Discount amount for those who did not apply or ineligible for FA

Parents Forum
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<p>Why the skepticism, Hunt? Suppose you were running a college that basically had no significant source of revenue other than tuition; and you were operating in a highly competitive environment where many students, especially the better students, have other choices; and you were operating close to the margin in being able to meet your annual operating expenses out of net tuition revenue given a targeted level of enrollment; but you knew enrollment decisions were often highly price-sensitive. Given all that, wouldn’t it be a rational thing to do to, in effect, set individually tailored tuition rates at price points calculated to optimize your yield among those able to pay the most, i.e., those willing to close the deal based on a modest-to-moderate discount off sticker price? </p>

<p>Better that than losing them to a competitor who is doing the same thing. Better that than losing them and needing to replace them with higher-need applicants whose net tuition after FA is going to be lower.</p>

<p>Or do we think college administrators with their backs against the wall financially aren’t rational economic decision-makers? Ot just not sophisticated enough to think about these things the way you or I would in their situation?</p>

<p>Of course, if you were such a college administrator, you might not be very good at executing this strategy at first. But you’d probably learn pretty quickly, by trial and error and by keeping a close eye on your competitors. And of course you could never completely individualize the price point, but you could at least sort the full-pays into bands. Heck, just their zip code and high school tells you a lot. You have their home address, which means you can look up their home on Google street view, Zillow, and in many cases the county property records online. If you really wanted to mine the data, there’s probably a ton of financial information you could get hold of, for a price—and it might be worth it to you. And from there, you can make some pretty educated guesses about price elasticities. You won’t be right all the time: sometimes you’ll offer a bigger discount than you needed to, sometimes you’ll offer too little and not close the deal. But the individual cases don’t matter so much, as long as you’re playing the averages right, and the more experience you have with it, the more finely calibrated your decisions should become.</p>

<p>Is that so implausible? I don’t run a financially strapped private college, but if I did, that’s just about exactly where I think I’d want to be. If I did anything less, I’d be risking the survival of the institution.</p>

<p>I do agree with you, though, that giving a big discount to a development case would be crazy. In the first place, they’re the least likely to be price-sensitive. Second, it signals that the institution really doesn’t need the money. Third, it calls into question the value of the product if the institution itself is saying to someone who can afford any price that although the nominal price is X, the real value is X - Y, where Y = the value of the offered discount.</p>

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<p>Sorry, but I refuse to call whatever you are referring to as discounts.</p>

<p>My daughter received merit scholarships from every college she applied to, but she was awarded these based on her stats. Yes, we used these to determine which college to choose, but by no stretch of the imagination where they discounts. She WORKED for these scholarships.</p>

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Which colleges were these?</p>

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<p>Hey, believe it or don’t.

[quote]
The most widely discussed campus-based response to the effects of financial aid on the college decisions of students in the context of the current financial pressures placed on institutions, students, and families is some variant of the Robin Hood strategy. This approach raises tuition and uses large portions of the increase to provide financial aid to prospective college students in order to induce them to matriculate. Although these financial aid inducements might be used to meet student financial need, the intent behind the strategy is to use the award as a merit award that will help individual campuses more effectively “court” or recruit students with higher grades, with more talent, or with lower levels of financial need. <a href=“emphasis%20added”>/quote</a></p>

<p><a href=“http://www.uccs.edu/Documents/retention/2000%20The%20Role%20of%20Financial%20Aid%20in%20Enrollment%20Management.pdf[/url]”>http://www.uccs.edu/Documents/retention/2000%20The%20Role%20of%20Financial%20Aid%20in%20Enrollment%20Management.pdf&lt;/a&gt;&lt;/p&gt;

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<p>Does anybody want to identify a college that offered significant merit aid to a student who was not academically above average for that college, or who didn’t have some other identifiable hook other than being a full-pay? I’m prepared to believe in such a creature, just as I’m prepared to believe in UFOs, but the theoretical possibility of their existence is not enough to convince me.</p>

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<p>I gave 2 examples up thread.</p>

<p>Central College in Iowa (a decent LAC)…a 20 ACT and 3.0 gpa gets you a $11,000 merit scholarhsip.</p>

<p>25-75% range is 20-25.</p>

<p>I can find you lots more if you want me to.</p>

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<p>Concordia College in Moorhead, MN reports that 99% of its students receive institutional aid. Those who don’t qualify for need-based aid (i.e., full-pays) get merit awards, at an average award of around $11,000. There is some price discrimination, however. A total of 75 freshmen per year get Presidential Distinction scholarships worth $15,000-$16,000/year renewable; another tranche get Excellence Scholarships worth $11,000-$13,000; and the rest get Concordia College Grants worth $7,000-$8,000. Still, merit aid for everyone. But what else would you expect in the land where, as Garrison Keillor says, “All the children are above average”?</p>

