Miller/Cook & Associates, Inc
Decisions About Tuition Pricing Supplemental Materials College Pricing and Student Aid
Prepared for The Council of Independent Colleges 2004 Presidents Institute January 2004 Session Time: Tuesday, January 6, 2004 8:30-9:45 a.m. Miller/Cook & Associates, Inc. 20 Marco Lake Drive Suite 12 Marco Island, FL 34145 1-800-591-1141 [email protected]
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Tuition Charges have long represented more than the cost of educational delivery that must be assumed by the primary recipients of that product – the student or her family. Influenced by mission, vision, policy, politics, and economics both internal and external, more than a few independent college presidents have discovered that their institution’s tuition charges have – at best – an indirect relationship with educational cost. This document will share with you a few brief facts about average tuition charges; questions you might ask before you consider any tuition strategy; and conditions we associate with tuition strategies we have encountered among independent colleges and universities. Tuition and Fee Trends: A National Profile Rising tuition and fee charges are not news to higher education professionals or to the general public. Despite perceptions to the contrary, those increases have been far more significant at state-sponsored institutions than at their independent counterparts. The College Board reports that for the 2003-2004 academic year, average tuition and fees charged for in-state students at public four-year colleges and universities was $4,694, an increase of 14.1% relative to 2002-03. Table 1. Average tuition and fees charged by four-year public institutions (The College Board, 2003). Year
Average Tuition and Fees
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004
$3,362 $3,510 $3,725 $4,114 $4,694
% increase from previous year 4.4% 14.1%
The reasons underlying the rather significant increases in state-sponsored institution tuitions and fees are understandable. While all institutions are responsive to the level of funding they receive from state governments, public institutions are especially sensitive to such funding levels (these institutions receive over one-third of their funding from state governments). As state budgets have become strained, institutional funding has been reduced across the country. Reductions in state funding have had the expected consequence of institutions turning to their remaining significant source of revenue – tuition and fees. The significant increases in tuition and fees posted by public institutions represent the highest in at least three decades. Independent colleges reported an average tuition increase of only 6% in 2003-2004 ($1,114, from $18,596 to $19,710). When room and board charges are added to tuition and fees, students may expect, on average, to pay $25,854 annually to attend an independent college or university. Table 2. Average tuition and fees charged by four-year independent institutions (The College Board, 2003). Year
Average Tuition and Fees
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004
$15,518 $16,332 $17,272 $18,596 $19,710
% Increase from previous year 5.2% 6.0%
2
The 2003-2004 academic year represented the third consecutive year that independent fouryear colleges posted an inflation-adjusted increase in tuition and fees of 5 percent. While most would agree that a 5% real rate of increase is not uncommon for the past two decades, The College Board notes that “the last time tuition grew this rapidly for three years in a row was from 1984 to 1986” (Trends in College Pricing, 2003, p.3). Regional Differences in Tuition and Fees Both average tuition and fees charged and percent change in real dollars over the course of the past decade vary as a function of the region of the country in which an institution is located. As the accompanying figure displays, institutions located in the Southwest region of the country reported in 2003-04, on average, the lowest tuition and fees ($15,467) while institutions located in the New England area reported, on average, the highest tuition and fees ($25,093). Despite the lower tuition and fee charges reported in the Southwest, these institutions reported the largest percentage increase in tuition charges over the course of the past ten years (when adjusted for inflation, a 52% increase). In 1993-94, Southwest institutions charged, on average, $8,077 for tuition and fees. In 2003-04, average tuition and fees in the Southwest totaled $15,467. New England institutions reported an inflation-adjusted tuition growth rate of 35% (compared to 42% nationally). Thus, the location of an institution has a very real impact upon both the cost of operations and the amount assessed for tuition and fees. As institutions with regional and national outreach assess their competition, representatives are reminded to keep such differences in charges in mind.
Regional Differences in Tuition and Fees, Independent Four-Year Institutions 2003-2004 (The College Board).
30000
$25,093
25000
$21,611 20000
$19,710 $16,890
$18,373
$18,282 $15,467
15000
10000
5000
0 National
New England Middle States
South
Midwest
Southwest
West
College Enrollment Patterns Regardless of the region of the country in which the institution is located, approximately 29% of all undergraduates are enrolled in institutions that charge less than $4,000 in tuition and
3
fees. Almost 70% are enrolled in institutions that charge less than $8,000 annually (see accompanying figure). Clearly these percentages reflect the large number and percentage of undergraduates who elect to attend state-sponsored (and less expensive institutions). It is instructive to remember that independent colleges and universities collectively enroll approximately 24% of the nation’s undergraduates.
