TUITION DISCOUNTING

Tuition discounting

Tuition discounting

Introduction

The last couple of decades have witnessed significant increases in the price of higher education. These significant increases in tuition price have occurred ubiquitously across public and private sectors as well as across institutional types. Governmental and institutional policy makers have responded to these price increases with a variety of financial aid strategies in an attempt to meet societal goals of student access and choice and institutional objectives related to increasing quality/prestige and financial resources.

Financial aid responses have included an array of programs involving a variety of actors. These include continued growth and expansion of Federal programs, including the Pell Grant, Federal Supplemental Educational Opportunity Grant (FSEOG) programs, tax credits, and subsidized loan programs. Private entities have also engaged with increased private scholarships and grants as well as privately offered loanprograms. Institutions have responded with significant increases in institutional grants funded by both endowments and gifts, as well as directly from the tuition and fee revenues of the institution.

Tuition Discounting

This strategic and targeted approach to institutional grant making has taken on a new perspective, apart from simply funding student need, now often referred to as tuition discounting. (Allan, 1999). Institutions have traditionally aided the pursuit of enhancing access and need, yet have taken on an emphasis of advancing their own institutional objectives. This includes the increasing of institutional quality, often synonymous with notions of prestige, through increasing the academic quality of its students and enabling it to become more selective in its admission of students.

Increasing institutional financial stability, through the increasing of marginal net tuition revenue, is also an objective pursued through tuition discounting. Research has demonstrated that institutions' abilities to advance these objectives vary. In most cases, positive progress can be demonstrated. However, in some cases, counterproductive outcomes are revealed. These negative outcomes and their relationship and effect on public policy and institutional objectives are little understood (Davis, 2003; Lapovsky & Hubbell, 2003; Redd, 2000a).

Decreasing Marginal Net Tuition Revenue

In tuition discounting, institutions would be expected to advance their institutional priorities of increasing quality and increasing fiscal capacity. Yet, some institutions do not. Up to 25% of institutions have been found to decrease marginal net tuition revenue from tuition discounting activity (Lapovsky & Hubbell, 2003; Redd, 2000a). The exact nature of this counterintuitive behavior and its relationship to institutional and student characteristics remains unclear. This commentary attempts to better understand these counterintuitive phenomena through an exploration of a variety of theoretical frameworks which may provide insight into why institutions might continue to tuition discount even when the results produce negative effects on net tuition revenue.

Theoretical Frameworks and Their Potential Explanation

A variety of theoretical frameworks are helpful in understanding the behavior of institutions of higher education. While no one particular framework can be wholly explanatory, a consideration of a given framework can aid in understanding portions of observed behavior. When considered in combination, an analysis of behavior framed by several theoretical models can be very helpful in explaining the behavior of these ...