Tuition Discounts vs. ‘Every Day Low Prices’

Recently, you might have seen several stories about record tuition discounts, especially among private liberal arts colleges. Tuition discounts have become a serious issue at many colleges. I have read of some where an average discount could be more than half of direct charges (tuition and fees, room and board). Another risk of tuition discounts is that future applicants may believe that they are entitled to them, even though a college’s financial picture is not the same from year to year.

It is quite confusing for prospective college students and their parents to estimate what they might actually pay from the first year of college through the very last. Colleges offer net price calculators to help. These are useful, but they are based on the college’s current charges and financial aid practices. These are subject to change–and prospective customers will not know when or why. Worse, most colleges will not be able to fulfill a family’s total financial need. If your family has a college-bound high school senior, you are not likely to know what the gap between need and a financial award will be until after college applications have been submitted and admissions decisions have been rendered.

But some schools, including Ashland University (OH), Utica College (NY), Converse College (SC) and Rosemont College (PA) went in a different direction. They “reset” their tuition and fees to a lower base rate while offering smaller merit or need-based scholarships. Instead of considering discounts on an individual basis, the college went to an every day low price that the majority of its students and their families would be expected to pay. The college would still offer need-based grants aka “gift aid” to supplement state and Federal grants. However, the gift aid would be less per student and would be awarded to fewer students. That should make it less costly for a college to administer financial aid.

When I read of resets that cut tuition and fees by more than 40 percent, I have to wonder what college costs truly are from school to school. Rosemont, as one example, will cut tuition and fees from approximately $32,600 in 2015-16 to $18,500 for next year. The college is also reducing room and board charges from  $13,400 to $11,500. The college is located in a well-to-do suburb of Philadelphia near seven other small private colleges that charge more. A family will need to be confident that Rosemont can maintain its pricing, or at least limit tuition and fee increases over the next four years, or that other colleges will be capable of maintaining their discounts. Both business practices carry risks. Discounting puts more of the risk on the family.

Lets say that our family is considering Rosemont as well as the neighboring schools. All of the colleges offer the major we want. Rosemont will charge us $30,000 in direct charges for the coming academic year. We get no scholarship dollars. The other schools start at $45,000 in direct charges. One offers a $15,000 discount. Half of the discount is in merit aid; renewal is contingent on grades. The other half is gift aid; renewal, and possibly increases in aid, are contingent on need. Which school is the better value, all non-financial things being equal? Rosemont. You pay what the school asks you to pay, regardless of grades or changes in financial circumstances. You will still need to pay more each year. Most colleges increase their direct charges by more than $1,000 each year. But student loan borrowing limits rise only $1,000 from freshman to sophomore year and from sophomore to junior year. And they do not increase from the junior to senior year.

But while the college is reducing your risk through a reset, they might be taking on greater risk that might impact the education you receive. Suppose your school was getting, on average, $30,000 per family for tuition and fees as well as room and board. The school resets the charges to reflect this and charges everyone $30,000. If the college is capable of attracting a larger freshman class, and it can make room for them without overcrowding the facilities and classrooms, the decision to reset is a win. The win becomes a bigger win if the college thinks conservatively about new and renovated buildings as well as hiring new faculty. If the college attracts a smaller class–and price is not everything in choosing a college, there’s also issues of academics and fit, among others–the reset only adds to the college’s financial woes. Asking students, faculty and staff to make do with less is not a good direction for a troubled college to take if it wants to continue to attract students.

If you are shopping between similar colleges, considering one that has reset tuition and fees versus another that may offer a significant amount of gift and merit aid, then check out the freshman retention rates and four-year graduation rates for both schools. Tuition resets have had positive results in terms of enrollment increases, but have they made it easier for students to remain at the school, presuming that they are in good academic standing?  Are graduation rates better or worse than they are for a state-supported school that is likely to charge you even less? When a private college bring their charges in line with the costs of a state school, shoppers are more likely to shop that college against a state school, hoping to find a more personal experience, and hopefully a “better value.” When a private college that resets is found wanting in that comparison, the state school is more likely to win.

If the school offers an accredited degree program leading to employment, visit the career center and ask about the successes of students who have earned that degree. Will you receive the same assistance for a lower price, or will you receive less? All colleges, regardless of what they charge, provide a package of services performed by people. You want to be sure that the school that will charge you less will be there for you while your student is in school and after s/he has completed their degree.

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