Distribution of Full-Time Undergraduates at Four-Year Institutions by Tuition and Fees Charged, 2003-2004. 8.4
$24,000 and over
5.9
$20,000 to $23,999
7.3
$16,000 to $19,999
5.2
$12,000 to $15,999
5.2
$8,000 to $11,999
39.3
$4,000 to $7,999
28.7
Under $4,000
0
5
10
15
20
25
30
35
40
45
Source: The College Board, Trends in College Pricing, 2003
When the distribution of full-time undergraduates enrolled at independent institutions as a function of tuition and fees charged is examined, a different picture emerges. Approximately 30% of full-time undergraduates enrolled in four-year independent colleges are found at institutions that charge $24,000 or more for tuition and fees. The reader is cautioned that the total number of institutions within each tuition category influences the distribution of students. There are fewer numbers of independent institutions that charge less than $8,000 annually than there are institutions that charge more than $8,000 annually. Even when one takes this into consideration however, it is apparent that the high cost of attending selected independent colleges and universities does not deter student enrollments. (Again, this is likely a correlational relationship – high cost remains associated with high prestige.)
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Distribution of Full-Time Undergraduates at Four-Year Independent Institutions by Tuition and Fees Charged, 2003-2004. 14.1
$28,000 and over
14.9
$24,000 to $27,999
15.7
$20,000 to $23,999
23
$16,000 to $19,999 16.4
$12,000 to $15,999
8.5
$8,000 to $11,999
5
$4,000 to $7,999
2.4
Under $4,000 0
5
10
15
20
25
Source: The College Board, Trends in College Pricing, 2003
What Students Actually Pay In 2002-2003, students received over $105 billion in financial aid for undergraduate and graduate study in the United States (an increase of 12% after adjusting for inflation). The federal government provided over $70 billion in student aid (an increase of 11% over 2000-01). Loans collectively represented 69% of this federal aid; grants constituted 22%, and the Hope and Lifetime Learning federal tax credits represented approximately 8% of all federal aid (The College Board, Trends in Student Aid, 2003). As the accompanying figure displays, the Department of Education projects that from FY 2000 to FY 2005, federal student loan volume will grow to nearly $215 billion, with the majority of dollars coming from the FFELP. The rising demand for student loans reflects a 6 percent increase in higher education enrollments between 2000 and 2005, to more than 16 million fulltime and part-time students.
5
Annual Student Loan Volume FFY 1990-2005
50 45 40 35 30 FDLP
25
FFELP 20 15 10 5 0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: US Department of Education
Almost half of all grant aid received by students is not funded by the federal or state government but by institutions. Colleges and universities distributed $20 billion in grant aid to their students in 2001-2002 (19% of all student aid). At independent institutions, where nearly 60% of students receive some form of institutional aid, such grants represent 62% of all grant aid. Questions to Ask Before Adopting Any Tuition Strategy 1. Is your audience of prospective students value conscious or price conscious? Are you worth the tuition you are presently charging? This is a complicated question and is very much a function of audience and stage of the enrollment funnel. You must, therefore, examine this question from various perspectives. Both matriculated and non-matriculated financial aid applicants will provide a partial response to this question. As part of your annual year-end analysis, ask your financial aid director to prepare conversion matrices (applied for aid and enrolled/not enrolled) as a function of estimated family contribution and financial aid awarded. This will give you a general idea of willingness to pay for an education at your institution. Of course, this analysis provides information only about individuals interested enough in your institution to actually apply for both admission and financial aid. For this reason, you will also want to examine the selfreported family income information provided on official SAT reports as a function of final enrollment status to determine who actually progressed through the enrollment funnel. Where
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were certain groups as a function of income range? Were selected income range groups more likely to progress through the funnel than others? Why or why not? Are you disproportionately losing students who are able to pay a greater percentage of your tuition and fees? Be certain to include the families of traditional-age students in your survey of admitted students at the conclusion of the recruitment cycle. Ask them to rate your institution against others their son or daughter may have been considering. In today’s era of college copurchasing, families are willing to offer informed opinions. 2. As you compare your price against the price of your competitors and aspirational institutions, compare other features as well. Is your institutional profile similar to the profile reported by your competitors? College search firms such as Petersons.com make this relatively easy. Go online and take advantage of the “compare colleges” feature offered by The College Board or by Petersons. Compare average SAT scores, high school rank, number and type of academic majors. Comparison features make it easy for college-bound students and families to do more than examine your tuition – they compare other characteristics of the institutions they may be considering. You should do likewise. 3. Has the socioeconomic mix of your applicant population changed over the time? Does the socioeconomic mix of your student population change as a result of matriculation (from first-year to sophomore year? From sophomore to junior year?) 4. Depending upon the academic structure of your institution (schools, departments) do enrollment patterns differ as a function of socioeconomic status and intended program or school of study? Each of these analyses will provide needed information about the price sensitivity of your audiences. It is important to allow data to drive the decision-making process. While the price sensitivity of your audience is one variable you will want to consider, there are equally important internal considerations. Independent Colleges are, and are likely to remain, tuitiondriven institutions. Know, in advance, to finalizing your tuition the answers to each of the following questions: 5.
