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 in July 2021. They discussed key insights into the 2020 NACUBO Tuition Discounting Study (TDS), sponsored by Vemo Education. 

Vemo is now sharing Liz Clark’s questions about the 2020 TDS and Jeff Weinstein’s responses in a six-part series. Part 3 of 6 appears below. Part 1 is available here. Part 2 is available here.

To hear an abbreviated audio version of their conversation, check out the NACUBO in Brief podcast

Liz Clark:  On average, the study finds that net tuition revenue was lower [for private four-year colleges this year than in past years]. But because it’s an average, we know that some institutions deeply discounted tuition but also saw increases in net tuition revenue. Is there a win-win formula out there [for giving discounts and increasing net tuition revenue at the same time]?

Jeff Weinstein: That’s an important distinction.  Whether there’s a win-win formula for discounting and increasing or maintaining NTR is the $64,000 question. 

Average Trends

First, stepping back:  It’s always dangerous to make decisions solely based on average or median trends, or to use those trends to characterize the state of affairs for an entire industry. Industry members will always fall somewhere along a distribution, and 99% of them will be neither the average nor the median. Institutions of different types, or in different locations, may face very different challenges and opportunities. If you average their responses to their unique circumstances together, the average will not reflect the reality of virtually any of the institutions. 

To get a realistic picture of the opportunities and challenges that institutions face, we really have to look for common themes among  groups or clusters of similar institutions. We have to survey the full range of institutions. And we have to repeat this exercise multiple times. 

For this exercise, I’d take out the elite institutions that have an application surplus—because they can easily withstand the challenges that threaten other schools—and then break out the remaining colleges and universities into 3 groups: well-resourced institutions that already have the resources to address most enrollment challenges that may occur, mid-resourced institutions that are facing revenue challenges right now but have some play with their current resources, and low-resourced institutions that have already reached their limits.

High-Resource (Private) Institutions

For some colleges and universities, there definitely can be a win-win outcome when it comes to tuition discounting / institutional scholarships. We can’t forget that—at this point in time—stabilizing net tuition revenue can be a win all by itself. Highly resourced competitive institutions have a slightly different calculus from the elites, in that their applicant pools are at a greater risk of shrinking when faced with rising costs or concerns about ROI. Institutions that are not significantly tuition revenue–dependent, but that are concerned with future enrollment levels, can increase discounts and stabilize net tuition revenue at the same time, ultimately mitigating undesired risk.

This can be done either independently or in partnership with states and localities (equivalent to public/private partnerships). The discounts could help support local industries with a dedicated professional development pipeline and reassure students at the same time, providing them with more reliable post-enrollment opportunities. Institutions in this category are likely to adapt to the changing environment and highlight their strengths, while they update their financial aid policies and other programs in the background.

Mid-Resource (Private and Public) Institutions

These institutions are in the middle of their discount-to-address-challenges phase. They may have the budgets to support current discounting practices for the next few years. But their resources are limited and their solutions temporary.

Because time is of the essence, this is the category where we would expect to see a fair number of structural changes and new policies, including efficiency measures such as the consolidation of academic programs. Those institutions that are the most responsive will come out of this phase with a sustainable organizational model. Those that do not will have to begin to cut programs and functions in order to survive. Public institutions also fit into this category, so state and federal support will complicate the dynamics. Public/private partnerships make a lot of sense with this group, so I would expect increased activity here.

Low-Resource (Private) Institutions

Like high-resource privates, these institutions compete for applicants and students. However, unlike high-resource institutions, their net tuition revenue has fallen below sustainable levels. They are in  a vicious cycle that can have disastrous effects—from losing students, to getting smaller, to falling in reputation, to losing partnerships, and even to closing completely.

Institutions in this position can’t continue increasing discounts and hoping for different results. They need to change fundamentally. Unlike mid-resource institutions, they’ve already exhausted their efficiency initiatives and have to go straight to cost cutting. They’ll need to focus on their core value programs and cut most if not all other programs. That, in combination with decreasing their discounts, is what I would expect from these institutions, if they want to continue to survive. Otherwise, they just won’t be viable.