Rising institutional costs and greater price sensitivity on the part of prospective students and families have caused many institutions to strategically rethink their tuition discounting strategy.
The following is an excerpt from a brief interview conducted with enrollment management expert John W. Dysart, president of The Dysart Group, who spoke at Academic Impressions' conference on tuition discounting in Phoenix, AZ on .
Sarah Seigle Peatman, AI: John, conversations about the discount rate in higher education continue to steal headlines in 2015. What has especially caught your attention this year?
John Dysart: The trends in the most recent NACUBO (National Association of College and University Business Officers) Discounting Survey are not encouraging, especially for small, private colleges and universities:
- Discount rates continue to climb for newly enrolled freshmen. The rate reached a record 44.8% in 2012 was projected to top 46% in 2013.
- Discount rates are rising while enrollment often remains flat and 17% of the participating institutions reported declines in freshmen enrollment of at least 10%.
These two trends in particular are cause for concern. The important outcome of the current conditions is that net tuition revenue has remained virtually flat over the last decade when adjusted for inflation.
The news is no better for public colleges and universities. Significant cuts in subsidies for higher education in many states are forcing public institutions to rethink strategies and increase reliance on tuition discounting. Tuition discounting is still a relatively new concept for many public schools but budget pressures are generating more creative uses of institutional financial aid and thus tuition discounting. Consider that the subsidies for public colleges in Louisiana, for example, were sliced $700 million since 2008 and the proposed cuts for the coming cycle are even more draconian.
Seigle Peatman: The competitive and financial landscape for colleges and universities has been changing so rapidly. Is there a shift in perspective or mindset that campus leaders need to bring to their tuition discounting strategies now, in this current environment?
Dysart: I think it is important for campus leaders to understand that tuition discounting and its impact on net revenue are issues that must be addressed by broad institutional constituent groups. While enrollment managers, business officers and financial aid professionals have traditionally been deemed responsible for discounting outcomes, the reality is that decision-making outside of these core groups can be just as influential. The power of retention strategies, the impact of academic programming, the effect of co-curricular offerings such as scholarship athletics and student population characteristics such as participation rates in campus housing will dictate discount rates.
Discussions regarding the control of discount rates cannot be limited to administrators in the business office and the enrollment management division. The conversations should include others such as the chief academic officer, the director of athletics, the chief student life officer as well as retention leaders. It is time to include key board members in the process to better their understanding of this complex issue.
Seigle Peatman: Institutional context is obviously a very important factor in determining a discounting strategy—what key items do you think each institution must analyze about its context in informing discounting strategies?
Dysart: Institutional context is everything. I believe it is ill-informed and even dangerous to rely too much on comparing your institutional discount rates to regional or national averages or even to those of "peer" institutions. Specific institutional characteristics have a significant impact on discount rates. At a minimum, college and university leaders should consider the following as they place their current rates in context:
- Location -- Some states have rather generous scholarship and grant programs while others offer very little to students. Obviously colleges located in states with well-funded grant programs can spend less in institutional aid and still meet targeted percentages of financial need.
- Academic Programs -- There are academic programs that require higher levels of academic preparation and such programs often require more competitive scholarship offers to attract students. Engineering is a good example.
- Residential Rates -- Discount rate surveys include schools that enroll large number of commuters and institutions that are nearly 100% residential. Colleges with high percentages of students residing on campus are likely to have higher discount rates than colleges with healthy commuter populations.
- Retention -- Financial aid funding for freshmen requires the highest financial aid investment. Institutions able to retain more upper-division students and have student populations with lower percentages of freshmen will likely have lower discount rates. Schools with freshmen populations comprising 40% or more of the overall enrollment will struggle to maintain low discount rates.
- Mission -- A school committed to open enrollment, diversity and/or the education of first-generation college students is more likely to attract students with high financial need. Colleges and universities where half or more of enrolled students are eligible for Federal Pell Grants are apt to have higher discount rates than institutions enrolling larger numbers of students from middle and upper income brackets.
Any valuable discussion of discounting must begin with the acknowledgement of those institutional characteristics that will influence rates.
Seigle Peatman: How a college or university approaches discounting varies significantly depending on institutional type as well. What are 1-2 tips you would offer to graduate institutions and for-profit institutions, respectively, that are looking to begin discounting or modify their current tuition discounting strategy?
Dysart: Changing demographics and the downturn in the economy have definitely changed the market landscape for graduate programs. Institutions that never considered tuition discounting for graduate programs are starting to do so now. In most instances, it is no longer sufficient to rely on school reputation or a history of success in order to compete.
- Graduate schools need to adopt more aggressive recruitment tactics similar to what undergraduate schools have been doing for decades and this includes tuition discounting.
- Financial aid opportunities may need to extend beyond traditional assistantships.
- Graduate schools may need to be more open to including enrollment management and financial aid professionals in policy and process decisions that have historically been under the exclusive control of faculty.
Decision-makers should understand that it is much more difficult to place discounting tactics and averages in any kind of national or regional context since the databases and survey norms at the undergraduate level simply do not yet exist at the graduate level.
The landscape is changing as well for proprietary schools. Increased state and federal governmental scrutiny have made nearly every aspect of financial aid funding suspect at for-profits:
- For-profit institutions will need to be more deliberate and focused with their discounting. The traditional “one size fits all” approach is less effective. Designing institutional scholarship and grant programs specifically targeted based upon pre enrollment characteristics and/or academic or professional program can facilitate more effective use and better control of expenditures.
- Schools may wish to consider moving away from scholarship competitions and face-to-face awarding and towards the application of available funds to a broader student population base.
- The timing of awards may need to change as more institutions are front-loading scholarship opportunities and not waiting until the “accepted” stage to notify prospective students of eligibility.
Seigle Peatman: A common goal among Enrollment Managers, Finance Officers, Academic Officers, and others involved in determining their institution’s tuition discounting strategy is often to shift the conversation on campus from a discount rate focus to a net tuition revenue focus. What are 2-3 practical pieces of advice you would offer to those institutions who are looking to move to a more deliberate focus on net tuition revenue?
Dysart: For many colleges and universities, it is important to change the conversation from a focus on discount percentages to an emphasis on net tuition growth.
The education of key constituents is important, including faculty and staff as well as board members. It is easy to get caught up in the media frenzy over discount rates and to lose sight of the net revenue metric.
- When discussing tuition discounting, do more than just present discount rates. Adopt a data format for discussion that includes gross tuition, total institutional aid, discount rate and net revenue:
This format can demonstrate that increases in discount rates can still result in net revenue gains.
- It may also be useful to show the impact of discounting on total net revenue (including room and board).
Seigle Peatman: Thank you, John! We really appreciate this interview.