Does a single or comprehensive tuition charge adequately meet your needs?
Obviously, selected programs of study cost your institution more to deliver than others. Enrollment caps on higher cost programs sometimes indirectly address these cost inequities as lower cost majors can enroll larger numbers of students thereby balancing overall cost of educational delivery. If, however, lower cost majors fail to enroll these larger numbers of students your tuition revenue objectives can be compromised. For this reason among others, some institutions elect to charge higher tuition rates for selected programs of study. If high interest in high cost majors at your institution permits you to consider higher tuition rates for such programs of study, this is an option you may consider. 6. It is important to recognize that only a selected percentage of revenue generated by tuition will be used to support instructional costs. Do you know what your tuition charges actually support? Tuition revenue may be used, for example, to fund all or some portion of campus safety, library, academic administration, technology services, health services etc. Understanding how your tuition revenue is divided among the services and programs available on your campus will allow you to distribute savings accrued as a result of efficiency measures (outsourcing, shared services with other institutions, etc.) thereby using moneys gained from tuition more effectively.
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7.
Does your current tuition rate support your present and future enrollment goals?
Consider your current tuition rate as the baseline rate from which all future rates will be determined. Tuition rates have both strategic and long-term importance. Be certain that you consider the impact of your existing proposal upon both. A dramatic increase or decrease in tuition can strategically increase your applicant population but lead to very different longer term futures. Do you hope to use your tuition rate strategically to: -
build your applicant population? increase geographic diversity? (match selected in state tuitions) build program enrollment? (program specific tuition rates) promote student retention? (last 30 hours free) brand your institution? (aspirational Identity)
Or, are your needs even more immediate? If your present tuition rate does not allow you to adequately support the educational and co-curricular needs of your students, you have a limited number of options to obtain the funding necessary to provide the services necessary to improve the enrollment experiences of your students (you may quickly build the endowment; obtain grant or foundational support; develop collaborative ventures and/or corporate alliances; significantly increase enrollment; and/or; raise tuition). 8. Do your financial aid policies and processes support your tuition strategies? The importance of this question cannot be over-emphasized! It is in large part the professionals in the Office of Financial Aid who will determine the extent to which you actually benefit from any change in your tuition policies. More than one college president has been surprised to discover that an expected increase in net tuition revenue was unrealized because his financial aid officer covered a tuition increase with institutional aid to prevent undue hardship upon currently enrolled students. It is imperative that packaging policies and processes support your tuition policies. These policies and processes must be in effect the January preceding the Fall Term of any change in tuition. Because this topic is complex, it is the topic of a separate supplemental handout. A few questions are in order: -
To what level are you packaging? Need? Direct Cost? Full Cost of Education? This has important implications to your net tuition revenue and to the manner in which you use limited financial aid resources. Are you level packaging or does your policy attempt to cover the cost of any increase in tuition for all currently enrolled students? In what order are financial aid resources assigned to students? How does your institution make use of the Stafford Loan program? How quickly are newly accepted students awarded financial aid? Are your enrolled students packaged before they leave campus for the summer? Do your financial aid professionals understand their increasing importance as investment counselors?
9. Have I planned carefully and in advance both my internal and external promotion strategies? Plan, in advance, how you will share with each of your constituent groups news of your decision. Be certain this news provides example of how they will benefit from your decision.
