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Widening the Higher Education Gateway

Results from NACUBO’s annual Tuition Discounting Survey of independent institutions illustrate that as tuition rates climb beyond the reach of lower-income families, the need for greater educational access is more urgent.

By Loren Loomis Hubbell and Lucie Lapovsky

Results from the 2003 NACUBO Tuition Discounting Survey indicate that the average rate in fall 2003 was 38.8 percent for the 371 participating independent colleges and universities. By cohort, this amount breaks down to 40.4 percent among smaller colleges with lower tuitions (SCLT), 37.6 percent for smaller colleges with higher tuitions (SCHT), and 37.7 percent for larger colleges and universities (LCU). Tuition discounting was essentially stable in fall 2003 following the modest increases in discounting in fall 2001 and 2002. The past 10 years can be characterized as periods of rising discounts, followed by brief plateaus, and then a return to the pattern of modest increases in discounting. We have seen nothing reminiscent of the dramatic discounting increases of the early 1990s, but neither have we seen any systemic ability to control the longitudinal pattern of growth.

Other key factors that we have tracked across time show stable patterns. The percent of freshmen aided is essentially flat against last year, although this is still a net increase since the late 1990s for the SCLTs and the LCUs. SCHTs have been essentially flat for the past several years. This is the third year of growth for the aid as a percent of tuition and fees for SCHTs and LCUs; SCLTs were flat this year.

Discounting is an evolving phenomenon with a marked shift to aid that is awarded on a basis other than need (merit or non-need-based aid). Review of data on awards, income distribution at independent institutions, and campus literature on criteria for receiving scholarships show the significant increase in non-need-based aid, which didn’t exist 15 years ago. At the same time, we know that median family incomes for the lowest earning sectors have stagnated, earnings for the wealthiest continue to grow, and tuition increases nationally have been in the 6 percent range.

Data
Tell
the
Story

Data for this article come from the NACUBO Tuition Discounting Survey of independent colleges and universities. More than 370 independent institutions responded to the 2003 survey, which NACUBO sent to all four-year accredited independent institutions.

The institutions have been divided into three categories for analysis purposes:

Small colleges with lower tuitions (SCLT)—institutions with entering freshmen classes of less than 850 students and tuition and required fees in the fall of 2003 of less than $22,260.

Small colleges with higher tuitions (SCHT)—institutions with entering freshmen classes of less than 850 students and tuition and required fees in the fall of 2003 of $22,260 and higher.

Large colleges and universities (LCU)—institutions with entering freshmen classes of 850 or more students.

Fall 2003

Tuition Level

Full-Time Freshmen Enrollment

Number of Institutions

with 10 yrs of data

with 5 yrs of data

with 1 yr of data

Small Colleges, Lower Tuition (SCLT)

<$22,260

<850

137

181

234

Small Colleges, Higher Tuition (SCHT)

>=$22,260

<850

65

74

82

Large Colleges and Universities (LCU)

>=850

43

51

55

All Colleges and Universities (All)

245

306

371

The Tier Factor

In addition to the three cohorts we have tracked over time, this year we began to look at patterns of discounting among different quality tiers. Using U.S. News & World Report as a proxy for a quality index, we looked at institutions ranked in the top 50 for national liberal arts colleges and the top 50 research universities (R1, total count = 100), those ranked in the next 50 for national liberal arts colleges and next 50 research universities (R2, total count = 100), and those in all other categories and rankings (NR). The NACUBO study database contains 10-year information on 39 percent of the R1 institutions and 2003 data on 47 percent. For the R2 institutions, we have 10-year information on 35 percent and 2003 data on 44 percent. Because of the high and positive correlation between U.S. News & World Report rankings and institutional net worth, we wanted to see if institutions with greater available resources provided greater discounting support to students.

The tuition discounting trends for those institutions in the NR sector follow closely the overall trends for the NACUBO database. However, the R1 institutions discount at a measurably lower rate and the R2 institutions, which historically had discounted at higher levels, now are approximately equal to the aggregate and NR statistics. The central issue is that the most competitive and wealthiest institutions discount at lower rates than other independent institutions.

Table 1: Comparison of Fall 2003 Discount RatesWe then examined the relationship between these rankings and the size and tuition-based cohorts used for the study. Table 1 shows the relationship in the NACUBO study data. What leaps out is that the top institutions are not discounting at higher-than-average rates but the second-quality tier institutions are doing so. If each sector was dividing aid between need-based and merit in comparable proportions, and if each sector was reaching out to proportionately the same numbers of students of educational quality and income, then the table should show little, if any, vertical differentiation. This isn’t the case, however, as the vertical differentiation in the SCHT and SCLT categories is measurable. There were too few observations in the LCU category to draw conclusions. The differences can be hypothetically explained in any number of ways: fewer qualified students from low-income backgrounds available at the R1 level or more merit in the R2 strata, for example.

