Colleges Cut Prices by Providing More Financial Aid

May 15, 2013

After more than a decade of continuous tuition increases, private U.S. colleges are worried that their high prices could discourage future college-goers. To keep from pricing themselves out of existence, many colleges and universities offer financial assistance to entice students to attend their school. Offerings of financial aid have reached record levels as parents and students have finally honed in on the inflated costs of higher education, says the Wall Street Journal.

  • The "tuition discount rate" is the reduction off list price afforded by grants and scholarships.
  • According to the National Association of College and University Business Officers, the tuition discount rate hit an all-time high of 45 percent last fall for incoming freshman.
  • College consultants expect that even deeper discounts will be offered this coming fall as families focus on cost and value more than prestige.

More than 60 percent of schools increased their discount rate in the fall of 2012. The discounts come at a time when macroeconomic trends point to declining wages, the high cost of college, expanding student debt and an uncertain job market.

  • Private colleges were more likely to increase their discount; about 13 percent of U.S. undergraduates are enrolled at a private nonprofit college.
  • Private nonprofit colleges provided 70 percent of all grant aid to undergraduate students in 2009.

Colleges are in a bind because it is unpopular to raise the sticker price, yet their costs are rising at the same time they are expanding aid to remain competitive. The result has been the lowest increase in the sticker price of college, which for about 280 private colleges rose only 3.9 percent in 2012.

  • Tuition at four-year public colleges and universities continued to rise an average of 4.8 percent in the 2012-2013 academic year.
  • In the future, some colleges are predicted to merge or fail as higher costs have led to lower enrollment -- some schools are seeing just 20 percent of the students they accepted actually enrolled.

Only the most exclusive colleges and universities have refused to lower their tuitions. Other colleges have simply cut initial prices and offered lower or no tuition discounts in an effort to establish that "the price is the price."

Source: Ruth Simon, "Colleges Cut Prices by Providing More Financial Aid," Wall Street Journal, May 6, 2013.

 

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