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Conditions that suggest dramatic changes in tuition The simple cost of doing business likely mandates moderate increases in tuition, fees, room and board charges for the majority of independent colleges and universities. There are circumstances that may suggest, however, rather dramatic (8% or more) increases or decreases in tuition and fees are required. While the circumstances will be institution-specific, we offer a selected number of scenarios for your consideration: Conditions that may suggest a dramatic increase in tuition warrants consideration: Scenario One - If an institution has: A. Existing programs and facilities that are undercapitalized and require immediate and substantial funding from a variety of sources (In this case, tuition increases represent a strategic solution to be supported by a longer range plan that include a capital campaign and the identification of alternative revenue streams for the institution); B. Under-utilized resources permit significant enrollment growth (For example, there is space in both residence halls and in the classrooms); C. Demographic conditions support statewide or regional enrollment growth; D. Existing academic program mix and faculty support interest and ability of collegebound student population (There is existing student interest in programs offered by the institution); E. Been dedicating large amounts of institutionally funded aid to meet (or barely meet) enrollment goals (generally resulting in discount rates of approaching 50%). Strategically, the existing practice of tuition discounting must be managed more effectively to market the institution to a larger, more geographically diverse audience of new students thereby increasing the institution’s viable applicant population. Increased tuition will not be a barrier to admission when financial aid policy and process support the tuition strategy. Institutional discount rate will remain constant or decrease from the previous year; new fulltime enrollment will increase; net tuition revenue will increase. Scenario Two – If an institution has: A. An applicant pool large enough to allow the institution to move into a moderately or more selective category. (Institutional selectivity is associated with cost of service and tuition.) B. Created sufficient demand for its programs and services to support the interest of “value conscious” prospective students and families; C. Need or interest in maintaining total headcount while increasing student quality or shaping student enrollments. Strategically, this institution is using tuition to position itself In the market (High Demand, High Cost Institution). Increased revenue from tuition will likely be needed to support differential discounting decisions and enhanced student support services. In both cases, tuition increases are being used to position the institution in order to move it to a different place in the marketing mix. In the first scenario, a larger, more geographically diverse institution is desired. While some improvement in quality would likely be the result, headcount and revenue growth would be achieved first. In the second scenario, significant improvement in academic quality is desired – total headcount would likely remain constant.
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These scenarios do not exhaust the conditions under which an institution might consider a significant increase in tuition. They serve to illustrate, however, the very different reasons that might underlie such a decision. Conditions that may suggest a dramatic decrease in tuition warrants consideration: Scenario One: A. Existing prospective student audience is local or in-state. If this condition is not met, the existing audience of prospective students tends to be cost conscious. B. Despite some geographic restriction, demographic data provides evidence that there exist sufficient numbers of prospective students to support enrollment growth. C. Underutilized resources will support such enrollment growth (There is space in the residence halls and in the classrooms.) D. Existing facilities are in adequate shape. E. There is institutional commitment to reducing institutionally-funded discount aid to support the tuition decrease. F. There is support for the institution from various community agencies (Advisory Boards, Community Action Boards, etc.) Not unlike the previous examples, this strategy may be employed to increase institutional visibility thereby increasing the number of applications for admission and new student enrollments. If discount aid is used, it must be applied strategically rather than directed toward the entire applicant population. The strategic decision to lower tuition in year one does not preclude moderate tuition increases in subsequent years (does not assume level tuition). Scenario Two: A. While the institution’s existing student population may be local, the institution hopes to become a regional institution. B. Lower tuition will allow the institution to more effectively compete with geographically proximate state-sponsored institutions and will attractively position the institution as a low cost independent college alternative. C. Lower tuitions are mission or audience-consistent with the population(s) of students the college serves. There exists need for low cost, independent college alternatives for students seeking the education private institutions best provide. Selected colleges do just this and others may elect to do so. The integration of an institution’s admission, financial aid, advancement, and tuition policies make this scenario possible. Summary There is no ideal tuition strategy that will meet every independent college’s needs or will withstand the test of changing time and conditions. A well-defined strategic plan coupled with the collection and review of benchmark data will help you assess the extent to which your existing tuition policy supports institutional vision and need. Even a well-researched tuition strategy must be re-assessed as must the policies and practices of other divisions of your institution that support your tuition policy. There are, however, few topics that deserve such close scrutiny. Higher education transforms the lives of those who participate in it. Tuition policies provide individuals access to that transformational experience. If individuals are to benefit from the very real benefits of independent higher education, our tuition policies coupled with our financial aid policies must
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provide access to our institutions. We hope the questions and scenarios provided in this handout are of assistance to you and your colleagues as you engage in this planning process on your campus.
