Tuition-Discount Rate Hits Record High, Nacubo Survey Finds

March 30, 2010

Private colleges are spending more on grant aid than ever before, according to the results of a survey released on Wednesday by the National Association of College and University Business Officers. After years of stability, the average tuition-discount rate for full-time freshmen entering college in the fall of 2008 rose to 41.8 percent, up from 39.1 percent in the previous academic year.

A college's tuition-discount rate is the difference between what students actually pay to attend and the institution's sticker price.

Several factors account for the average rate's increase in 2008, the business officers' group says in its "2009 Tuition Discounting Study Report." The recession cut into families' ability to pay for college at the same time that many institutions were facing extra pressure to keep enrollment levels stable. Those economic stresses combined with an already competitive student recruiting environment to drive up institutional grant awards.

"These increases in discount rates, however, have come at a high price for many private colleges," the survey's authors wrote, noting that institutions "had to implement salary freezes, hiring freezes, staff reductions, and other cost-cutting measures in order to increase their spending on institutional grants."

Net tuition revenue fell 2 percent from 2007 to 2008, according to the survey, as discount rates outpaced total gross tuition and fee increases.

Nacubo, which has conducted the survey since 1994, collected data from 355 private four-year colleges for the latest report. The survey looks at tuition for first-time, full-time freshmen. The average discount rate jumped rapidly from 1990 to 2002, rising from 27 percent to 39 percent. But rates had been stable since 2002, hovering around 38 percent.

Preliminary estimates for the current academic year show discount rates rising again, to 42.4 percent.

Reliance on Endowment Earnings

Two new items were added to the most recent survey: the percentage of grants that were financed by endowment revenue and the percentage awarded based on students' financial need.

On average, 12 percent of grant aid in the fall of 2008 came from endowment money. Not surprisingly, percentages went up for wealthier colleges. Survey participants with endowments worth more than $1-billion paid for 34 percent of grant aid with those endowment assets, compared with 6 percent of grant aid supported by endowment earnings for colleges with endowments valued at $25-million or below.

Given the broad endowment losses across higher education in recent years, the report suggests, endowment-dependent colleges may have a harder time increasing financial aid.

Other reports have found that aid based on nonfinancial factors, such as for athletic or artistic ability, has increased over the last decade. The Nacubo survey found that about 36 percent of participants' aid spending was based entirely on need. About 42 percent of spending was based entirely on "non-need" criteria, and 23 percent was a combination of both.

"Despite current economic challenges, higher-education institutions work to respond to student need," John D. Walda, Nacubo's president, said in a written statement. "Tuition discounting is at an all-time high. A significant percentage of student aid is funded by endowments, even though they experienced negative returns for the year. And a high percentage of institutional grants were awarded based at least partially on students' demonstrated financial need."

The study is available for purchase on Nacubo's Web site.