<p>At the point you’re giving everyone a discount, it might seem more sensible simply to cut the price, but I suspect the merit-for-everyone approach is an effective marketing tool because then everyone’s Mom & Dad can boast about the “nice scholarship” Little Jimmy got to go to Concordia, instead of going to some cut-rate competitor.</p>

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<p>The way I see it, it’s really about price elasticity. Most colleges are businesses, revenue-driven. Students are customers and tuition is the primary revenue source. They sell seats in a classroom, much like an airline, a theater, or a hotel sells you the use of a place. Their inventory is perishable in the same way – the seats are filled for a payable period of time, or not. They announce a “sticker price”, but they know that they will not sell out at sticker price.</p>

<p>There are 20 or so schools at the top of the heap, for whom this does not apply. They are endowment-driven, not tuition-driven, and they could sell out at full sticker price. We’re not talking about them.</p>

<p>The colleges do not view all potential customers equally. This road runs both ways – high schoolers and their parents do not view all colleges equally, either. Some applicants will make it easier for the college to do better in the future, by enhancing the school’s stats and prestige, thereby promoting the college to future applicants. Some applicants may have weak stats, but they are potential significant donors. I think of “development cases” as people who can afford to pay the full sticker, plus significant gifts. Those applicants (or their parents) understand that the applicant is a bit weak, academically, for the school in question, and they need to come in waving a fistful of cash, to get in.</p>

<p>Here in the northeast, among the academically weaker, tuition-driven private colleges, it is commonplace for them to offer dollar credit against the bill, unrelated to financial need – call it merit money, or call it a discount – to bring the price down to where they clear the market. Some hand these “merit” grants out like water at a marathon. I am under the impression, from lots of reading about this subject over the years, that the schools use this as a marketing tool or enrollment management tool. They want to keep their stated sticker price high – so they don’t seem like a second-rate, bargain bin institution – but they don’t clear the market much at those prices, so they bring the price down to where it needs to be, while simultaneously flattering many of the accepted applicants with a portion of unsolicited “merit money”. The schools I’m thinking of, almost never get down below about $35,000, so they’re using the tool to bring in people who are still paying good money (and who have cheaper options at the state schools if they can get in).</p>

<p>A lot of these schools have admissions standards LOWER than the nearby state directionals. I have seen kids who were barely qualified as applicants to NJ directionals, get $5000 or $10,000 in unsolicited “merit” money from small, tuition-driven privates. The directionals in NJ are $25,000 in-state. By contrast, the privates in question are sticker-priced at $40,000 to $45,000. So, even with the seemingly commonplace merit money, the directional is cheaper, but may have stiffer admissions standards.</p>

<p>This practice brings the real price down to the level where the school can move its inventory – seats – and also may inspire the potential customer to feel that he or she is getting a bargain, and has been singled out as special. This is sort of like what car dealers do. Or the TKTS booth in Times Square. Airlines also adjust their price up and down as they’re selling the seats on a plane, I guess in response to the airline’s perception of the price elasticity of the seats, while the selling period is open. Similar concept.</p>

<p>I guess this is morally neutral, whether it’s called a “discount” or a “merit scholarship” (although the way the colleges spin it, and the element of flattery, does seem a little manipulative). I think in the pure economic sense, “discount” and “price reduction” are both fair terms. The use of those term does not diminish the academic achievements of any student who may have been offered one. The fact that some parents are offended by the term “discount”, only illustrates the fact that people respond emotionally to the announcement that “your kid has been found to have special merit”. And, fair enough – it is individualized; it’s not like a discount at Macy’s, that must be given to any shopper. But sometimes they do seem very widespread, if that matters.</p>

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<p>I looked up both Concordia in MN and Central in Iowa, to see what the situation is with these schools. </p>

<p>First of all, more than 90% of the kids going to those schools qualify for financial aid which is absurd. The schools are clearly overpriced for their markets. And so I guess everyone gets a discount on the school rather than trying to meet more of the need. It boggles my mind the way these schools work. Practically everyone is accepted. </p>

<p>For merit aid, however only 14% of those on financial aid at Concordia get the money that’s in their pure merit pot. That comes out to 76 kids. 130 kids or 19.3 % get merit money with absolutely no need. There are 722 freshmen in the class, so every with no need gets merit money, but not everyone who has need gets merit money in this case.</p>