Catherine R. Cook, Ph.D. C.E.O. Miller/Cook & Associates, Inc. [email protected]
William B. Miller, M.A. President Miller/Cook & Associates, Inc. [email protected]
Miller/Cook & Associates, Inc. 20 Marco Lake Drive Suite 12 Marco Island, Florida 34145 1-800-591-1141
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Prepared for The Council of Independent Colleges 2004 Presidents Institute January 2004 Session Time: Tuesday, January 6, 2004 8:30-9:45 a.m. Miller/Cook & Associates, Inc. 20 Marco Lake Drive Suite 12 Marco Island, FL 34145 1-800-591-1141 [email protected]
1
Tuition Charges have long represented more than the cost of educational delivery that must be assumed by the primary recipients of that product – the student or her family. Influenced by mission, vision, policy, politics, and economics both internal and external, more than a few independent college presidents have discovered that their institution’s tuition charges have – at best – an indirect relationship with educational cost. This document will share with you a few brief facts about average tuition charges; questions you might ask before you consider any tuition strategy; and conditions we associate with tuition strategies we have encountered among independent colleges and universities. Tuition and Fee Trends: A National Profile Rising tuition and fee charges are not news to higher education professionals or to the general public. Despite perceptions to the contrary, those increases have been far more significant at state-sponsored institutions than at their independent counterparts. The College Board reports that for the 2003-2004 academic year, average tuition and fees charged for in-state students at public four-year colleges and universities was $4,694, an increase of 14.1% relative to 2002-03. Table 1. Average tuition and fees charged by four-year public institutions (The College Board, 2003). Year
Average Tuition and Fees
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004
$3,362 $3,510 $3,725 $4,114 $4,694
% increase from previous year 4.4% 14.1%
The reasons underlying the rather significant increases in state-sponsored institution tuitions and fees are understandable. While all institutions are responsive to the level of funding they receive from state governments, public institutions are especially sensitive to such funding levels (these institutions receive over one-third of their funding from state governments). As state budgets have become strained, institutional funding has been reduced across the country. Reductions in state funding have had the expected consequence of institutions turning to their remaining significant source of revenue – tuition and fees. The significant increases in tuition and fees posted by public institutions represent the highest in at least three decades. Independent colleges reported an average tuition increase of only 6% in 2003-2004 ($1,114, from $18,596 to $19,710). When room and board charges are added to tuition and fees, students may expect, on average, to pay $25,854 annually to attend an independent college or university. Table 2. Average tuition and fees charged by four-year independent institutions (The College Board, 2003). Year
Average Tuition and Fees
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004
$15,518 $16,332 $17,272 $18,596 $19,710
% Increase from previous year 5.2% 6.0%
2
The 2003-2004 academic year represented the third consecutive year that independent fouryear colleges posted an inflation-adjusted increase in tuition and fees of 5 percent. While most would agree that a 5% real rate of increase is not uncommon for the past two decades, The College Board notes that “the last time tuition grew this rapidly for three years in a row was from 1984 to 1986” (Trends in College Pricing, 2003, p.3). Regional Differences in Tuition and Fees Both average tuition and fees charged and percent change in real dollars over the course of the past decade vary as a function of the region of the country in which an institution is located. As the accompanying figure displays, institutions located in the Southwest region of the country reported in 2003-04, on average, the lowest tuition and fees ($15,467) while institutions located in the New England area reported, on average, the highest tuition and fees ($25,093). Despite the lower tuition and fee charges reported in the Southwest, these institutions reported the largest percentage increase in tuition charges over the course of the past ten years (when adjusted for inflation, a 52% increase). In 1993-94, Southwest institutions charged, on average, $8,077 for tuition and fees. In 2003-04, average tuition and fees in the Southwest totaled $15,467. New England institutions reported an inflation-adjusted tuition growth rate of 35% (compared to 42% nationally). Thus, the location of an institution has a very real impact upon both the cost of operations and the amount assessed for tuition and fees. As institutions with regional and national outreach assess their competition, representatives are reminded to keep such differences in charges in mind.
Regional Differences in Tuition and Fees, Independent Four-Year Institutions 2003-2004 (The College Board).
30000
$25,093
25000
$21,611 20000
$19,710 $16,890
$18,373
$18,282 $15,467
15000
10000
5000
0 National
New England Middle States
South
Midwest
Southwest
West
College Enrollment Patterns Regardless of the region of the country in which the institution is located, approximately 29% of all undergraduates are enrolled in institutions that charge less than $4,000 in tuition and
3
fees. Almost 70% are enrolled in institutions that charge less than $8,000 annually (see accompanying figure). Clearly these percentages reflect the large number and percentage of undergraduates who elect to attend state-sponsored (and less expensive institutions). It is instructive to remember that independent colleges and universities collectively enroll approximately 24% of the nation’s undergraduates.