Chart 1: Freshman Tuition Discount

Ironing Out Income Disparities

Several factors related to tuition and financial aid in recent years are affecting access to higher education. The trend by many colleges and universities to accept a significant part of their freshman class on an early-decision basis changed the dynamics of college admissions about five years ago, according to college admission data. As the probability of being accepted at most institutions was significantly higher for early-decision applicants, it resulted in reduced access for low-income students who needed to compare aid offers among institutions. In the late 1990s the tuition discount rate stayed constant overall but declined slightly at the R1 and R2 colleges and universities. At several of the elite institutions, the discount rate fell during this period as most of their need-based applicants were in their regular admit pool, and in some cases this was less than half of the freshman class. (See Table 2 for the change in the discount rate from year to year.)

Table 2: Percent Point Change in the Tuition Discount Rate

Since 2000, we have seen an increase of about 2 percent per year in the discount rate at the top-ranked institutions. We attribute this to renewed desire to increase the economic diversity of the student bodies and to better aid low- and middle-class students. This has manifested itself with policies spearheaded by Yale and Princeton a few years ago in the way they interpreted the needs analysis in terms of home equity and in their desire to give more grant aid to low-income students. Since 2001, Princeton has substituted grant aid for loans for low-income students. This year, Harvard University President Larry Summers announced that the university will replace loans with grants for all students from families with incomes of less than $40,000. This trend by the richest and most competitive institutions to replace loans with grants may have a negative impact on the enrollment rates of low-income students since it leaves the impression that loans may not be appropriate for them.

Paying More for Public

Another factor affecting access to higher education is the significant increase in tuition at public institutions, which has become more widespread in the past two years. In large measure this is a response to the decrease in state and local support for public colleges. If we assume that low price is the best tool to promote access to higher education, we must view this development as a factor that will reduce access for low-income students. This is unlikely to have a negative effect on middle- and upper-income students as they choose public over independent colleges in larger numbers.

We also need to watch how the public institutions are adapting to their higher tuition rates. There seems to be a trend toward adapting the discounting strategies of independent colleges. More public institutions are implementing tuition discounting strategies, including merit-based awards, to fill their classes at these higher prices as well as to shape their classes. Miami University of Ohio just became the first public institution to adopt a full-cost pricing strategy. The university has raised its price to $18,000 for both in-state and out-of-state students for fall 2004 and will use a variety of aid/discount strategies to subsidize the price to different groups of students. Slippery Rock University in Pennsylvania is now offering tuition reduction for out-of-state students. The discount is available to freshmen and transfer students who plan to attend full time and have a 3.0 grade point average. Slippery Rock will provide a 29 percent discount on tuition and a 27 percent discount on tuition, room, and board.

Chart 2: Percent of Freshmen Receiving Institutional Aid

The increase in price at the public institutions is changing the landscape of higher education. The tuition gap in dollar terms between public and independent colleges is narrowing. Current public policies are moving away from increasing access. Other factors are also contributing to reduced access. Federal grants on a per-student basis have been flat for several years, which has led to a growth in the amount of tuition for which students and their families are responsible. In addition, the federal government’s recent attempts to increase support for higher education through savings incentives and tax credits benefit the middle class, not the poor.

There has been some growth in state aid for higher education, but beginning with the HOPE scholarship in Georgia, we are seeing significant increases in state financial aid that is merit-based. We know that there is a positive correlation between income and SAT scores, used as a proxy for merit here; thus we are seeing more state funding going to middle- and upper-income students just as tuitions are rising significantly at public institutions. Many states have replicated the HOPE scholarship. In recent years, the average income of students at flagship institutions in several states has been higher than the average income of the students at the higher-priced independent colleges in the state.

Chart 3: Aid Received as a Percent of Tuition and Fees

Get More Data With The Executive Summary

The 2003 NACUBO Tuition Discounting Survey—Executive Summary for Independent Institutions, available from NACUBO on CD-ROM, provides a reference guide and more than 20 charts, some of which can be modified to compare an individual institution’s data with that of the industry for presentation to an institution’s governing board. The publication (Item No. NC1276) is $29.95 for NACUBO members and $39.95 for nonmembers. To order, go to www.nacubo.org.

For information about participating in the fall 2004 survey, contact Maryann Terrana, senior program manager, 202.861.2562, maryann.terrana@nacubo.org.

Steps Toward Broader Access

Trends suggest that tuition rates and discount rates will continue to rise. Financial aid policies seem to be targeted toward merit or toward maximizing enrollment rather than providing access. As U.S. demographics shift so that minorities are becoming the majority and more children are coming from families where parents have not completed college, we need to be concerned about maintaining an adequate supply of college graduates. Tuition discounting and merit scholar-ships are just one symptom of the larger issue that our country faces. Access to education—and, through education, access to opportunity and success—is critical to our society. Yet the delivery on this promise of access is becoming murkier over time despite significant government funding for education and institutional discounts.

Freshman Tuition Discount

Author Bios Loren Loomis Hubbell is senior vice president and chief financial officer, and Lucie Lapovsky is former president of Mercy College, Dobbs Ferry, New York.
E-mail lloomis@mercy.edu; llapovsky@mercy.edu


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