There is no appropriate level for a tuition discount rate," said keynote speaker James L. Doti, president of Chapman University and "Donald Bren Distinguished Professor of Business and Economics," as he began his closing address at CIC's Presidents Institute. However, institutions can tell whether they are performing above or below average based on a tuition discount rate formula he devised.
    During his speech, Doti examined the many challenging questions posed by the fact that tuition discounting is increasing at a significantly greater rate than tuition at many private institutions. Citing data from NACUBO and College Board studies, he said total institutional grants for full-time freshmen at independent colleges and universities increased at an average annual compounded rate of 9.3 percent between fall 1993 and fall 1998, while tuition and fees increased at a 5.9 percent rate.
    Doti explained that institutional financial aid, or "tuition discounting," is an increasingly important enrollment management tool in private higher education. "In the past, financial aid was used largely to make it possible for colleges and universities to matriculate students who might not otherwise have been able to afford the costs of a particular institution. In more recent years, it has been used as a merit-based incentive to recruit students who have demonstrated academic, athletic, artistic, and other skills or attributes that an institution uses to mold a 'desirable' student profile," he noted.
    To assist institutions in making most effective use of institutional aid, Doti had conducted his own study designed to discover the relation of tuition discounting to other institutional effects and policies, and to develop a comparative benchmark for colleges to use. He used data from the NACUBO Institutional Student Aid Survey (1993 and 1998) and The College Board's Trends in Student Aid (1999).
    He addressed, among other questions, whether increased merit-based aid has affected financial aid for students with need, the extent to which different tuition rates and enrollment levels affect tuition discounting, and which institutions would be able to engage effectively in tuition discounting. Among his conclusions:

• merit-based aid is growing at the expense of need-based aid,
• increases in tuition and enrollment lead to even higher discount rates for those institutions that already had relatively high discount rates,
• colleges that increase their acceptance rates, in general, do so not to reduce institutional aid but to keep application pools from falling, and
• institutions are better off increasing enrollment than tuition.

    "One can use these empirical results to analyze the 'efficiency' of an institution's aid strategies. For example, let us assume College X between 1993 and 1998 increased its tuition 20 percent and its enrollment declined 10 percent. The relationships estimated in this study suggest that institutional aid, on average, should have increased 46.8 percent (20 percent X 2.34) because of the 20 percent tuition increase, and declined 14.8 percent (-10 percent X 1.48) because of the 10 percent enrollment decline. The net increase in financial aid, on average, would therefore be 32 percent (46.8 percent - 14.8 percent). But these are the average or expected results," Doti said.
    "If College X actually increased its institutional aid over 32 percent between 1993 and 1998, it would be performing below par. Alternatively, if College X increased its institutional aid at a rate below 32 percent, it would be performing above par," he said.
    In general, the relevant equation to be used in assessing the effectiveness of an institution's aid strategies during the 1993 to 1998 period is illustrated in the box below.

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Last updated: May 30, 2001
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