Dive Brief:
- While discount rates surpassing 60% can be interpreted as a sign of financial distress, in some cases, the extreme discounts can work to increase overall tuition revenue and improve the financial footing of a college.
- Inside Higher Ed reports Sweet Briar’s discount rate, higher than 60%, contributed to its downfall, but Birmingham Southern University got a credit rating upgrade from Moody’s while surpassing that same threshold and highly endowed schools like Princeton and Grinnell have no problem sustaining such a high rate.
- As a short-term strategy, higher discount rates can sometimes work to improve the academic quality or diversity of a student cohort, working to attract more students like them, but some schools have put too much money into discounting and watched student services suffer.
Dive Insight:
The latest data from the National Association of College and University Business Officers shows an average discount rate for first-time, full-time four-year college freshmen was 48% in 2014, an increase over prior years’ data. The recently released analysis has startled many in the industry, indicating an unhealthy pattern that is sure to be unsustainable.
Moody’s predicts the number of colleges expected to close each year is going to rise from five to 15 per year by 2017. The agency has continued to downgrade the institutions using high discount rates to combat falling enrollment without any evidence it will lead to long-term financial health and sustainable tuition revenue.