Is Tuition Discounting Broken?

In the tuition-discounting report it released last week, the National Association of College and University Business Officers presented a troubling picture.

The discount rate, which measures how much of colleges’ gross tuition and fees is given back to students as aid, has been going up among the private, nonprofit colleges responding to the group’s survey. At the same time, more than half of the colleges had decreased or flat freshman enrollment. The data, the report says, suggest that discounting “is no longer working effectively at a large number of colleges and universities.”

That’s certainly a sobering thought for the large number of private colleges relying on a high-price, high-discount pricing model. But is it the full story?

Kathy Kurz doesn’t think so. She wrote a response to the report on a blog run by Scannell & Kurz, the higher-education consulting firm, where she is vice president.

In her post, Ms. Kurz says the report’s argument that discounting no longer works is “overly simplistic.” That’s because colleges use tuition discounting for other purposes beyond trying to increase enrollment, she writes. Colleges may increase their discount rates because students have greater financial need, to make up for state aid that has been reduced or eliminated, or to shape their class by making attractive offers to students they would particularly like to enroll.

Using discounting to shape the class, by the way, is not restricted to colleges offering big merit scholarships to students whose SAT scores suggest they have better options. It’s also what some of the country’s most-selective private colleges are doing with their generous need-based aid. Harvard University could probably fill its freshman class without the level of aid it offers; the idea is that it might not be able to fill its class quite the way it wants to.

The report does indicate, in a section of anonymous comments from survey respondents, that colleges use discounting for a variety of strategic purposes, which pays off sometimes, but not always, Ms. Kurz writes. But she still thinks the association could have provided more context.

“While the full report does acknowledge the impact of the economy, it would have been helpful to know how other sources of grant aid had shifted at institutions that increased discount rates versus those that decreased discount rates,” she writes. “Similarly, it would have been helpful to know how the percent of students applying for aid and expected family contributions of aid filers were linked to whether institutional discount rates increased or decreased.”

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