Anna Swanson, MARKETview Founding Partner, Data & Analytics, warns of the long-term impact if tuition pricing and discount rates continue to rise across the marketplace.
“People keep saying we’re going to hit a cliff on pricing,” Swanson said. “Probably within the next two years, a handful of schools are going to cross the $100,000 comprehensive fee barrier.”
This is a common refrain in higher ed. Ten years ago, schools were bumping up against $50,000 and $60,000 thresholds. While some students and families have opted for more affordable options, there are still some that will pay those significant sums of money per year. Swanson continues:
“If that changes, it could be a major inflection point. For some schools, this flight to perceived quality could mean closure, or for some elite schools it means a change in program, or a change in your ability to meet demonstrated need for students.”
An Industry Expert’s View on Discount Rate
We sat down with Swanson to talk about the percentage of tuition covered by an institution, known as discount rate — and why shifting focus to net tuition revenue could be more beneficial to universities. She explains why discount rate is seen as such a priority in the marketplace.
“I think [discount rate] is just an easy metric that people get really fixated on,” Swanson said. “Families say, ‘I can’t afford $80,000 or $60,000 in tuition.’ So, for years we’ve discounted tuition to really get it back to something that feels more realistic to pay.”
High discount rates are often used as an incentive for families trying to decide on the right institution for their student. Families equate sticker price with the quality of an institution, and larger scholarship sums look more attractive to students on paper, even when the net cost is still higher than another institution offering less aid. Swanson sums it up with a simple metaphor:
“If I want to buy a sweater and I have $100 to spend, would I rather buy the $100 sweater that’s full price, or a $500 sweater discounted to $100?” Swanson said. “Which one would make me think that I got a really great sweater?”
As a result, pricing continues to rise exponentially, and discount rates along with it. The annual NACUBO Tuition Discounting Study surveyed 325 private, nonprofit institutions and found that in 2023-24, average tuition discount rate for full-time first year and undergraduate students reached new highs of 56.1% and 51.9% respectively (NACUBO, 2024). Swanson asserts that once you hit a certain tipping point, it becomes mathematically difficult to peel back discount rate.
“Once you get to around a 70% discount rate, it’s hard to drive average revenue and total revenue, since you’re giving so much away and there’s so much pressure,” Swanson said. “The consequence is that some institutions don’t have enough pricing power to stay open.”
Are Tuition Resets a Solution?
Some institutions have already begun to try curbing rising discount rates. One option is a tuition reset — cutting sticker price significantly so that the price of an institution is more affordable, and schools don’t have to spend as much on discount rate to fill that gap between pricing and what families can pay for. Swanson explains why this strategy can be difficult to execute in the long term.
“It requires a ton of marketing and proactive communication, and even at the institutions where it’s successful for a year, oftentimes a few years out it becomes difficult,” Swanson said. “For every one success, there are plenty of places that have failed to reach their intended goal or failed to foresee unintended consequences.”
She elaborates on how reducing sticker price can also hurt consideration from more affluent families that can afford full price, drawing from the earlier metaphor.
“Think back to my sweater example, in practice these more affluent families don’t want to buy the $100 sweater, they want the sweater worth $500,” Swanson said. “Some of them are beginning to expect more of a discount, fewer and fewer are willing to pay the premium being asked of them. And that’s dangerous because those families that earn more and can pay are generating more revenue per student.”
Shifting Focus to Net Tuition Revenue
We’ve gone for a different approach at MARKETview, shifting away from focusing on discount rate as a primary metric and instead tracking the total profits after tuition discounting and expenses, AKA net tuition revenue, as a key indicator of success. Swanson gives her rationale for using net tuition revenue over discount rate.
“I would say net tuition is the right metric to focus your financial goals on, because you could improve any of those other statistics and not have a great outcome,” Swanson said. “You could try to reduce discount rate but depending upon the interaction with tuition and fees and total enrollment, you might end up with less per student and still worse off.”
When focusing on net tuition revenue, institutions can take a more holistic approach to increasing revenue per student and meeting their goals. Instead of relying on larger and larger discount rates to draw in greater class sizes, Swanson suggests looking at specific cohorts of students and tracking the groups that will provide the best net revenue outcomes.
“One of the big first steps is understanding where you garner your above average revenue and where you garner your lower-than-average revenue,” Swanson said. “Understanding, is it students from far away? Is it students from close to home? Is it students who first engage with you in their senior year of high school versus their sophomore year?”
After identifying the groups of students that can grow net revenue, Swanson recommends investing in methods to help drive them into your applicant pool.
“That could be increasing travel, increasing print to students, or doing more digital advertising. The bottom line is trying to get more students to consider you who give you the revenue outcome that helps you reach your goals.” – Anna Swanson
How MARKETview Helps Schools Track and Grow Net Tuition Revenue
Swanson details how MARKETview’s recent Comparative Aid Report helps institutions track their net tuition revenue and compare themselves to similar schools across the market.
“You can see the major factors that drive your revenue outcomes, including distance from campus and consumer variables, and how your average revenue compares to different segments of schools,” Swanson said. “Better yet, you can quickly identify the things that matter most — what we like to call Critical Elements — to reach your institution’s goals.”
She elaborated on how MARKETview is innovating to help partners reach the net tuition revenue they’re aiming for.
“We’ve broken our partners into thirds. The higher net tuition revenue per student group of 25k, the 15-25k range, and less than 15k.”
Swanson explained how that grouped data can be game-changing for helping cabinets and board members understand the market position of their institution.
“It allows you to say, ‘This is what I’m getting, schools like me are also able to receive net tuition revenue in this way,’” Swanson said. “And then really drilling down and trying to understand where you’re differentially able to drive revenue. And that’s where you have more opportunity to proactively run after your revenue goals.”
Want to learn how MARKETview, higher education’s only aggregated and real-time data platform, can provide you with advanced context and perspectives for achieving your enrollment and revenue goals? Schedule a brief demo with us today.