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Business and Policy Areas
Business and Policy Areas

Two Recent Reports Examine Tuition Discounting

May 23, 2003

Recent reports about the practice of tuition discounting indicate that while using institutionally funded grants to defray college costs is on the rise, the underlying trends may have different implications. One report from the National Center for Education Statistics (NCES) chronicles recent trends in institutional aid among undergraduates. The other report from the Lumina Foundation for Education examines the potential side effects of tuition discounting.

The NCES report, “What Colleges Contribute: Institutional Aid to Full-Time Undergraduates Attending Four-Year Colleges and Universities,” was released last month. The authors analyze trends in aid receipt from 1992-93 to 1999-2000 and relationships between aid and retention rates of aid recipients compared to students who did not receive such aid.

Results indicate that the percentage of undergraduates receiving institutional aid has increased in recent years. At public institutions, the percentage of students receiving institutional aid increased from 17 percent in 1992-93 to 23 percent in 1999-2000. At independent institutions, the increase was from 47 percent in 1992-93 to 58 percent of undergraduates in 1999-2000. Further, between 1995-96 and 1999-2000, institutional aid awarded to undergraduates based solely on merit increased.

The NCES report indicates that students may receive different aid packages depending on their income levels and the type of institution they attend. Students in the highest income quartile experienced an increase in aid during the timeframe of the study, without a corresponding increase to students of other income brackets. Furthermore, while the likelihood of receiving institutional aid at highly selective institutions correlates with financial need, this is not necessarily the case among less selective institutions. The correlation between retention rates and the amount of aid received in the first year proves to be less conclusive. Students who achieved moderate levels of academic merit and enrolled in less selective institutions and those with high academic merit enrolled in very selective public institutions had higher one-year retention rates than others. But the relationship between aid receipt and degree attainment six years later is less conclusive, with an association evident only among students in public institutions.

The Lumina Foundation report is largely critical of tuition discounting, stating that the practice may unintentionally reduce institutional revenue and financial access for lower income students. While acknowledging that tuition discounting works for some institutions, the report focuses on the redirection of financial resources away from instruction and aid for needy students.

The Lumina report, Unintended Consequences of Tuition Discounting, also argues that tuition discounting does not help shape enrollment goals at many colleges. Citing data from NACUBO’s Tuition Discounting Survey and The College Board’s annual statistics, the report claims that while tuition discounting increased over the past several years at many colleges, few saw a meaningful rise in median SAT scores of incoming first-year students.