The Cost of Higher Education: Affordability
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Colleges and universities are currently facing a dilemma—how to make college more affordable. Programming remains the largest driver in the school selection process, but cost is a very close second.
This isn’t a surprise, with student debt in the U.S. now amounting to $1.45 trillion and rising.1 On the surface, the easiest answer would seem to be a tuition reduction. Lower the total price and the students will come in droves, right? Not necessarily.
As with most things in higher education, there’s no one-size-fits-all approach to make it more affordable. Strategies range from tuition reductions or freezes, discounting, work-study programs, accelerated programs and corporate support, among others. And while the pressure is mounting on schools to lessen the financial burden, they also need to hire the best professors and maintain financial sustainability.
We’ll explore a few of those strategies here, not including other initiatives being considered at the state and federal levels, from free tuition to debt forgiveness.
Mixed Results in Tuition Cuts
To lessen the sticker shock, some schools have taken the route of reducing tuition. There have been 46 tuition reductions between fall 2008 and fall 2017, according to a presentation at the 2018 CACUBO Annual Meeting by Sarah Kottich, executive vice president for operations and planning at College of Saint Mary.2 This Catholic women’s university in Omaha, Nebraska, has seen positive enrollment trends from a $10,000 tuition reduction in fall 2017, but this was not their top priority.
College of Saint Mary had a far loftier goal it wanted to reach: increasing the number of high-financial need students in line with its mission, which the college has been able to increase 26 percent with the tuition reduction.3 However, the general consensus has been that tuition reductions designed specifically to grow enrollment have had limited success.
Ultimately, a lower tuition price does not always correlate with a lower actual price paid by students, as the schools may restructure, decreasing scholarships and other aid. Based on Kottich’s research, the results were mixed, with only half seeing a positive change in total enrollment, although there was more marked improvement in retention across the board.
Discount Rate
Currently, most undergraduate students are not paying the full ticket price at an institution. In fact, the median discount rate for private universities is around 44.8%.4 This means students are paying only 55.2% of the published tuition price on average. And that discount rate is on the rise, as many of our clients can attest to.
Schools are constantly monitoring the net tuition price their competition may be offering as prospective students price shop among schools. Rumors of discount rates as high as 70% have been circulating as some schools look to “buy” students in an effort to fill seats, leaving other schools with a tough decision to either match the high discounts of their competitors or lose a potential student.
It’s a double-edged sword, as most schools have found that increasing discounts, scholarships and other financial aid have yielded greater success. The idea being that a higher award package comes with “bragging rights” for students and their parents, as well as the perception that a higher published tuition equates to a better school.
A New Tactic
An interesting trend starting to percolate among private universities, especially Catholic institutions it seems, is the addition of two-year associate degree programs to existing four-year institutions. Marian University in Indianapolis will be opening the doors to its two-year program this summer (called Saint Joseph’s College of Marian University—Indianapolis), reinvigorating the Saint Joseph’s College name after the closure of the Rensselaer, Indiana-based school in May 2017.5
This follows in the footsteps of University of St. Thomas (Minnesota), which opened its own two-year program called the Dougherty Family College in 2017.6 These programs are still too new to determine their impact on students, brand and operations, but this is something we will be watching closely.
The two-year associate degree programs have a lower price point, making them more attractive for some students. We see this alternative continuing to grow, with students choosing a more affordable option for their first two years, then transferring to a four-year institution to complete a bachelor’s program. In many instances, if the student can demonstrate good academic performance, they’re guaranteed admission to a four-year institution. This has played out in public institutions for a long time, but the trend among private institutions is fairly new.
Challenges in Public Universities
Public universities are certainly not immune to affordability concerns, despite their lower published tuition price, especially for in-state students. The lower tuition rates are mostly driven by state-funded subsidies, which have been on the decline. In fact, public universities are receiving on average 16% less per student in 2018 than in 2008.7
To offset these trends, many public universities have looked out of state and internationally for higher-paying students (although many are also providing in-state tuition prices to certain surrounding states). Although this strategy yields more revenue, it isn’t without controversy.
In many states, legislatures have put the pressure on the flagships to accept more of their constituents. In Michigan, this had the unintended consequence of driving down enrollment at some private universities throughout the state, compounding issues with the declining high school graduation rates.
While there appears to be a bit of “doom and gloom” in higher education these days, most CFOs are telling us that the challenges—especially as it relates to tuition—will be positive in the long term. Schools are being forced to evaluate all aspects of their campus, from bricks and mortar to programming, which most will admit was being done half-heartedly up until the past few years. Institutions that look to the future and make strategic shifts are expected to come out more efficient and stronger, while others may fall behind.
Questions for your institution to consider:
- What is your institution’s strategy regarding discount rates? What disciplines are in place to monitor this rate?
- Have you considered a tuition reduction?
- Has your institution evaluated the impact these tuition constraints may have on operations?
- How is your institution looking to differentiate itself beyond tuition cost?
How is your institution looking to differentiate itself beyond tuition cost?
1 Department of Education (Portfolio Summary)
2 Central Association of College and University Business Officers
4 National Association of College and University Business Officers
Kathleen Belden
Vice President, Education & Not-for-Profit Banking
Colleges and universities are currently facing a dilemma—how to make college more affordable. Programming remains the largest driver in the school selection process, but cost is a very close second.
