Rethinking Revenues in a Price-Sensitive Higher Ed Marketplace

Evidence is mounting that students and families have drawn a line in the sand about how much they will pay for a college education—which is putting a big strain on tuition revenue at almost every type of higher education institution.

NACUBO’s Tuition Discounting Survey shows the average institutional discount rate continues its inexorable climb, reaching 48.6% for first-time, full-time freshmen at 401 private nonprofit colleges and universities in 2015-16. Yet even with steep discounting, 53.5% of the institutions reported a decrease in freshman enrollment, 51.2% a decrease in total undergraduate enrollment, and 37.5% a decrease in both.

Among all of the institutions in the tuition discounting survey, net revenue growth slowed to just 1.8% overall and only 1.2% for freshmen—neither of which kept pace with the 2.1% rate of inflation. Taken together, NACUBO’s numbers imply a struggle to find a price point that’s a win-win for both students and the institution.

And that struggle isn’t taking place only at private colleges and universities. Four-year flagships, and even two-year community colleges, are being called out as unaffordable to low- and middle-income families in the College Affordability Diagnosis report. So public institutions, too, are using tuition discounting strategies such as the University of Maine’s tuition matching program to lure out-of-state students with their in-state price.

For many students and families, the price is simply too high whether the institution is public or private. The Pew Research Center has documented America’s shrinking middle class, finding that in 203 out of 229 metropolitan areas the share of middle-income adults shrank between the years 2000 and 2014, shifting to growth in the lower-income tier, upper-income tier, or both.

For other students and families, willingness to pay is the issue. A new analysis suggests College Scorecard data about the salaries of an institution’s graduates may be capturing the attention of “well-resourced” prospective students. Colleges with higher-than-median earnings saw higher-than-expected growth in SAT scores sent to them from such students during the months after the College Scorecard data was first published. This suggests these families are factoring in their potential return on investment as they assess their willingness to pay.

With price sensitivity impacting every sector of higher education, the May 1 Decision Day is becoming simply a fictional day of note. On the reporting day of NACAC’s annual College Openings Update (May 5), 344 institutions still had space available. While participation on this list is voluntary and does not represent a comprehensive accounting for year-to-year comparison purposes, this year’s number far outpaces last year’s 225 institutions on reporting day. And since May 5, this year’s list has swelled to more than 450 institutions.

There is no question that prospective students and their families are engaged in an active process of discernment as they assess the worth of a college’s value proposition, juggle the realities of their educational investment, and pause to reflect about the cost to attend. So most colleges are preparing for a long hot summer and are seriously thinking about how best to respond to the turbulent fiscal realities of the higher education marketplace.

 

Shrinking Middle Class

Pew Research Center finds the American middle class is losing ground in metropolitan areas across the country.

Scorecard’s Effect on Interest

A study found colleges with higher-than-median earnings on the College Scorecard had higher-than-expected growth in SAT scores received.

Utica’s Tuition Revenue Strategy

From The Washington Post: “It’s been almost a year since Utica College abandoned deep tuition discounts. Here’s what happened after.”

 

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The use of tuition discounting, the quest to enroll out-of-state students, and other revenue strategies are necessary because students and families are bumping up against a price ceiling when it comes to what they are willing to pay, whether they have the ability to or not. Their price sensitivity is making the traditional financial model for higher education unsustainable. So while the tuition revenue dilemma is being addressed, colleges and universities are also paying more attention to finding cost efficiencies (including downsizing, creating collaborative opportunities between and among academic institutions, developing education/workforce partnerships with business, industry, and the local community), implementing new pricing initiatives like tuition resets, and finding ways to generate more sources of revenues—particularly contribution revenues.

As one esteemed and veteran chief advancement officer recently shared with us, “Raising the price of tuition every year is simply not sustainable. We need to offset the need to increase the price of tuition (which then gets discounted) every year by increasing contribution revenues.”

No matter what, this recruitment cycle is almost feeling like another recession. And there is more genuine recognition that the prevalent higher education financial model is broken. But the situation is also motivating higher education leaders and campus communities to think differently and be more edupreneurial. Good things will happen, because this change in the marketplace dynamic can be resolved with intelligent solutions backed by astute market intelligence.