The average freshman at a private college paid nearly half the sticker price this year as schools increased their tuition discounts, a strategy that some higher education experts fear is putting small institutions in financial jeopardy.
Tuition discount rates — the percentage of tuition revenue schools hand students in the form of grants — reached an estimated 49 percent for full-time freshmen in the 2015-2016 academic year, up from 47 percent a year earlier and the highest level on record, the National Association of College and University Business Officers (NACUBO) said Monday. The association surveyed 401 private, nonprofit four-year colleges and universities for its annual report.
The average discount rate for all undergraduates in the colleges surveyed was roughly 43 percent, meaning that private colleges put nearly 43 cents of every tuition dollar toward scholarships and grants. The financial aid reached nearly 78 percent of all undergraduates and 88 percent of first-time, full-time freshman. Discount rates climbed because a greater share of students received institutional grants.
Universities with the largest endowments have been the most generous with scholarships, especially for students from modest means, according to the report. Schools with endowments of more than $1 billion funded roughly a third of their scholarships through their endowments and used about 86 percent of the grants to meet financial need. Seven percent of grants at institutions with endowments of less than $25 million came from those funds, and about 77 percent of scholarships were for needy students.
“With the help of their endowments, private colleges and universities continue to strive toward increasing affordability for their students,” Ken Redd, NACUBO’s director of research and analysis, said in a statement.
Providing students with more scholarships lessens the burden of paying for college, but it also means that many schools are stunting their revenue growth. According to the report, the average growth in net tuition revenue — the money earned from students after schools provide financial aid — per first-time, full-time freshman was 1.2 percent this year, compared to 2.1 percent in 2014-2015.
Discounting strategies have long been used to entice price-sensitive students to enroll, with the understanding that at least a small percentage of students will pay the full sticker price. Yet financial analysts say it is a gamble that is increasingly becoming a bad bet for small schools.
Moody’s Investors Service says nearly half of the nation’s private universities set published prices artificially high and then offer deep discounts to get students to enroll. Discounting has a much more significant budget impact on small private schools with lower ratings because they have limited resources. On the other hand, colleges with stellar bond ratings can finance discounts through philanthropic gifts and endowment income while maintaining strong net tuition revenue growth.
College enrollment has trailed off since reaching peaks before and during the recession, according to Moody’s. Most of the pressure has been felt in the Midwest and Northeast, regions that are facing below-average or weak population growth.
“With net revenue growth slowing down and the nation’s student population evolving, many schools are testing strategies to ensure they can continue to deliver on their missions and remain financially sustainable in the years ahead,” Redd said.
About 28 percent of colleges reported the implementation of new recruitment and retention strategies to increase enrollment, according to the NACUBO report, but many schools are experiencing enrollment declines. More than half of the schools that responded to the survey saw declines in total undergraduate and first-time, freshman enrollments. A majority of those schools attributed falling enrollment during the past four years to price sensitivity.
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