Tuition Discounting as an Enrollment Strategy - CIC

Tuition Discounting as an
Enrollment Strategy

The Council of Independent Colleges
The CAO-CFO Partnership
Williamsburg, Virginia
Nov. 6-9, 2010

Presenters:

Jerry Forster
Treasurer and CFO
Sewanee: The University of the South

Karen Davis
Vice President for Administration and Finance

California Lutheran University

Leanne Neilson, Psy.D.
Provost and Vice President for Academic Affairs

California Lutheran University

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Tuition Discount Rate

• Definition - Institutional Resources
Provided to Students to lower their tuition
bill (scholarships and grants)

– Unfunded (source of funding from Operating
Budget)

– Funded (endowed and restricted scholarships
from Donors)

One Discount Point ~ $ 502,000 at LAC and
$650,000 at CLU

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Enrollment Strategy

• High Academic Quality- GPA, SAT/ACT Score
• Cultural Diversity - Minority Students
• International Students
• Geographic Diversity - regions of country/state
• First Generation Students
• Male to Female Ratios
• Economic Diversity - Need Based
• Religious Diversity
• Athletic Team Needs

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Enrollment Strategy Utilizing
Discount Rate Modeling

• Determine Strategy for Accepting Students
from Application Pool

Larger the Pool - the more Selective

• Determine New Student Class Size
• Determine Anticipated Yield Rate (the % of

accepted students that will attend your college)

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Targeted Enrollment Numbers

• Factors to Consider

– Number of Students Graduating
– Attrition Rate of Continuing Students
– New Transfer Students
– Study Abroad Students
– Capacity Issues (space and faculty)

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Yield Rate Assumptions

• Historical Trending Model
• Outside Economic Factors
• FAFSA Position Order
• Campus Visits
• Communications with Applicants
• Early Deposits

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Sample Parameters for
Calculation of Ranks

High School GPA Points High School Rank Points SAT Score Points

GPA of at Points Record Rank of at Points Record SAT Score Points Record
Least Count Least Count of at Least Count

0.00 1 250 0.1% 1 215 10 1 245

2.95 2 280 51.6% 2 275 960 2 280
3.14 3 275
3.30 4 295 63.5% 3 280 1010 3 285
3.48 5 315
3.65 6 300 70.9% 4 305 1050 4 280
3.80 7 280
3.95 8 295 76.5% 5 265 1090 5 270
4.10 9 260
4.31 10 250 82.1% 6 315 1120 6 315

86.3% 7 325 1160 7 310

90.4% 8 265 1200 8 270

93.7% 9 275 1260 9 270

96.7% 10 280 1320 10 275

Total Values: 2800 Total Values: 2800 Total Values: 2800

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Sample Parameters for
Calculation of Ranks

Academic Index Need Index

Total Quintile Academic Record Average Average Average Need of at Need Record
Points of Rank Count Least Index Count
Interest GPA Rank SAT

11 1 575 2.95 58.2% 1020 Non-Apps 1 925
10 2 2 600 3.30 71.5% 1085 $0 2 295
15 3 3 530 3.65 82.9% 1100 $1 3 540
19 4 4 560 3.95 89.5% 1160 4 515
24 5 5 535 4.31 95.5% 1285 $28,000 5 525
$41,500

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Average Total Grant by Cell

Sample Population

Academic Rank Academic Rank Academic Rank Academic Rank Academic Rank
Non-Aid Applicants $0 Need $1 - $27,999 $28,000 - $41,499 $41,500 or More

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Illustration of Net Revenue Trend per Student

(Fall Semester Annualized)

$26,700
$25,800
$25,300
$24,700

$27,100 Fall 10
$26,600 Fall 09
$25,730 Fall 08
$24,850 Fall 07

$29,500 11
$28,200

$25,730
$26,250

$26,300
$25,100
$25,000
$24,500

$15,000 $17,000 $19,000 $21,000 $23,000 $25,000 $27,000 $29,000 $31,000

Other Factors that Impact
Net Tuition Revenues

• Continuing Students Ability to Cover
Tuition Increases (FAFSA Changes)

• State Budget Changes
• Tuition Remission
• Tuition Exchange
• Study Abroad - Non Affiliated Programs

Need to have a Contingency Plan

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Tuition Discounting as a Strategic Tool

“…Over the last 15 years you could see the light
bulb go on….rather than a charitable
operation, financial aid was, at least in part, a
strategic tool that could be used to manage
both the quality of the class and the net
revenue of the class.” (Michael McPherson,
president of Macalaster College, 2002).

