’s share of such aid. Calculations from the U.S. Department of Education’s most recent financial aid survey reveal that four-year independent schools award about 64 percent of the total institutional grants provided to all undergraduates.
In the 1990s and early 2000s, discount rates jumped rapidly. For example, from fall 1990 to fall 2002, the average tuition discount rate (the share of tuition and fee revenue devoted to institutionally funded grant aid) at four-year independent institutions increased from 26.7 percent to 39.4 percent, and the share of first-time, full-time freshmen who received an institutional grant award grew from about 62 percent to 81 percent.
Since then, however, tuition discount rates have stabilized. Results from the NACUBO 2007 Tuition Discounting Survey show that the average tuition discount rate for first-time, full-time freshmen in fall 2007 was 39.1 percent. The survey results are based on responses from 253 four-year independent colleges and universities (see Table 1). This rate is not appreciably different from the discount rate reported in the 2005 study, “A Current Look at Tuition Discounting” (which was based on 426 institutions). On average, 81.7 percent of the first-time, full-time freshmen who attended the responding institutions in fall 2007 received some kind of institutional grant. For students who received these grants, the reported average award covered about half the fall 2007 tuition and fee list prices.
Comparing Institutions’ Rates
Table 1 shows the variation in tuition discounting among different types of institutions. For purposes of analysis, this study assigns institutions to one of three categories in order to compare them with their peers in terms of size (less or more than 850 first-time, full-time freshmen) and price (less or more than $25,000 listed tuition and fee charge). Of the 253 institution respondents, 118 are categorized as Small Colleges/Lower Tuition (SCLT), 88 are Small Colleges/Higher Tuition, and 47 are Large Colleges and Universities (LCU).
Institutions within the SCLT category had the highest average discount rate for first-time, full-time freshmen (41.7 percent), slightly more than the SCHT category (39.1 percent), and much more than LCU institutions (32.5 percent). SCHT (36.1 percent) and SCLT (35.8 percent) respondents also had higher average discount rates for all undergraduates than LCU schools (28.9 percent). LCU institutions also had the lowest average share of freshmen who received grants, but their average grants to freshmen covered a larger share of tuition and fees than awards provided by SCLT institutions (50.9 percent versus 45.9 percent). SCHT had the highest average grant as a percentage of tuition and fees (52.6 percent). On average across all institutional types, grants covered 49.2 percent of tuition and fees across all institutions in fall 2007.
Among the institutions participating in the 2007 Tuition Discounting Survey, 135 have reported data consistently for the past 10 years. Figure 1 shows that based on the responses from these institutions, the average discount rate for freshmen for the years 1998 to 2007 has remained somewhat consistent across all institutions, between a low of 37.1 percent and a high of 39.8 percent. However, SCLT institutions appear to have continued to increase their discount rates moderately since 2005, while LCU respondents have moderately decreased their discount rates in the same time period.
Table 1 further illustrates that in fall 2007 almost 82 percent of first-time, full-time freshmen received an institutional grant at the 253 institutions responding to the Tuition Discounting Survey. Small colleges (both low and high priced) had higher shares of freshmen receiving grants than larger colleges and universities (90.5 percent and 77.2 percent compared with 68.1 percent respectively). Figure 2 shows the trend in receipt of institutional grants at independent institutions that responded to the survey over the past 10 years. During the last two years of the survey, the share of first-time, full-time freshmen at LCUs who received grants decreased slightly, making the percentage of students awarded such grants in 2007 similar to 1998 levels. At both SCLTs and SCHTs, the share of first-time, full-time freshmen receiving institutional grants grew over the decade by 5 and 4 percentage points, respectively.
Further variation in 2007 tuition discount rates is evident by other characteristics, such as geographical region and Carnegie classification. Table 2 shows in 2007 that four-year independent institutions located in the Plains region (which includes the states of Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) had the highest discount rate for first-time, full-time freshmen (45.8 percent), followed closely by a discount rate of 42.3 percent for institutions located in the Southeast (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia) and 41.8 percent for institutions located in the Rocky Mountain region (Colorado, Idaho, Montana, Utah, and Wyoming). The discount rate by Carnegie classification is close to 40 percent for each category, but lowest for doctoral/research universities (33.7 percent) and highest for medium- and small-sized master’s institutions (41.7 percent).
It is evident from these results that overall average tuition discount rates have stabilized at four-year independent colleges and universities, but the discount rates and shares of first-time, full-time freshmen receiving institutionally funded grant awards at small institutions continue to grow slowly. NACUBO’s ongoing survey project will continue to document these trends.
PATRICIA E. STEELE is an education policy consultant for many nonprofit organizations in the Washington, D.C., area.