Survey: Nearly one in 10 institutions have discount rates above 60%

'If your discount rate is at 60%, that's a very dangerous warning sign'

The number of colleges and universities discounting tuition by more than 60% is increasing and often a mark of financial instability, Kellie Woodhouse reports for Inside Higher Ed.

In 2014, the average tuition discount rate offered to first-year students reached 48%—the highest ever, according to a survey of 411 private colleges by the National Association of College and University Business Officers (NACUBO). In 2007, it was just 39%.

NACUBO: Tuition discount rates 'not sustainable'

And of those schools surveyed, nearly 9.5% reported discount rates of 60% or higher. Five years earlier, only 5% reported the same. At least 90% of students get some level of discount at 69% of colleges surveyed, according to NACUBO.

As the number of high school graduates drops in many parts of the country, colleges must compete to maintain or grow enrollment numbers. Many schools discount tuition and plan to increase revenue by attracting and enrolling more students. However, that plan doesn't always work out.

If enrollment doesn't grow as projected, the discount actually hurts colleges. And it's difficult to reverse a discount, because the consumers are not used to paying full price.

"This is an industry that's known for being on sale," says Lucie Lapovsky, a higher education financial consultant.

Discount rates can work, Lapovsky says, if used temporarily. "In one year a strategy like that can significantly change the composition of your class," she says.

It comes down to net revenue, she says. "If you have to discount so much more deeply to get a few more kids, then you lose money on the transaction."

Often, extreme discounting means there is less money to support academic and student affairs departments. And it can lead to weaker academic class.

"If your discount rate is at 60%, that's a very dangerous warning sign," says David Breneman, a higher education finance expert and former Sweet Briar College trustee.

When Sweet Briar's trustees made the now-reversed decision to close the college, its first-year discount rate was 62%. The school relied on the endowment to pay for the discounts, which depleted funds, he says.

However, a steep discount doesn't always mean the school is in trouble. Princeton University and Grinnell College both discount above 60% because they have large endowments that allow them to do so (Woodhouse, Inside Higher Ed, 11/25).

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