Discounting at private institutions continues to
grow in part due to increasingly fierce
competition for academically stellar students
(Breneman and Lapovsky, 2001).

Tuition Discounting as a Strategic Tool

There is now an industry called “student
enrollment management” that advises schools
on how to offer aid “to get the best quality for
the least reduction in price” Gordon C.
Winston (2002).

In the private sector, state policies have
less influence and the market becomes the
“principal arbiter of prices charged.”

Trends In Tuition Discounting

• In the 1990’s and early 2000’s, discount rates
jumped rapidly. For example, from Fall 1990
to Fall 2002, the average discount rate at four-
year independent institutions increased from
27% to 39%. After 2002, the average discount
rate remained stable at about 38% (Hubell &
Lapovsky, 2005). According to the 2009
NACUBO Tuition Discount Survey, the era of
stability appears to have ended.

Trends in Tuition Discounting

According to the 2009
NACUBO survey, new
student tuition discount
rates held steady (38% to
39%) for several years
through 2007; however,
discount rates increased to
42% in 2008 and 2009 (see
top right chart). As a result
of the increase in discounts,
the average change in net
tuition revenue declined

(see lower right chart).

Liberal Arts College (LAC) Case Study

• Enrollment – 1,480 on-campus students
(1,410 in the College of Arts and Sciences and
70 in the School of Theology)

• Endowment - $272 million as of 6/30/2010
• College Tuition Price $36,000 – discount rate

44%; net tuition estimate $20,000
• Unrestricted operating revenue - $67 million

LAC Unrestricted Revenue FY02 to FY11

$75.0

$70.0 $65.7 $67.2 $67.3 $66.8
$63.4
$65.0

(Millions) $60.0 $58.8
$55.0
$53.6 $55.1

$50.7 $51.9

$50.0

$45.0

$40.0 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 *FY 11
FY 02

Operating Revenue increased from $51 million in FY 02 to
$67 million in FY 10, an increase of 33% over the eight
year period. The current revenue forecast for FY 11 is
$66.8 million, approximately 1% less than last year.

FY 02 & FY 11 Operating Revenue Comparison

Actual Operating Revenue Budgeted Operating Revenue
Fiscal Year 2001-02 ($51 million) Fiscal Year 2010-11($67million)

$5.7, 11% Net Stdt. Tuition, Net Stdt. Tuition,
$2.6, 5% Rm, & Brd Rm, & Brd

$12.8, 25% $29.6, 59% Endowment Support $5.9, 9% Endowment Support
& Oper. Funds $3.1, 5% & Oper. Funds
Interest Income Interest Income
Unrestricted Annual $12.1, 18%
Gifts Unrestricted Annual
$45.7, 68% Gifts
Other Auxiliary
Revenues Other Auxiliary
Revenues

Net student tuition, room, and board revenues
increased from $30 million in FY 02 (59% of the
revenue) to $46 million in FY 11(68% of the revenue).

Net Student Tuition, Room, & Board Summary

(Millions) $50.0 $7.4 $7.7 $8.4 $9.1 $10.0 $11.4 $12.0 $12.9 $13.2 $13.7
$45.0 $18.2 $18.8 $20.5 $21.7 $24.3 $26.6 $28.3 $29.2 $29.0 $28.1
$40.0
$35.0 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 *FY 11
$30.0
$25.0
$20.0
$15.0
$10.0

$5.0
$0.0

Net College Tuition College Rm. & Brd. EfM Tuition Summer & Other

Net college tuition increased from $18 million in FY 02 to
$28 million in FY 11; room and board revenue increased
from $7 million to $13 million. The School of Theology
tuition and summer program revenues were flat at $3
million and $1 million respectively.

