Understanding Tuition Discounting

October 6, 2015Daniel C. Nelson, Bethel University

Example: Buying a Car

Sticker Price = $20,000Dealer offers to sell it for $18,000The “discount” is $2,000, or 10% off the sticker price.The buyer pays a net of $18,000, and the dealer receives a net of $18,000What’s another way for the dealer to make $18,000?

What is Tuition Discounting?

“The process by which the institution offsets its published tuition price (sticker price) with institutional grant aid for enrolling students”

Ways to Calculate: NACUBO Method

• Numerator: Unfunded + Funded Institutional Gift Aid (but not Tuition Remission)

• Denominator: Gross Tuition Revenue (or tuition + fee revenue)

• NOTE: Gift aid targeted at other than paying tuition (like a housing grant) may be excluded from numerator)

Ways to Calculate: Unfunded Method

• Numerator: Unfunded Institutional Gift Aid (not funded IGA or tuition remissions)

• Denominator: Denominator: Gross Tuition Revenue (or tuition + fee revenue)

Ways to Calculate: Variations

• Can be calculated for the whole undergrad population.

• Can be calculated for FT, FT, DS freshmen only.

• Some use all direct costs (tuition, fees, room, board) in the denominator (Noel Levitz)

Perspectives on Discounting: Institution

The institution is concerned with maximizing net revenue (or if at capacity, maximizing net revenue per student). The most helpful metric is the unfunded institutional gift aid discount rate.

Perspectives on Discounting: Student/Family

Students/families are concerned with minimizing net cost (sticker price – T,F,R,B – minus all gift aid/discounts). A good metric for them is total direct costs (tuition, fees, room, board) minus total gift aid from all sources (federal, state, institutional, and private).

Institutional Approaches to Tuition Discounting

• High Tuition, High Aid (high discount)• Lower Tuition, Low Aid (a small but

growing number of institutions are slashing both their sticker price and their discount rate)

Reasons for High Tuition, High Aid:

• High sticker price conveys “quality” (Chivas Regal effect)

• Everyone likes getting a “deal”• A Scholarship makes a student feel special• Selective institutions can use aid to

“sculpt” the class (SES, diversity, talent, etc.)

Reasons for Lower Tuition, Low Aid:

• High sticker price keeps some families from even considering a school.

• Consumers are getting savvy to discounting.

• Fear of where escalating discounting will lead.

What’s more important than an Institution’s Discount Rate?

• (for institutions with room to expand) Maximizing Net Tuition Revenue – regular year-over-year increases in the net from tuition to support school operations.

• (for institutions at capacity) Maximizing Net Tuition Revenue per Student

Benchmarking with Other Schools

• Stay current with Tuition Discounting in the literature (College Board, NACUBO annual study)

• Use IPEDS data to compare your metrics (price, average discount) with peer institutions

• Participate in consortium studies.

Questions?

Email me atdc-nelson@bethel.edu