Published by Inside Higher Ed
In many areas of the country, the number of high school graduates is shrinking and colleges are having to do more -- programmatically, academically and financially -- to attract students. For many colleges “it might be the case if you discounted more deeply, you might end up with more kids and more net revenue,” explains David Strauss, a principal of the higher education consulting firm Art & Science. In cases where discounting is successful, a college may increase its discount rate and charge less per student, but enroll more students, meaning the overall financial picture is rosier than the discount rate might suggest.
Oftentimes colleges participate in discounting because the market demands it: students and their parents react better to a college with a large sticker price that offers them a large scholarship than they do to a college that is simply cheaper and offers no or little scholarship funds.
“There's a lot of people out there who talk about putting more aid out there to bring more people,” Strauss said. “There’s an old-fashioned notion that more people means more revenue. Not necessarily. If you have discount so much more deeply to get a few more kids, than you lose money on the transaction.”
Yet once a student population is used to paying a certain price, it can be very difficult for colleges to walk back their discount rates. So, more often than not, extremely high discount rates -- when a college is sacrificing 60 percent or more of its potential tuition revenue through discounting -- are a sign that a college is in distress. And, equally often, high discount rates can further contribute to that stress.