<p>At Central nearly everyone has financial need and everyone gets merit money. So I guess it is a discount the way it works. </p>

<p>I’ve not seen such models in the schools here. I don’t know about Central, but Concordia is a Christian school.</p>

<p>To find out the true cost of the school one would have to play around with the stats. It seems like everyone gets a discount, but those who have need do not get that need met. They do not meet a high % of need. But without knowing the distribution curve of those merit awards, it’s hard to tell what the discount is, since underneath that discount is some attempt to give the most desired students more. The kids with need are not the most desired as need is not often fully met with something like 20% of it being met, bit every kid who has no need still gets money.</p>

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<p>There are hundreds of schools that operate like Central College. Iowa has 24 private colleges, everyone one of them except Grinnell and Luther operate like Central. Some give bigger discounts than others.</p>

<p>Even some fairly highly rated ones use discounts. Centre College gave 115 of their 128 freshman that did not qualify for need based aid a merit scholarship with an average of $16,000 each. Look at Hendrix College for another example of significant discounting.</p>

<p>I posted a link up thread to a Noel-levitz report. The report lists some 125 schools that N-L works with on revenue optimization. My guess is that every school on that list discounts along (merit aid given to almost everyone) with 100s more not listed.</p>

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<p>cptofthehouse–Concordia is a Lutheran college, Central is loosely religiously affiliated as well. I wouldn’t say either school is priced out of the market–they are both pretty average for the midwest LAC’s. I think they include federal student loans in their “financial aid” so it appears that everyone get’s “financial aid” but that is the extent of the aid for most people. Merit aid is automatic, grid is on the website for Central. These are the same schools you have blasted me for saying don’t exist…the same schools that after automatic merit come in at or under state schools. The financial aid given at these schools is also a product of the flawed FAFSA program where everyone making the same amount of money is looked at in the same category of ability to pay. Someone living in NYC making $100,000/year is financially farther behind then someone living in Pella, IA making $100,000/year (which, btw, is a CUTE little town). People in IA and other midwestern cities can live very nicely on $60,000/year–which qualifies them for a full ride at an Ivy, but that person in NYC certainly needs those funds more most likely.</p>

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<p>Lycoming College in PA…</p>

<p>321 freshman
264 with need
264 awarded need based grants or scholarship, average of $22,000 each in grants (not loans)</p>

<p>That leaves 57 students not receiving need based aid.
56 of those received merit scholarships; average $16,000 each.</p>

<p>Some sucker appears to have paid full-price.</p>

<p>As SteveMA knows, there are many more schools out there like this.</p>

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<p>Thanks to all who took the time to post. This thread provided a wealth of information.</p>

<p>Thanks again.</p>

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<p>SteveMA, my apologies, if I ever blasted you for anything. Schools with auto merit aid can be added to the lists that we have been putting together. </p>

<p>OP, I guess these are the schools that you are seeking. If your student has a certain gpa/test score, there are some schools out there that will have guaranteed discounts. There are also schools out there that won’t guarantee it, but will tend to give discounts and seem to most of the time for certain threshholds. A school like Fordham is pretty predictable if you have a gpa and test score, and their NPC will give you what they they will award you in merit. I’ve not seen many schools where every single student is on financial aid. Yes, technically everyone is eligible for FA if you count the unsub Staffords that are discretionary as such, but a school where 100% of the students take out that loan is something else. Also for a school to be that high priced so that every single student has to borrow or discount to attend it, makes me shake my head. Yes, there are such schools in the state system that are serving local students for the most part, but their price tags are not up in those ranges.</p>

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<p>Hmm, so, if I’m reading this thread correctly, there are a number of lower tier, non-selective schools that set a phony COA that allows them to offer a “discount” in one form or another to virtually everyone. That’s a pretty slippery practice. You have to wonder what other shenanigans these schools might engage in to keep the seats filled. And whether these are the kinds of schools OP really hoped to identify when starting this thread.</p>

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<p>You would be reading it wrong as there are quite a few very good schools that discount virtually eveeyone. More schools do it that do not. A few examples…</p>

<p>Marquette University…top 100 school
1927 new freshman
1187 awarded need based grants, avaerage $17,000
740 students did not receive any need based aid
700 of those received merit awards, average of $10,000
Only about 5% received no merit award and paid full fare.</p>

