Earlier this month, Liz Clark, NACUBO’s VP of Policy and Research, sat down with Dr. Jeff Weinstein, Vemo Education co-founder and VP of Strategic Analytics, for a conversation about higher education finance. They discussed key insights into the 2020 NACUBO Tuition Discounting Study (TDS), sponsored by Vemo Education.
In the coming weeks, Vemo will share Liz Clark’s questions about the 2020 TDS and Jeff Weinstein’s responses in a six-part series. Part 1 of 6 appears below.
To hear an abbreviated audio version of their conversation, check out the NACUBO in Brief podcast.
Liz Clark: Jeff, rather than jump in with a breakdown of our methodology, terminology, and findings, I’d love to start with some of your takeaways. Which of the findings in this 2020 NACUBO Tuition Discounting Study were particularly compelling to you? Were there any findings that caught you by surprise
Jeff Weinstein: Two things caught my attention. First, the very first key finding of the survey: Discounting on average appears to have increased to almost 54% of the stated price of tuition. This is a staggering figure. Second, an analysis of all the TDS findings suggests the financial challenges that schools are facing aren’t just going to continue as they were. They’re going to become even more challenging.
The 54% Discount Rate
A decade ago, when discounting on average was hovering in the low 40 percents, administrators said it was unsustainable and that things had to change. Ten years later, we’ve broken the 50% barrier. If enrollment managers were squeezing water out of a rock before, now they’re squeezing water out of a diamond.
Now, when the survey was conducted, none of us were anticipating a pandemic. Given that these past two years have been pandemic years, it makes perfect sense that more discounts have gone out to students and families, who really need it.
Higher education and the job market are more uncertain than they have been for a while. The labor market took a huge hit. The downstream effects of that hit are still reverberating in several industries, such as entertainment and tourism. It’s going to take a while to get back to where we were before, and some industries may never go back.
On top of that, assumptions that went without saying before are now being challenged: We have a new generation of students that is looking at higher education differently than previous generations. For Gen Z, the primary question is whether school is worth it.
When you look at the study from that perspective, enrollment and revenue are more important and direct metrics of institutional health than discount rates. Discounting helps highlight underlying trends for enrollment and revenue, but it is only a glimpse through the institutional window.
When colleges can afford their discounts and maintain a healthy revenue stream, they can lower the cost of education and help people who’ve been impacted by these recent events, without harming themselves. The question, though, is when institutions can’t afford their discounts. What happens then?
Taken together, the findings of the 2020 TDS demonstrate that many of the issues brought to the forefront by this pandemic year aren’t just going to stick around — they’re actually going to require fundamental change in coming years.
What do I mean by that? Well, consider first that student enrollment is declining, not just last year but as part of a larger trend that now spans a decade. Then, consider that the proportion of students receiving aid and the average aid amount per student is on the rise. Usually, you would expect aid increases to be associated with improvements in enrollment yield. Today, these aid increases are associated with not only an unsuccessful effort to improve enrollment but also with an actual decrease in enrollment.
For the institutional discounts, those provide helpful relief to many families, especially during a pandemic. But where are they coming from? As the 2020 TDS found, discounts are often coming from undedicated sources and institutional reserves. Neither of those wells is expected to be tapped repeatedly or over an extended period of time. When institutions do use them that way, they jeopardize their own financial future.
Institutions might have some temporary funds they can use for one, two, or three years, but after that point their programs will need another source of funding. This gives us a clearer picture of some of the logistics that are going to cause problems.
This is highlighted in one key survey finding of the report: 85% of Business Officers expect significant changes to enrollment, revenue, or some combination of the two. Only 15% expect no significant changes to the institution.
When a supermajority of business officers say they expect a drastic shift to happen soon, it’s clear higher education enrollment has an intractable problem. It’s no longer sufficient to say, “This is difficult and something probably has to happen.” Now, we know the areas in higher education finance and enrollment where things just aren’t going to continue to work and change will have to happen now.