NBOA Schools Netting 82 Cents on Sticker Price

It’s my pleasure to invite James Palmieri, NBOA executive vice president, to guest blog this week and offer his insights regarding NBOA’s recently released Tuition Discounting Report.

Article by James Palmieri

Each spring, the National Association of College and University Business Officers (NACUBO) releases the results of its annual tuition discounting research of undergraduates at private colleges and universities nationwide. The 2021 results, released in May, demonstrate a long upward trend in discount rates that has only accelerated during the COVID-19 pandemic – from 44.3% for first-time, full-time, first-year students in 2011-12, to a new daunting record of 53.9% in 2020-21. This means the average freshman paid only 46.1 cents on the tuition dollar in this sample of 361 U.S. institutions because of grants, fellowships and scholarships awarded. The sticker price versus net tuition revenue kerfuffle continues.

Similarly, NBOA recently released its 2021 NBOA Tuition Discounting Report for PK-12 Independent Schools. This research analyzes financials from 176 member schools from data taken directly from our Business Intelligence for Independent Schools (BIIS) data platform to understand the trends in tuition discounting from 2018-2020. The research serves as a baseline for tracking the effects of need-based financial aid, merit aid and scholarships, as well as tuition remission, in the context of net tuition and the overall financial health of our industry.

18% was the total tuition discount rate for PK-12 independent schools in the 2019-20 school year (day and boarding). This was up from 17.7% in 2018-19 and 17.3% in 2017-18 when comparing the same 176 schools in this sample. “This data point is most important in this report,” confirmed Jeffrey Shields, FASAE, CAE, NBOA president and CEO. “Independent schools not only have the adverse effect of a sticker price that may seem out of reach to many families, but it’s juxtaposed against the reality that most families aren’t paying it to attend our schools.” As indicated in the executive summary, this is the national percentage we want you to remember and track in the years ahead, and it is the calculation we want you to know and use for benchmarking at individual schools.

For benchmarking purposes, schools on average discounted their gross tuitions by 17.5% in 2019-20 and collected a net tuition revenue of 82.5% for all students. Therefore, using the “cents on the dollar” reference from above, schools were collecting approximately 82 cents on the dollar. While the tuition discount rate was on the rise overall for schools of different types and enrollment levels, it is worth separating day schools and schools with boarding because of the substantially higher tuition price at schools with boarding (in alignment with higher expenses). Additional highlights include:

• 100% of schools in this study were committed to need-based financial aid. This was the highest percentage of total discount accounting for 81% of all discount dollars distributed in 2019-20. Need-based financial aid is increasing, in part, due to rising tuition.
• 4% of schools in this study provided tuition remission benefits accounting for 16% of all discount dollars distributed in 2019-20 (second highest category). Tuition remission isn’t going away. It is still a valued employee benefit and percentages continue to increase.
• 6% of schools in this study provide merit aid and scholarships accounting for 3% of all discount dollars distributed in 2019-20 (smallest category but growing). Merit awards/scholarships are increasing in number and in amount to attract and enroll top students. Contrast this from 10 years ago when merit aid was virtually non-existent.

While most indicators are going up, the only one going down is the percentage of need-based financial aid and merit aid/scholarships funded by gifts and endowment income. The total percentage was 18.6%, down from 20.2% in 2018-19 and 21.4% in 2017-18. This indicates that more discount dollars must come from the operating budget, likely supported by an annual fund or a dedicated fundraising effort, increasing the strain on annual fiscal management. The result is the increased pursuit of alternative non-tuition revenue sources aided by overall expense management.

I would be remiss to omit the fact that, in many cases, schools are giving these dollars for the right reasons: they are investing in equity and accessibility. In alignment with their individual missions, schools are deploying tuition discounting strategies to increase the socioeconomic diversity within their learning communities. The significant operating revenue gap caused by the discounts is generally covered by a combination of endowment or investment spending, annual fundraising and/or revenue produced by auxiliary programming. When the numbers work, the resulting diversity is widely considered an important and worthwhile investment.

However, the data shows that enrollments were relatively flat, and increases in tuition discounting outpaced increases in net tuition and fees per student. “This is a concern if tuition discounting is being used as an enrollment strategy,” warned Elizabeth Dabney, NBOA director, research and data analysis, who prepared the analysis and co-authored the report. “Discounting tuition to fill seats or to maintain a desired enrollment target has not proven to be financially prudent or effective.”

Because we observe these concerning trends year after year, and because financial health and long-term sustainability is in even greater question as a result of the COVID-19 pandemic, the time is right for NBOA to bring forward these key metrics and highlights for your consideration, comparison and perhaps most important, your action.

The 2021 NBOA Tuition Discounting Report for PK-12 Independent Schools is published with generous financial support from A. W. G. Dewar Inc., originators of the Tuition Refund Plan, a proven and tested means of protecting schools and families from the financial consequences of withdrawals and dismissals. NBOA member schools can download a copy of the report here.

From Net Assets NOW, June 8, 2021. Read past issues of CEO Notebook.

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