LAC Undergraduate Student Tuition

Dollars (millions) $50.0 $3.5 $3.8 $3.7 $3.5 $3.7 $4.0 $4.0 $4.4 $4.4 $4.1
$45.0 $18.2 $18.8 $20.5 $21.7 $24.3 $26.6 $28.3 $29.2 $29.0 $28.1
$40.0 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11
$35.0 FY 02 FY 03
$30.0
$25.0
$20.0
$15.0
$10.0

$5.0
$0.0

Stdt. & External Inst. Funded Inst. Unfunded

Net tuition revenue increased from $18.2 million in FY02 to an estimated
$28.1 million in FY11(down from $29 m in 09 & 10). Institutionally funded
student aid increased from $3.5 m to $4.1 m; and unfunded institutional
aid increased from $5.4 m to $17.9 m. The tuition discount rate for new
and returning students increased from 33% to 44% during the nine year
period.

FY 02 & 11 Discount Rates Compared

FY 01-02 Discount Rate 33% Est. FY 10-11 Discount Rate 44%

$21,140 Tuition Price $35,590 Increase
-$7,108 Avg. Discount -$15,660 Tuition Price 68%
Avg. Discount 102%

$14,032 Avg. Net Price $19,930 Avg. Net Price 42%
1,295 Students 9%
1,410 Students 55%
$18,171,440 Net Tuition
$28,101,300 Net Tuition

LAC New Student Tuition Discount Rate
Compared to the NACUBO Survey Group

46.0% NACUBO
44.0% Liberal Arts College
42.0%
40.0%
38.0%
36.0%
34.0%
32.0%
30.0%

Fall Fall Fall Fall Fall Fall Fall Fall Fall Fall
00 01 02 03 04 05 06 07 08 09

The LAC tuition discount rate for new students increased from 33% in
2000 to 36% in 2003 – the rate held steady at 36% for five years and
then increased to 39% in 2008 and 44% in 2009 (estimate for the fall
of 2010 is 45%). The LAC discount rate was below the NACUBO group
averages until the fall of 2009 (FY 2009-10).

LAC On-campus Undergraduate Enrollment

1500 367 427 398 421 412 402 409 402 401
1350
1200 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 *FY 11
1050
900
750
600
450
300

150 355

0

FY 02

New Students Returning Stdts.

• Total on-campus enrollment increased from an average Fall /
Spring semester figure of 1,295 in FY 02 to 1,450 in FY 09
before falling to an estimated 1,410 in FY 11.

Strategic Enrollment Management at LAC

• Increase Undergraduate Applications (apps. Increased from 1,696 in FY

02 to 2,765 in FY 11 – target 4,550 in FY 15 – acceptance rate steady at 65%
and yield rate steady at 25%)

• Increase average SAT score (scores increased from 1233 in FY 02 to 1260

in FY 11 – target 1325 in FY 15)

• Increase Diversity Representation (Multicultural students increased

from 8% in FY 02 to 14% in FY 11 – target 16% in FY 15)

• Bring in 410 new students (5 Yr. Avg. 405) with 92% retention (5 Yr.

Avg. 88%)

• On-campus enrollment target 1,500 (enrollment increased from 1,295

students in 2002 to 1,465 students in the fall of 2006 and spring of 2009;
however, enrollment has slipped to 1,410 students this academic year)

• Goal of $20,600 average net tuition per student in FY11 (current

estimate for FY 11 is $19,930)

Strategic Enrollment Management

Comprehensive Institutions
Net Tuition

• Adult Degree Education Programs
• Online Programs
• Graduate Programs
• Certificate Programs

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Tuition Discounting
Varies by Program Type

• Tuition and Fees Vary by Program
• Scholarship Programs Limited
• Graduate Assistantships

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Other Challenges with
Comprehensive Institutions

on Net Tuition

• Academic Calendars Vary
• Measured by Student Credit Units
• Student Billing System Limitations on

Analyzing Net Revenues

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Questions and
Contact Information

[email protected]
[email protected]
[email protected]

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