Weeks into the fall semester, Utica College, a private school with 2,900 students in upstate New York, announced a 42 percent reduction in tuition from $34,466 to $19,996 for the 2016-2017 academic year. The price reset was met with skepticism from higher education experts who cast it as a gimmick to bolster enrollment, evidence that small liberal arts schools were in crisis.
Utica leaders shrugged off the criticism, and said they wanted to make sure families weren’t scared off by the sticker price. But lowering the published price meant running the risk of losing money on the families who could afford to pay full freight. So how did it turn out?
Applications from students looking to transfer to Utica are up 65 percent, and up 10 percent for would-be freshmen. Financial aid appeals are down. Campus visits are on the rise. And the average family income has grown 25 percent to $93,170.
“We talked about families that have the ability to pay, but they may not have been willing to pay the higher price. They didn’t understand tuition discounts or how that worked. Now the price seems more reasonable,” said Jeffery Gates, Utica’s vice president of student affairs and enrollment management.
Utica is part of a movement of private colleges abandoning the widespread practice of setting published prices artificially high and then offering deep discounts. At least a dozen schools have taken up the cause in the last few years, including Converse College in South Carolina, Ashland University in Ohio and Rosemont College in Pennsylvania. These schools say tuition resets are a way to simplify an opaque pricing model that has done more harm than good. And financial analysts agree.
Analysts say discounting strategies, which are used to entice students to enroll, have depressed revenue growth and put a number of small institutions in a perilous financial position. While colleges with hefty endowments can easily finance discounts and uphold revenue growth, small private schools with limited resources take a hit to their budget, according to Moody’s Investors Service. The credit ratings agency has cautioned colleges against discounting, yet the practice continues to grow.
A study by the National Association of College and University Business Officers (NACUBO) found 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, the highest level on record. At the same time, 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 may be stunting revenue growth, but the practice has been beneficial for students. Private colleges put nearly 43 cents of every tuition dollar toward scholarships and grants, according to NACUBO. Nearly 78 percent of all undergraduates and 88 percent of first-time, full-time freshmen received aid as a result. Indeed, discount rates climbed because a greater share of students were awarded institutional grants.
It’s debatable, however, whether resetting tuition really helps students. New rates at most schools are simply closer to what students are already paying after scholarships and grants are deducted, what’s known as the net price. And a drastic reduction in price often comes with a drastic reduction in aid.
Whereas the largest merit scholarship at Utica used be around $21,000, it now stands closer to $6,000, Gates said. But what students are actually paying barely budged. The school’s net price went from about $14,000 a year to $15,000. Gates said the net price inched up because there are more families who have the ability to pay, something the school did not anticipate. He noted that all returning students are saving at least $1,000 as housing costs and fees have also come down.
“Not only are new students saving coming in, their savings over time is going to be much greater than our current students because tuition increases are going to be from a smaller base,” Gates said.
Slashing sticker prices can be a gamble. People often associate price with quality, but as student debt climbs to $1.3 trillion, many families are unwilling to even look at schools over a certain price point. Researchers have found that tuition resets are most successful at colleges that advertise to a wider audience.
In the last year, Utica has been heralding its price change with the aim of increasing its freshman class. The school historically took in around 470 freshman, but it hit a record 645 last year and currently has enrollment deposits from 775 soon-to-be freshmen.
“Families can see the value in having the sort of personal, private, individual experience that we offer at a cost that is not going to break the bank,” Gate said.
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