Distribution of Full-Time Undergraduates at Four-Year Institutions by Tuition and Fees Charged, 2003-2004. 8.4
$24,000 and over
5.9
$20,000 to $23,999
7.3
$16,000 to $19,999
5.2
$12,000 to $15,999
5.2
$8,000 to $11,999
39.3
$4,000 to $7,999
28.7
Under $4,000
0
5
10
15
20
25
30
35
40
45
Source: The College Board, Trends in College Pricing, 2003
When the distribution of full-time undergraduates enrolled at independent institutions as a function of tuition and fees charged is examined, a different picture emerges. Approximately 30% of full-time undergraduates enrolled in four-year independent colleges are found at institutions that charge $24,000 or more for tuition and fees. The reader is cautioned that the total number of institutions within each tuition category influences the distribution of students. There are fewer numbers of independent institutions that charge less than $8,000 annually than there are institutions that charge more than $8,000 annually. Even when one takes this into consideration however, it is apparent that the high cost of attending selected independent colleges and universities does not deter student enrollments. (Again, this is likely a correlational relationship – high cost remains associated with high prestige.)
4
Distribution of Full-Time Undergraduates at Four-Year Independent Institutions by Tuition and Fees Charged, 2003-2004. 14.1
$28,000 and over
14.9
$24,000 to $27,999
15.7
$20,000 to $23,999
23
$16,000 to $19,999 16.4
$12,000 to $15,999
8.5
$8,000 to $11,999
5
$4,000 to $7,999
2.4
Under $4,000 0
5
10
15
20
25
Source: The College Board, Trends in College Pricing, 2003
What Students Actually Pay In 2002-2003, students received over $105 billion in financial aid for undergraduate and graduate study in the United States (an increase of 12% after adjusting for inflation). The federal government provided over $70 billion in student aid (an increase of 11% over 2000-01). Loans collectively represented 69% of this federal aid; grants constituted 22%, and the Hope and Lifetime Learning federal tax credits represented approximately 8% of all federal aid (The College Board, Trends in Student Aid, 2003). As the accompanying figure displays, the Department of Education projects that from FY 2000 to FY 2005, federal student loan volume will grow to nearly $215 billion, with the majority of dollars coming from the FFELP. The rising demand for student loans reflects a 6 percent increase in higher education enrollments between 2000 and 2005, to more than 16 million fulltime and part-time students.
5
Annual Student Loan Volume FFY 1990-2005
50 45 40 35 30 FDLP
25
FFELP 20 15 10 5 0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: US Department of Education
Almost half of all grant aid received by students is not funded by the federal or state government but by institutions. Colleges and universities distributed $20 billion in grant aid to their students in 2001-2002 (19% of all student aid). At independent institutions, where nearly 60% of students receive some form of institutional aid, such grants represent 62% of all grant aid. Questions to Ask Before Adopting Any Tuition Strategy 1. Is your audience of prospective students value conscious or price conscious? Are you worth the tuition you are presently charging? This is a complicated question and is very much a function of audience and stage of the enrollment funnel. You must, therefore, examine this question from various perspectives. Both matriculated and non-matriculated financial aid applicants will provide a partial response to this question. As part of your annual year-end analysis, ask your financial aid director to prepare conversion matrices (applied for aid and enrolled/not enrolled) as a function of estimated family contribution and financial aid awarded. This will give you a general idea of willingness to pay for an education at your institution. Of course, this analysis provides information only about individuals interested enough in your institution to actually apply for both admission and financial aid. For this reason, you will also want to examine the selfreported family income information provided on official SAT reports as a function of final enrollment status to determine who actually progressed through the enrollment funnel. Where
6
were certain groups as a function of income range? Were selected income range groups more likely to progress through the funnel than others? Why or why not? Are you disproportionately losing students who are able to pay a greater percentage of your tuition and fees? Be certain to include the families of traditional-age students in your survey of admitted students at the conclusion of the recruitment cycle. Ask them to rate your institution against others their son or daughter may have been considering. In today’s era of college copurchasing, families are willing to offer informed opinions. 2. As you compare your price against the price of your competitors and aspirational institutions, compare other features as well. Is your institutional profile similar to the profile reported by your competitors? College search firms such as Petersons.com make this relatively easy. Go online and take advantage of the “compare colleges” feature offered by The College Board or by Petersons. Compare average SAT scores, high school rank, number and type of academic majors. Comparison features make it easy for college-bound students and families to do more than examine your tuition – they compare other characteristics of the institutions they may be considering. You should do likewise. 3. Has the socioeconomic mix of your applicant population changed over the time? Does the socioeconomic mix of your student population change as a result of matriculation (from first-year to sophomore year? From sophomore to junior year?) 4. Depending upon the academic structure of your institution (schools, departments) do enrollment patterns differ as a function of socioeconomic status and intended program or school of study? Each of these analyses will provide needed information about the price sensitivity of your audiences. It is important to allow data to drive the decision-making process. While the price sensitivity of your audience is one variable you will want to consider, there are equally important internal considerations. Independent Colleges are, and are likely to remain, tuitiondriven institutions. Know, in advance, to finalizing your tuition the answers to each of the following questions: 5.
