For families considering a private college, the odds are extremely likely they’ll get some kind of discount.
That’s one takeaway from a survey released Thursday by the National Association of College and University Business Officers, which represents college chief business and financial officers across the country. During the 2017-2018 academic year, nearly 90% of first-time, full-time freshman received an institutional grant — scholarships or other monetary aid given by the school, the survey found. And it’s likely that trend will continue.
For first-time, full-time freshman, the average discount rate — or the amount of grant aid colleges offer as a percentage of their tuition and fee revenue — is expected to reach 52.2% during the 2018-2019 academic year, an all-time high. For undergraduates overall, the discount rate is expected to reach 46.3%, another record.
The grants typically don’t account for all the costs students face, but they provide a pretty significant discount — the average grant award in the 2017-2018 academic year covered 57% of tuition and fees.
For “current and potential students who are thinking of attending private colleges, this is really good news,” said Ken Redd, senior director of research, policy and analysis at NACUBO. “Their chances of getting financial aid are as high as they’ve ever been.”
But for colleges, the news is more of a mixed bag. For schools that rely heavily on tuition revenue to operate, which is the case for many smaller, private colleges with little endowment funds, the ever-increasing discount rate could put their operations in jeopardy. Over the past few years, several private colleges have shuttered amid financial challenges.
The NACUBO survey doesn’t offer the kind of data necessary to assess whether this level of discounting is sustainable for the colleges that participate, Redd said, but he does know that many schools are revisiting their business models and looking for revenue from sources other than tuition and fees.
There are two main reasons why the discount rate remains so high, Redd said. The first is that a large swath of American families are struggling financially and can’t afford tuition without the discount. The second is that schools are competing for students. Demographic trends over the past few years, mean that colleges have a smaller pool to draw from.
“One way schools are trying to meet their enrollment goals is to continue to increase their financial aid offers for students,” Redd said.
And the discount may be necessary to lure at least some students. Roughly 40% of schools that reported their enrollment between 2015 to 2018 to NACUBO saw declines in first-time freshman enrollment. Nearly two-thirds of those schools cited price sensitivity has one reason for the enrollment drops.
Some middle-income families have “gotten used to seeing the discount rates rising,” Redd said. “They’re savvy about going to the financial aid office and going to the admissions office and trying to negotiate for an improvement in their financial aid packages.”
Many low-income and first-generation college students on the other hand can be scared off by relatively high sticker prices, even if they’re likely to receive a generous financial aid offer, he said.
All of this means that students considering a private college should apply for financial aid, Redd said. “The odds are very much in favor of families,” he said.
Get a daily roundup of the top reads in personal finance delivered to your inbox. Subscribe to MarketWatch's free Personal Finance Daily newsletter. Sign up here.
