Tuition Discounting: Think Before You Act

Tuition discounting has for several decades been an enrollment management tactic employed by many of America's colleges and universities.  Often, discounting is used to fill under-enrolled classes or to round-out soft spots in enrollment, say, by major or program.  Some institutions have applied discounting as a form of financial aid to incent attendance by students with serious scholastic potential or to meet other geo-demographic targets. Recently, independent schools in the United States, facing their most serious enrollment challenge in years, are talking about tuition discounting as a way to maintain level enrollment while adding to net revenue beyond what would otherwise have been collected.

While understandable, we believe tuition discounting requires careful thought, not just about the problem it alleviates for next year, but about its long-term implications.  As a report by Jerry Sheehan Davis at the Lumina Foundation points out, the effects of tuition discounting in higher education have not been uniformly positive, nor have they always yielded the desired bottom line enhancement.  Our concern is that tuition discounting really amounts to an augmentation of financial aid, and, unless a school intends to make only a one-year offer (not a practice that builds a sense of community), it potentially obligates the school for years to come. The problem is magnified if tuition discounting is used as a tactic to fill lower grades in a multi-divisional school.

A work-around of sorts would be to increase class size AND discount at the same time, thereby yielding the same net tuition spread over a larger number of students.  Maybe this needs to happen, but increasing classroom ratios is a very different matter than discounting per se, and one that has huge strategic and competitive implications.  Boards should carefully think through the longer term implications of discounts before reaching for what can seem like an easy fix.  For many schools, the better solution will be to become a perpetually smaller institution and plan accordingly.