Tuition Discounting--Problem or Symptom?

July 2, 2019

 

 

Tuition Discounting—Problem or Symptom?

 

“To discount or not to discount” is not the question.  Across the landscape that is higher education discounting has become the topic, practice,  and concern “du jour.”  Discounting is a process whereby a university provides students a “scholarship” by decreasing the actual tuition amount.  This practice is done to provide students “scholarships” when endowment funds may not be sufficient.  For example, a tuition of $36,000 a year might be “discounted” fifty percent.  The student receives an $18,000 “scholarship.”  As a result, the real tuition is $18,000.  To attain additional income, universities raise their tuition rates but still provide a significant discount.  As discount rates continue to grow, the rise in tuition provides significantly fewer dollars leading to more tuition increases.  Institutions cannot sustain this mad practice.  In a very strange sense, we have reached a point where tuition rates are the highest they have ever been but producing less income than ever before.

 

Discounting has been around for a long time and has been addressed through the years in various ways. The most popular way is to take the discount rate and lower the tuition accordingly.  As a result, the institution mentioned above would reduce its tuition from $36,000 per year to $18,000 with no discount scholarships being provided.  However, students tend to focus on financial packages offered and not the published tuition rate.  If an institution does not provide a potential student a financial incentive in the form of a scholarship because they have solved the discount problem through a tuition reduction, they will find themselves in trouble.  History has shown that students expect a financial package. Institutions trying to resolve the high price/high discount rate in the late eighties and nineties by reducing their tuitions by the discount amount found themselves, in short order, back in the same dilemma of high tuition/high discounting.  Discounting is an extremely elastic phenomenon—it expands and contracts much like a rubber band.  As a result, decreasing tuition to reduce discounting is a no-win scenario.

 

In what follows, I suggest that discounting is not the problem but only a symptom of a much larger systemic problem.  The problem—our institutions are far exceeding their ability to cover their costs. To cover these costs, they raise tuition.  To garner additional students, they apply ever-increasing discounts. 

 

A university is a community of scholars seeking truth and passing that truth on to its students. For a president or others to suggest that a university is a business, maybe foolhardy at best. Yet, universities are beset by the same vicissitudes as any business—they need to pay decent salaries, provide employee health care, retirement contributions, infrastructure upkeep, “customer” acquisition costs, etc.  In short, rising costs across the board without resetting institutional configuration and priorities create a fundamental management problem that has been rarely addressed.  Rather than resizing, rethinking, and rebuilding the institution -- increasing tuition has been the solution.  That solution has led to an impenetrable glass ceiling of what students will pay which has led to significant discounting and created a generation of students pummeled by student debt.

 

There is only one sure way of reducing spiraling tuition and discounting—institutions must cut their costs. Tough decisions must be made regarding the entire institutional enterprise.  To be successful, this approach is not relegated to the president but must begin with a conversation with all stakeholders of the institution. Painful and tough decisions must be made.  The way institutions operated in the twentieth-century will not work in the twenty-first century.  New disciplinary alignments, ways of teaching, pricing, new program development, the use of technology, building and staff configuration—all must be discussed, developed, and deployed.  For institutions not to go down this very difficult road will lead to a mass extinction of higher educational institutions the likes of which have never been seen

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