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Is tuition discounting an effective recruitment strategy?

“Colleges and universities operate at the confluence of multiple pressures. The press to accomplish four objectives simultaneously – increase revenue, reduce expenses, improve quality, enhance reputation – leads institutions to attempt an array of proven and unproven management techniques and approaches.”
– From Unintended Consequences of Tuition Discounting by the Lumina Foundation

Tuition discounting – the use of institutional funds to help reduce students’ actual costs of studying, as in scholarships and bursaries – is one of the management approaches referred to in the excerpt above. Tuition discounting came into practice in the late 1970s, gained massive application in the most recent global recession, and remains in wide use today across the global education market. The approach has always provoked debate regarding its effectiveness as well as the negative impact it can have on other areas needing institutional funding (e.g., instruction), and new research only continues the discussion.

The Chronicle of Higher Education reports that a survey of 400 private institutions by the National Association of College and University Business Officers (NACUBO) found that institutional discount rates – the share of gross undergraduate tuition and fee revenue given back to students in scholarships, fellowships, and other grants – continued to rise in 2010-11.

However, despite the savings this entailed for students, 45 percent of surveyed institutions saw overall enrolment remain flat or drop. And more than half – 53.2 percent – saw a decline or no change in the number of freshmen they enrolled.

Some might say the research shows that tuition discounting is ineffective at achieving net enrolment goals … yet others would argue that it’s not so simple and that there are other factors to be considered.

For example, the NACUBO survey also found that net tuition revenues increased 5.4 percent between 2009-10 and 2010-11, for various reasons that may or may not include tuition discounting. Last year when an earlier installment of the NACUBO survey found the same trends regarding tuition discounting and net revenues, Natalie Pullaro, manager for research and policy analysis for NACUBO and the report’s author, commented, “It’s possible that institutions could have had greater losses in net tuition revenue instead of the small gains this year had they not increased the discount rate.”

Also, tuition discounting can achieve enrolment goals other than net – or overall – ones, such as helping to tailor enrolments, for example by recruiting high-quality or specialised students.

The debate, and the practice of tuition discounting, is quite a fascinating one. In an insightful piece in Inside Higher Ed called “Discounting the Bottom Line,” journalist Kevin Kiley noted:

“Discounting is part of a tug-of-war that colleges and universities play with their enrolment numbers and bottom lines. They place their sticker price beyond the reach of many potential students, but make up the difference between that price and what a student can or will pay through institutional grants and scholarships.

Proponents have argued that there are some psychological benefits to having a high sticker price, such as the perception of quality and high discounting, or the value a student perceives when he is offered a large package.

The strategy pays off financially when enough students can pay the sticker price. But when too few students pay sticker price, too many students need large aid packages, or enrolment numbers aren’t met, colleges and universities that depend on tuition revenue are put in a tight spot financially.”

For an older but still very valuable document on the subject, please see the PDF Unintended Consequences of Tuition Discounting.

Sources: The Chronicle of Higher Education, Inside Higher Ed, Lumina Foundation

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