Does a single or comprehensive tuition charge adequately meet your needs?
Obviously, selected programs of study cost your institution more to deliver than others. Enrollment caps on higher cost programs sometimes indirectly address these cost inequities as lower cost majors can enroll larger numbers of students thereby balancing overall cost of educational delivery. If, however, lower cost majors fail to enroll these larger numbers of students your tuition revenue objectives can be compromised. For this reason among others, some institutions elect to charge higher tuition rates for selected programs of study. If high interest in high cost majors at your institution permits you to consider higher tuition rates for such programs of study, this is an option you may consider. 6. It is important to recognize that only a selected percentage of revenue generated by tuition will be used to support instructional costs. Do you know what your tuition charges actually support? Tuition revenue may be used, for example, to fund all or some portion of campus safety, library, academic administration, technology services, health services etc. Understanding how your tuition revenue is divided among the services and programs available on your campus will allow you to distribute savings accrued as a result of efficiency measures (outsourcing, shared services with other institutions, etc.) thereby using moneys gained from tuition more effectively.
7
7.
Does your current tuition rate support your present and future enrollment goals?
Consider your current tuition rate as the baseline rate from which all future rates will be determined. Tuition rates have both strategic and long-term importance. Be certain that you consider the impact of your existing proposal upon both. A dramatic increase or decrease in tuition can strategically increase your applicant population but lead to very different longer term futures. Do you hope to use your tuition rate strategically to: -
build your applicant population? increase geographic diversity? (match selected in state tuitions) build program enrollment? (program specific tuition rates) promote student retention? (last 30 hours free) brand your institution? (aspirational Identity)
Or, are your needs even more immediate? If your present tuition rate does not allow you to adequately support the educational and co-curricular needs of your students, you have a limited number of options to obtain the funding necessary to provide the services necessary to improve the enrollment experiences of your students (you may quickly build the endowment; obtain grant or foundational support; develop collaborative ventures and/or corporate alliances; significantly increase enrollment; and/or; raise tuition). 8. Do your financial aid policies and processes support your tuition strategies? The importance of this question cannot be over-emphasized! It is in large part the professionals in the Office of Financial Aid who will determine the extent to which you actually benefit from any change in your tuition policies. More than one college president has been surprised to discover that an expected increase in net tuition revenue was unrealized because his financial aid officer covered a tuition increase with institutional aid to prevent undue hardship upon currently enrolled students. It is imperative that packaging policies and processes support your tuition policies. These policies and processes must be in effect the January preceding the Fall Term of any change in tuition. Because this topic is complex, it is the topic of a separate supplemental handout. A few questions are in order: -
To what level are you packaging? Need? Direct Cost? Full Cost of Education? This has important implications to your net tuition revenue and to the manner in which you use limited financial aid resources. Are you level packaging or does your policy attempt to cover the cost of any increase in tuition for all currently enrolled students? In what order are financial aid resources assigned to students? How does your institution make use of the Stafford Loan program? How quickly are newly accepted students awarded financial aid? Are your enrolled students packaged before they leave campus for the summer? Do your financial aid professionals understand their increasing importance as investment counselors?
9. Have I planned carefully and in advance both my internal and external promotion strategies? Plan, in advance, how you will share with each of your constituent groups news of your decision. Be certain this news provides example of how they will benefit from your decision.
