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Twokin Consulting: Discount rate increases to 54.5% percent
The National Association of College and University Business Officers (N
ACUBO) released its annual NACUBO Tuition Discounting Study in November 2022. The study reports on the institutional discount rate. That is, the total institutional grant aid awarded to first-time undergraduate students as a gross percentage of the gross tuition and fee revenue the institution would college if all students paid the listed tuition and fees.
Let’s consider a simple example. Suppose the listed tuition price for a university is $50,000 and it enrolls 200 first-year students. Half of the students pay the full $50,000 price and the other half receive an institutional financial aid of $25,000. If all 200 students had paid full price, the university would of received $10 million in revenue (200 students x $50,000). In this example, this is not the case and the total revenue for the university will be $7.5 million (100 student x $50,000 + 100 students x $25,000). As such, the university receives 75 percent ($7.5 million / $10 million) of the revenue based on its listed tuition price. The difference, 25 percent, is the discount rate.
At Twokin Consulting, we have used an analogy to make help all audiences understand. Consider what an auto manufacturer earns on new vehicle sales. Some customers pay manufacture suggested retail price (i.e., full tuition price), whereas many pay less (i.e., institutional scholarships and financial aid). For the car manufacturer, if their discount rate is 20%, it implies that the average car buyer pays 80% of the MSRP price.
The NACUBO report highlights:
The discount rate for first-time college freshman for 2021-2022 was 54.5%
The share of first-time freshman receiving aid remained flat with 89.5% receiving some institutional grant aid
On average, student aid rose with first-time undergraduates receiving grant awards covering 60.7% of the listed tuition and fees
In addition to the discount rate, Twokin Consulting recommends that it is also important to monitor what we ask students to actually pay. This is the net tuition rate. That is, on average, how much revenue does the college generate from tuition and fees for a student. The NACUBO study showed that the net tuition per first-time undergraduate students declined by 3.2% in 2021-2022. At one of my prior schools, our listed tuition price was over $35,000 per year and our goal was to generate a net tuition rate of around $12,500 per year. It was ironic that we generated a similar amount for room and board fees for living on-campus than on their tuition for their degree.
Twokin Consulting specializes in helping supporting colleges, universities, and nonprofit organizations in brainstorming strategies and ideas for improving operations. Monitoring your tuition discount rate and net tuition revenue