Private colleges are spending more on grant aid than ever before, according to the results of a survey released on Wednesday by the National Association of College and University Business Officers. After years of stability, the average tuition-discount rate for full-time freshmen entering college in the fall of 2008 rose to 41.8 percent, up from 39.1 percent in the previous academic year.
A college's tuition-discount rate is the difference between what students actually pay to attend and the institution's sticker price.
Several factors account for the average rate's increase in 2008, the business officers' group says in its "2009 Tuition Discounting Study Report." The recession cut into families' ability to pay for college at the same time that many institutions were facing extra pressure to keep enrollment levels stable. Those economic stresses combined with an already competitive student recruiting environment to drive up institutional grant awards.
"These increases in discount rates, however, have come at a high price for many private colleges," the survey's authors wrote, noting that institutions "had to implement salary freezes, hiring freezes, staff reductions, and other cost-cutting measures in order to increase their spending on institutional grants."
Net tuition revenue fell 2 percent from 2007 to 2008, according to the survey, as discount rates outpaced total gross tuition and fee increases.
Nacubo, which has conducted the survey since 1994, collected data from 355 private four-year colleges for the latest report. The survey looks at tuition for first-time, full-time freshmen. The average discount rate jumped rapidly from 1990 to 2002, rising from 27 percent to 39 percent. But rates had been stable since 2002, hovering around 38 percent.
Preliminary estimates for the current academic year show discount rates rising again, to 42.4 percent.
Reliance on Endowment Earnings
Two new items were added to the most recent survey: the percentage of grants that were financed by endowment revenue and the percentage awarded based on students' financial need.
On average, 12 percent of grant aid in the fall of 2008 came from endowment money. Not surprisingly, percentages went up for wealthier colleges. Survey participants with endowments worth more than $1-billion paid for 34 percent of grant aid with those endowment assets, compared with 6 percent of grant aid supported by endowment earnings for colleges with endowments valued at $25-million or below.
Given the broad endowment losses across higher education in recent years, the report suggests, endowment-dependent colleges may have a harder time increasing financial aid.
Other reports have found that aid based on nonfinancial factors, such as for athletic or artistic ability, has increased over the last decade. The Nacubo survey found that about 36 percent of participants' aid spending was based entirely on need. About 42 percent of spending was based entirely on "non-need" criteria, and 23 percent was a combination of both.
"Despite current economic challenges, higher-education institutions work to respond to student need," John D. Walda, Nacubo's president, said in a written statement. "Tuition discounting is at an all-time high. A significant percentage of student aid is funded by endowments, even though they experienced negative returns for the year. And a high percentage of institutional grants were awarded based at least partially on students' demonstrated financial need."
The study is available for purchase on Nacubo's Web site.
Comments
1. mbelvadi - April 01, 2010 at 01:05 pm
Calling this "spending on grant aid" seems to be a very confusing way to phrase the issue. When a retail store puts a product on sale, would any accountant consider that an increase by that business of "spending on consumer spending aid"? And to suggest the money comes directly from the endowment is even weirder. It seems to assume that the "retail" price is exactly equal to the institution's marginal cost for educating/etc that student, so that the institution has to absorb dollar for dollar from its other revenue sources/endowment exactly the amount of that discount price. And even then, I wouldn't call it "spending" rather than "taking a loss", like a retail store has "loss leaders" on some goods. Is there some legal/technical reason for calling this 'spending' by universities on the fiscal balance sheet?
2. ticasoffice - April 02, 2010 at 03:26 pm
The NACUBO study documents the alarming growth in discounting and non-need-based aid and mentions that many colleges feel locked in "arms race" with each other as they compete for students. In our 2008 white paper, "Time to Reexamine Institutional Cooperation on Financial Aid", we examined the issue of non-need-based aid, suggested ways that increased cooperation among colleges could be structured to benefit colleges and students, and looked at the current antitrust rules that may hinder cooperation. Given the findings of this study, now is the time for colleges to step up and raise the issue of institutional cooperation and what legal changes might be necessary to facilitate it.
Matt Reed
Program Director
The Institute for College Access & Success
mreed AT ticas.org
www.ticas.org
3. arrive2__net - April 03, 2010 at 03:55 am
Non-need based aid would seem to be cost competition for a limited supply of higher ability students, but need-based aid may actually increase the supply of students if the students would otherwise not be able to attend. So need-based aid would "increase the size of the pie". According to the data cited in the article, 59% of the increase in aid "over the decade" was completely or partially need-based and was therefore a response to weakness on the demand side ... lucky for the students who got the aid. I think these findings add support to the idea that price issues will be a factor if Obama wants to increase the proportion of Americans who have degrees.
Bernard Schuster
Arrive2.net