The Art of Discounting

Bluefield CollegeBoard of TrusteesFebruary 18, 2011

Defining Tuition Discount

(a) Gross Tuition & Fee Revenue $xx,xxx,xxx

(b) - Institutionally Funded Financial Aid -xx,xxx,xxx

(C) = Net Tuition Revenue $xx,xxx,xxx

(D) (b)/(a) = Tuition Discount % xx.xx%

NACUBO, 2006

College Board Trends Data for private nonprofit colleges

o Published tuition & fees averaged $27,293 in 2010-11. o$1,164 (4.5%) higher than 2009-2010

oAverage total charges are $36,993, up 4.3%

oIn 2010-11, FT students receive an estimated average of $16,000 in grant aid from all sources.

College Board, Trends in College Pricing, 2010

The NACUBO study documents the alarming growth in discounting and non-need-based aid and mentions that many colleges feel locked in "arms race" with each other as they compete for students. In our 2008 white paper, "Time to Reexamine Institutional Cooperation on Financial Aid", we examined the issue of non-need-based aid, suggested ways that increased cooperation among colleges could be structured to benefit colleges and students, and looked at the current antitrust rules that may hinder cooperation. Given the findings of this study, now is the time for colleges to step up and raise the issue of institutional cooperation and what legal changes might be necessary to facilitate it.

Matt ReedProgram DirectorThe Institute for College Access & Successmreed @ticas.orgwww.ticas.org

Balancing the Goals

#

Q $

$35,000 or less 1 in 17 will earn a BA degree by age 24(Approximately 6.0%)

$36,000 - $60,000 1 in 10 will earn a BA degree by age 24(Approximately 12.7%)

$60,000 - $85,000 1 in 4 will earn a BA degree by age 24(Approximately 26%)

$85,000 or more$94K - $121K

1 in 2 will earn a BA degree by age 24(Approximately 51.3%)

Source: Postsecondary Education Opportunity Analysis, Based on 2002 Census Data

Factoid – USA Today – Feb. 2, 2005

Family Income

Assessing the ability to pay for college

Distribution of Full-Time Undergraduates at Four-Year Institutions by Published Tuition and Fees, 2009-10

Source: The College Board, Trends in College Pricing 2009; Annual Survey of Colleges.

Distribution of Full-Time Undergraduates at Private Four-Year Institutions by Published Tuition and Fees, 2009-10

Source: The College Board, Trends in College Pricing 2009; Annual Survey of Colleges.

Distribution of Undergraduate Enrollment by Sector, Fall 1990, Fall 2000 and Fall 2007

Sources: The College Board, Trends in College Pricing 2009; NCES, unpublished data provided by IPEDS staff.

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

2008-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%

The rising price of college 1988-2008 (in 2008 CPI-U constant $)

Public Four-YearPrivate Four-YearPublic Two-YearPrescription DrugsHousehold EnergyCPI-UMedian Family IncomeNew Vehicle

Cum

ulati

ve g

row

th si

nce

1988

Sources: College Board, “Trends in College Pricing, 2008”; Bureau of Labor Statistics, 2009, www.bls.gov ; U.S. Census, Current Population Study-ASEC, 2008.

12

1987

1998

2005

1987

1998

2005

1987

1998

2005

1987

1998

2005

1987

1998

2005

1987

1998

2005

Public Research Public Masters Public As-sociates

Private Research Private Masters Private Bache-lors

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

Tuition State and Local Appropriations Private Gifts, Investment Returns, and Endowment Income

Med

ian

Reve

nues

Per

FTE

Stu

dent

(in

200

5 do

llars

)

Source: Delta Cost Project IPEDS Database, 19-year matched set.

Unrestricted revenue

Median Revenues per FTE by Source: 1987,1998,2005

Freshman Funnel2000 to 2010

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

100

200

300

400

500

600

700

800

900

1000

ApplicantsAcceptsEnrolled

Tuition, Discount and Net Revenue2000 - 2010

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

Gross RevenueNet RevenueAid per Student

Average FTE

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009100

200

300

400

500

600

700

Unfunded Financial Aidper Student

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Unfunded Aid as a % of Tuition

Net Revenue per FTE

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

There is no pricing power without excess demand.

Demand - Apps 1600 1600 1600

Accepted 1334 1334 1334

Accept Rate 83.4% 83.4% 83.4%

Discount 50% 50% 47%

Yield 30% 30% 27%

Enrolled 400 400 360

Net Revenue per Student

$15,000 $15,600 $16,536

Aggregate Net Revenue

$6.0M $6,24M $5.95M

2010 Actual 2012 A 2012 B

Assessment of Discount Rate by Yield

# offered#acceptedAverage $Yield

SAT/ACT Scores by Quartile

HS-G

PA b

y Q

uarti

le

What do we know summary? The pie is getting smaller

Only 30% of all college-bound students attend colleges priced >= Bluefield College

Only 20% of college-bound students at private colleges attend a college with our price or less

Colleges are more tuition-dependent Financial aid is increasing more than price New lesser-priced experiences are gaining popularity

and market share

What are our options?

Reduce our price Increase tuition & fees and room & board at a higher

rate than planned Enroll more full-paying students Charge for premium services/experiences Increase enrollment Eliminate/reduce merit-based scholarship assistance Reduce expenses A combination

What are our options?

The Muskingum model: Reduce price. Works for the short-term, but has long-term

consequences Forfeit forever revenue from anyone who pays more

than the average cost of attendance Reduces or eliminates the lure of merit- and talent-

based aid Still must meet the financial need of needy students

What are our options?

The public school model: Increase our price at rates greater than planned Pass more cost on to students When we increase our price we become less

affordable to some and others become less affordable for us

Increased attention from legislators Seems counter-intuitive when we know the only

alternative for families is increased borrowing

What are our options?

The Hamilton and F & M model: Eliminate merit- scholarship in favor of need-based aid Eliminates competitive advantage Merit has become an expectation (students, parents

and high schools) No demonstration of how much we “want” a student Most of merit dollars already meet need and we get

the psychological “bounce” Could compromise our ability to attract students for

key programs

What are our options?

The DePauw model: Decrease net cost by discounting more and exceeding enrollment targets to generate revenue Capacity becomes a problem Bond raters and others have concerns about

discounting and NTR per student Not sustainable without resources (human and

financial) in place

What are our options?

The University of the South model: Decrease tuition 10% in one year What happens with financial aid? Not sustainable unless

Aid is affected Enrollment increases to compensate for loss

of revenue

* Pricing/Net Revenue is complex

* No “silver bullet” answers

* Time for a paradigm shift

* Stabilize Enrollment

* Stabilize Demand

* Then, Stabilize Net Tuition Revenue

Questions?