How colleges can make tuition resets successful
- Tuition resets can help colleges boost enrollment and improve their bottom line, but a new study highlights several potential pitfalls, mostly related to planning for the change, marketing it and adjusting recruitment accordingly.
- Economist and former college president Lucie Lapovsky examined tuition resets at 24 private colleges between 2010 and 2016, looking at tuition the year before and for two years after the change. She also evaluated changes in enrollment.
- While half of the institutions had year-over-year increases in freshman enrollment the year of the reset, slightly fewer (43%) had increases the year after the reset as compared to the year before the reset. Meanwhile, 67% recorded a gain the second year over the pre-reset year.
Lapovsky, formerly president of Mercy College who is now a consultant for colleges and universities, takes on a trend that has been debated broadly in higher education as small private colleges in particular struggle to find a solution to the bundle of problems they are tackling to survive — in this case, market resistance to annual tuition increases.
Jim Jump, a past president of the National Association for College Admission Counseling, wrote earlier this year for Inside Higher Ed about the value of tuition resets. He noted that since 2016, about 23 colleges have cut tuition. Doing so may lead to lower and more "honest" pricing and could help slow the college recruiting "arms race."
Lapovsky explained that a combination of factors are leading colleges to question what she calls "high aid/high discount pricing policies." From 2006 to 2017, tuition at private colleges increased 29% on average in 2017 dollars, but their average net price increased only 6% over the same period.
Meanwhile, private colleges' discount rates for institutional financial aid have reached 50% for new freshman, and at a "significant number" of institutions no students pay full price, she wrote. Last year, 19% of private colleges discounted tuition for first-year students by at least 60%, The Chronicle of Higher Education reported, citing Moody's data.
Colleges considering full-on tuition resets need to look beyond pricing to ensure they are successful, Lapovsky wrote. That includes adjusting their recruitment strategies to target and message the change to price-sensitive students.
"It often takes an institution a year or two to make these adjustments and to become known among this new pool of students," she explained, attributing that to the lag in benefits from the reset among her sample.
Other considerations include revising the institution's discounting strategy to avoid a decrease in net tuition revenue. Although some colleges will try to maintain this balance by raising enrollment, she said "the safe approach" is to look for ways to keep per-student net tuition revenue consistent. One way to do that is by lowering financial aid.
"This takes training and a renewed focus on the net price as compared to the size of the award," she explained.
Within a year or two of resetting tuition, the colleges in her sample were able to generate higher levels of net tuition revenue than in the year before the reset.
Timing is important, too. An 18-month lead time is recommended for the decision on a price change, with the news announced 11 months before enrollment of the first class that will be affected by it.
Resets may not be right for all colleges, she cautioned. Reasons for them include dwindling applicant pools, tuition discount rates above 50%, nearly all students receiving institutional grant aid and competitors cutting prices.
Other pricing measures such as targeting certain student groups and freezing tuition can be effective, she wrote. The private Oglethorpe University is matching tuition from out-of-state flagship institutions and several public colleges are weighing tuition freezes in exchange for access to more state funding.
- Lapovsky Consulting Do Price Resets Work?