This isn’t a surprise, with student debt in the U.S. now amounting to $1.45 trillion and rising.1 On the surface, the easiest answer would seem to be a tuition reduction. Lower the total price and the students will come in droves, right? Not necessarily.
As with most things in higher education, there’s no one-size-fits-all approach to make it more affordable. Strategies range from tuition reductions or freezes, discounting, work-study programs, accelerated programs and corporate support, among others. And while the pressure is mounting on schools to lessen the financial burden, they also need to hire the best professors and maintain financial sustainability.
We’ll explore a few of those strategies here, not including other initiatives being considered at the state and federal levels, from free tuition to debt forgiveness.
Mixed Results in Tuition Cuts
To lessen the sticker shock, some schools have taken the route of reducing tuition. There have been 46 tuition reductions between fall 2008 and fall 2017, according to a presentation at the 2018 CACUBO Annual Meeting by Sarah Kottich, executive vice president for operations and planning at College of Saint Mary.2 This Catholic women’s university in Omaha, Nebraska, has seen positive enrollment trends from a $10,000 tuition reduction in fall 2017, but this was not their top priority.
College of Saint Mary had a far loftier goal it wanted to reach: increasing the number of high-financial need students in line with its mission, which the college has been able to increase 26 percent with the tuition reduction.3 However, the general consensus has been that tuition reductions designed specifically to grow enrollment have had limited success.
Ultimately, a lower tuition price does not always correlate with a lower actual price paid by students, as the schools may restructure, decreasing scholarships and other aid. Based on Kottich’s research, the results were mixed, with only half seeing a positive change in total enrollment, although there was more marked improvement in retention across the board.
Discount Rate
Currently, most undergraduate students are not paying the full ticket price at an institution. In fact, the median discount rate for private universities is around 44.8%.4 This means students are paying only 55.2% of the published tuition price on average. And that discount rate is on the rise, as many of our clients can attest to.
Schools are constantly monitoring the net tuition price their competition may be offering as prospective students price shop among schools. Rumors of discount rates as high as 70% have been circulating as some schools look to “buy” students in an effort to fill seats, leaving other schools with a tough decision to either match the high discounts of their competitors or lose a potential student.
It’s a double-edged sword, as most schools have found that increasing discounts, scholarships and other financial aid have yielded greater success. The idea being that a higher award package comes with “bragging rights” for students and their parents, as well as the perception that a higher published tuition equates to a better school.
A New Tactic
An interesting trend starting to percolate among private universities, especially Catholic institutions it seems, is the addition of two-year associate degree programs to existing four-year institutions. Marian University in Indianapolis will be opening the doors to its two-year program this summer (called Saint Joseph’s College of Marian University—Indianapolis), reinvigorating the Saint Joseph’s College name after the closure of the Rensselaer, Indiana-based school in May 2017.5
This follows in the footsteps of University of St. Thomas (Minnesota), which opened its own two-year program called the Dougherty Family College in 2017.6 These programs are still too new to determine their impact on students, brand and operations, but this is something we will be watching closely.
The two-year associate degree programs have a lower price point, making them more attractive for some students. We see this alternative continuing to grow, with students choosing a more affordable option for their first two years, then transferring to a four-year institution to complete a bachelor’s program. In many instances, if the student can demonstrate good academic performance, they’re guaranteed admission to a four-year institution. This has played out in public institutions for a long time, but the trend among private institutions is fairly new.
Challenges in Public Universities
Public universities are certainly not immune to affordability concerns, despite their lower published tuition price, especially for in-state students. The lower tuition rates are mostly driven by state-funded subsidies, which have been on the decline. In fact, public universities are receiving on average 16% less per student in 2018 than in 2008.7
To offset these trends, many public universities have looked out of state and internationally for higher-paying students (although many are also providing in-state tuition prices to certain surrounding states). Although this strategy yields more revenue, it isn’t without controversy.
In many states, legislatures have put the pressure on the flagships to accept more of their constituents. In Michigan, this had the unintended consequence of driving down enrollment at some private universities throughout the state, compounding issues with the declining high school graduation rates.
While there appears to be a bit of “doom and gloom” in higher education these days, most CFOs are telling us that the challenges—especially as it relates to tuition—will be positive in the long term. Schools are being forced to evaluate all aspects of their campus, from bricks and mortar to programming, which most will admit was being done half-heartedly up until the past few years. Institutions that look to the future and make strategic shifts are expected to come out more efficient and stronger, while others may fall behind.
Questions for your institution to consider:
- What is your institution’s strategy regarding discount rates? What disciplines are in place to monitor this rate?
- Have you considered a tuition reduction?
- Has your institution evaluated the impact these tuition constraints may have on operations?
- How is your institution looking to differentiate itself beyond tuition cost?
How is your institution looking to differentiate itself beyond tuition cost?
1 Department of Education (Portfolio Summary)
2 Central Association of College and University Business Officers
4 National Association of College and University Business Officers
Colleges and universities are facing the affordability dilemma.
PART 2
Value Proposition: The Secret Ingredient of Enrollment and Tuition Pricing
None | May 21, 2019 | Educational Institutions
In our previous article, we discussed strategies, trends, new initiatives and disciplines schools are using to help make college more affordable. Her…
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