Tuition Discounting and Strategy

With the latest NACUBO survey reporting an average discount rate for private schools exceeding 50% and other analyses showing softness in student demand, one has to wonder how these two factors will play out. In our experience with over eighty schools of various sizes and success levels, some observations are in order.

1.      Those with the highest discounts appear to be the ones with the biggest demand challenges. This is likely because their primary answer to lower student numbers has been to jack up the discount rate. As many exceed 60%, that strategy is no longer effective. Particularly if your sticker price is in the middle or lower sector, you need to bring the rate down in order to generate enough net tuition revenue to support your academic mission.

2.      The “one size fits all” leveraging philosophy isn’t working. Bright students who hope to get into a strong program – like nursing – want more need-based aid and require less merit-based. Many of these students are on the higher end of the EFC distribution, representing exemplary students who are willing to pay more. Unfortunately, their aid packages are lumped into the same category with more generic programs where applicants see little differentiation and are more influenced by the net price.

3.      We don’t discount with retention in mind. We have suggested that schools identify characteristics of four-year graduates to see who lasts and who falls away. Data like date of application, EFC gap, level of loans, college program, high school GPA, ACT/SAT scores, whether the student is a first generation college student, sport participated in, etc. can provide a clearer understanding of a successful profile. The data is easy to assemble. Use it to inform financial aid policy and practice.

4.      Strategies that bring net tuition revenue up per student are less risky than ones that purportedly increase overall net tuition revenue compared with last year’s new students. In reality, this year’s new students are replacing the ones that left you during the last year. It is likely that those who left were paying more than the new ones. Try to keep that differential down, particularly when you may not be successful in replacing all who left.

So, kick the tires of your leveraging model and inform decisions with data connected with successful students. You can’t afford not to.  

And, if you have questions about this, please give us a call.