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Conditions that suggest dramatic changes in tuition The simple cost of doing business likely mandates moderate increases in tuition, fees, room and board charges for the majority of independent colleges and universities. There are circumstances that may suggest, however, rather dramatic (8% or more) increases or decreases in tuition and fees are required. While the circumstances will be institution-specific, we offer a selected number of scenarios for your consideration: Conditions that may suggest a dramatic increase in tuition warrants consideration: Scenario One - If an institution has: A. Existing programs and facilities that are undercapitalized and require immediate and substantial funding from a variety of sources (In this case, tuition increases represent a strategic solution to be supported by a longer range plan that include a capital campaign and the identification of alternative revenue streams for the institution); B. Under-utilized resources permit significant enrollment growth (For example, there is space in both residence halls and in the classrooms); C. Demographic conditions support statewide or regional enrollment growth; D. Existing academic program mix and faculty support interest and ability of collegebound student population (There is existing student interest in programs offered by the institution); E. Been dedicating large amounts of institutionally funded aid to meet (or barely meet) enrollment goals (generally resulting in discount rates of approaching 50%). Strategically, the existing practice of tuition discounting must be managed more effectively to market the institution to a larger, more geographically diverse audience of new students thereby increasing the institution’s viable applicant population. Increased tuition will not be a barrier to admission when financial aid policy and process support the tuition strategy. Institutional discount rate will remain constant or decrease from the previous year; new fulltime enrollment will increase; net tuition revenue will increase. Scenario Two – If an institution has: A. An applicant pool large enough to allow the institution to move into a moderately or more selective category. (Institutional selectivity is associated with cost of service and tuition.) B. Created sufficient demand for its programs and services to support the interest of “value conscious” prospective students and families; C. Need or interest in maintaining total headcount while increasing student quality or shaping student enrollments. Strategically, this institution is using tuition to position itself In the market (High Demand, High Cost Institution). Increased revenue from tuition will likely be needed to support differential discounting decisions and enhanced student support services. In both cases, tuition increases are being used to position the institution in order to move it to a different place in the marketing mix. In the first scenario, a larger, more geographically diverse institution is desired. While some improvement in quality would likely be the result, headcount and revenue growth would be achieved first. In the second scenario, significant improvement in academic quality is desired – total headcount would likely remain constant.
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These scenarios do not exhaust the conditions under which an institution might consider a significant increase in tuition. They serve to illustrate, however, the very different reasons that might underlie such a decision. Conditions that may suggest a dramatic decrease in tuition warrants consideration: Scenario One: A. Existing prospective student audience is local or in-state. If this condition is not met, the existing audience of prospective students tends to be cost conscious. B. Despite some geographic restriction, demographic data provides evidence that there exist sufficient numbers of prospective students to support enrollment growth. C. Underutilized resources will support such enrollment growth (There is space in the residence halls and in the classrooms.) D. Existing facilities are in adequate shape. E. There is institutional commitment to reducing institutionally-funded discount aid to support the tuition decrease. F. There is support for the institution from various community agencies (Advisory Boards, Community Action Boards, etc.) Not unlike the previous examples, this strategy may be employed to increase institutional visibility thereby increasing the number of applications for admission and new student enrollments. If discount aid is used, it must be applied strategically rather than directed toward the entire applicant population. The strategic decision to lower tuition in year one does not preclude moderate tuition increases in subsequent years (does not assume level tuition). Scenario Two: A. While the institution’s existing student population may be local, the institution hopes to become a regional institution. B. Lower tuition will allow the institution to more effectively compete with geographically proximate state-sponsored institutions and will attractively position the institution as a low cost independent college alternative. C. Lower tuitions are mission or audience-consistent with the population(s) of students the college serves. There exists need for low cost, independent college alternatives for students seeking the education private institutions best provide. Selected colleges do just this and others may elect to do so. The integration of an institution’s admission, financial aid, advancement, and tuition policies make this scenario possible. Summary There is no ideal tuition strategy that will meet every independent college’s needs or will withstand the test of changing time and conditions. A well-defined strategic plan coupled with the collection and review of benchmark data will help you assess the extent to which your existing tuition policy supports institutional vision and need. Even a well-researched tuition strategy must be re-assessed as must the policies and practices of other divisions of your institution that support your tuition policy. There are, however, few topics that deserve such close scrutiny. Higher education transforms the lives of those who participate in it. Tuition policies provide individuals access to that transformational experience. If individuals are to benefit from the very real benefits of independent higher education, our tuition policies coupled with our financial aid policies must
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provide access to our institutions. We hope the questions and scenarios provided in this handout are of assistance to you and your colleagues as you engage in this planning process on your campus.
Catherine R. Cook, Ph.D. C.E.O. Miller/Cook & Associates, Inc. [email protected]
William B. Miller, M.A. President Miller/Cook & Associates, Inc. [email protected]
Miller/Cook & Associates, Inc. 20 Marco Lake Drive Suite 12 Marco Island, Florida 34145 1-800-591-1141
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