Colleges and universities face dual challenges of rising costs and declining net tuition revenues as they contend with inflation, labor shortages, enrollment declines, and numerous other issues. For many, optimizing net tuition revenue is a balancing act between tuition pricing and tuition discounting strategies.
On one hand, higher education leaders are concerned about tuition price elasticity. They want to maximize tuition pricing to generate much-needed revenue, but without making prices so high as to depress enrollment. On the other hand, colleges and universities want to offer tuition discounts to grow enrollment and attract promising students who cannot afford full tuition, but they want to avoid drawing students at high-risk for leaving early or defaulting on student loans.
The tension between these forces makes tuition planning increasingly complex as college and university leaders weigh pricing against enrollment trends, the institution’s perceived value or brand, competition from other institutions, and other market factors.
At the same time, tuition remains critical to many institutions, making up anywhere from 20% to 93% of total revenues, depending on the size and type of institution. Higher education boards are getting actively involved in shaping tuition pricing strategies as a result.
As they work to determine how to increase net tuition revenue, college and university leaders should follow three best practices for effective tuition planning:
- Be accurate and realistic
- Leverage scenario modeling
- Ensure a collaborative process
Be Accurate and Realistic
Tuition pricing strategies must be based on realistic targets and expectations. This requires that higher education leaders know their market, including how demographics and other forces may be shifting within that market and the institution’s brand value. This helps them understand what types and numbers of students they will likely draw and what resources or services they need to meet or grow demand.
Historical performance serves as the foundation, so reliable data and analytics are critical to developing effective tuition pricing strategies. Higher education finance leaders should pull historical data from the institution’s general ledger and student data, including enrollment (i.e., headcounts, credit hours), net tuition and fee revenues, and retention and discount rates. There typically aren’t large fluctuations in these metrics, so looking back at trends over the past few years serves as a solid starting point for projecting performance over the next five years.
Using a comprehensive, integrated strategic financial planning solution allows finance teams to pull historical data directly from those source systems for scenario modeling, tuition pricing strategy, and budget tools. Through integration with other planning processes — such as the operating budget and long-range planning — finance teams can ensure alignment with consistent use of assumptions, drivers, and scenarios. This integration allows for more efficient analyses based on accurate tuition and enrollment data that incorporate fees and other revenue considerations, without relying on outdated spreadsheets or spending hours or days on manual data entry.
Leverage Scenario Modeling
The past few years have reinforced the vital importance of scenario modeling, including modeling tuition revenue and enrollment. Nothing proved the need for this better than the early months of the COVID-19 pandemic, when colleges and universities worldwide were caught unprepared for broad campus closures and other measures aimed at mitigating the virus’ spread.
Finance teams should routinely conduct scenario analysis to model net tuition revenue and project the potential impacts of various internal and external factors. These may include initiatives such as opening a new satellite campus, or market swings such as an economic downturn or heightened competition.
Tuition pricing strategies should model a minimum of three plans including (1) expected performance should current conditions continue, (2) best-case scenario, and (3) worst-case scenario. Syntellis’ Axiom™ Tuition Planning is a modern tuition planning solution with powerful scenario modeling features, so finance teams can easily generate countless scenarios much faster than building them manually in spreadsheets. Finance teams can toggle drivers on and off for individual schools, campuses, or an overall university system, and mix-and-match different scenarios for comparison.
Ensure a Collaborative Process
Determining future tuition and discount rates cannot be done in a vacuum. A tuition pricing strategy should be developed collaboratively with input from leaders across various campuses, schools, and departments — including admissions, financial aid, and student support services.
Stakeholders should be well informed on student loan default rates, what offerings are most popular and actively attracting students, and any gaps in student support services that may contribute to poor retention. A collaborative approach allows finance leaders to see beyond the numbers to learn about the dynamics and challenges of different programs and how they might influence student enrollment and retention.
Finding the Right Strategies
Colleges and universities use a variety of strategies to grow or stabilize enrollment. Many have frozen tuition rates for a set number of years or boosted online educational offerings to draw students from non-traditional geographic service areas. Some institutions have partnered with specific companies to offer discounted or special education opportunities to those companies’ employees. Still other colleges and universities are moving toward more transparent tuition pricing to give students and potential students a clearer picture of actual costs incorporating tuition, fees, and discounts.
Tuition discount rates are rising as many seek to stem enrollment declines, especially at private institutions that have more flexibility to offer discounts compared to public institutions that often must go through a statewide board. An annual survey of private, nonprofit colleges and universities found an average tuition discount rate of 54.5% for first-time, full-time, first-year students for the 2021-2022 academic year, up from 48.2% five years earlier. For all undergraduates at these institutions, the rate was 49%.
Higher education leaders must monitor how this increase impacts their net tuition revenue. What is net tuition revenue? The net tuition revenue definition is the total amount of tuition billed minus the total financial aid or other discounts provided.
To find the right tuition pricing strategy to optimize net tuition revenue for your college or university, higher education leaders should thoroughly evaluate their resources, historical trends, and the influence of internal and external factors. Using the three best practices outlined in this article, leaders can build effective tuition pricing strategies to navigate coming challenges using sound data, insights into projected future performance, and input from across the institution.