<p>Pretty much everyone gets a discount to attend Marquette.</p>

<p>Centre College…top 60 LAC
115/126 frosh not receiving need aid received a merit award, average $16,000</p>

<p>Soutwestern University (TX)…top 75 LAC
357 frosh
239 awarded need based grant, average $26,000
115 awarded merit, average $ 16,000
Only 3 students paid full fare.</p>

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<p>Point taken. But why does a school feel the need to sell higher education the way Kohls sells clothing? I can only assume that the object is to convince the accepted applicants that they have gotten great deals, when in fact they are actually paying the true “list” price. It takes a few visits to Kohls to figure out that no item of merchandise has ever been sold at its “regular” price. But one generally applies to colleges just once. I’d love to hear the schools explain this how this approach is anything other than flimflammery. I also wonder whether the stated COA convinces many students who don’t qualify for financial aid and aren’t in the top 75% of applicants (the common rule of thumb for snagging merit awards) that they can’t afford the school and shouldn’t apply. How can that be helpful to these colleges?</p>

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<p>MommaJ–maybe the student isn’t paying the “list price” but the college is getting paid out of the endowment or through various donations. Nationally, there are not a lot of people that make enough money to pay full freight at any school, let alone a private school. Without these donations to their scholarship funds, many of theses schools would shut their doors, including all of the so called “top tier” schools. Harvard does the same thing, you do realize that, it’s just FA vs merit aid.</p>

<p>Of course this model convinces kids not to apply, that is the point. They get high caliber students to apply and protect their yield rate in the process. It’s no different then what they do at Harvard, etc. Those schools have long discovered that the best students aren’t always the rich students :D.</p>

<p>Looking at our S, Harvard would be a worse choice for him than pretty much every school he applied to, why, they don’t have his program :D. The real problem is that people get WAY, WAY too caught up in these “rankings” and think that if they don’t go to Harvard they might as well flip burgers. The more rational people in the world, however, realize that it’s just not the case and why not take advantage of a low cost education with a very high job placement rate–in many cases higher than Ivy placement rates…</p>

<p>As for Kohl’s, yes, all of their things are on sale at different times, but not everything is on sale and some things are sold at full price. Take a look at what happened at JC Penney when they discontinued sales…didn’t work out so well did it.</p>

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<p>Most of the schools that are being discussed here have very small endowments, so these schools don’t really count on ‘being paid out of the endowment’. These schools are very tuition dependent, so they really need students to enroll in order to make it through. Their worry from year to year is not that they won’t get enough donations, but not enough students. Just a few years of less than expected enrollment means serious problems.</p>

<p>As for high price, it is well-known that people consider the sticker price a marker of quality. So a higher price brings in more applicants and thus more people likely to attend. And again, because these institutions are so heavily dependent on tuition, they need to attract students. The higher price actually convinces people to apply. See several articles in major papers over the years about how schools have raised tuition and seen an increase in applications, enrollments, etc. Of course, for some it may have the effect of dissuading applying, especially if they are unaware of the discounting.</p>

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<p>This article is a bit out-of-date, though.</p>

<p>As for financial aid, most of these schools with low endowments have very poor need-based aid, heavily weighting their resources towards ‘merit’ and overall discounting. They typically heavily gap students and their aid is mostly in the form of loan, often putting loan amounts as high as 7K.</p>

<p>The Ivy League schools and their policies with regards to aid should not be used as a proxy for what happens at most other private schools, especially the same, regional and not highly endowment private LACs. They operate on a totally different set of conditions.</p>

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<p>^^^^</p>

<p>100% correct.</p>

<p>As an example…</p>

<p>Soutwestern University (TX)…top 75 LAC
Tuition= $35,240
357 frosh X $35,240 = $12,580,680 in potential revenue</p>

<p>239 awarded need based institutional grant, average $26,000
239 x $26,000 = 6,214,000
115 awarded merit, average $ 16,000
115 X $16,000 = 1,840,000</p>

<p>Total Discount = 6,398,000</p>

<p>Net Revenue = $6,182,680</p>

<p>Where does the $6,398,000 in discounts come from…
Endowment = $240,000,000
Payout = 4.5% X 240,000,000 = $10,800,000</p>

<p>Let’s assume 60% of that goes towards tuition discounts (the rest towards other things)…
$6,480,000</p>

<p>Basically, the endowment would cover the discounts for Frosh only.
Annual fund contributions won’t even come close to making up the difference for Soph, Jr, and SR class discounts.</p>

<p>Southwestern actually has a very strong endowment compared to most LACs… A college like Central (IA) with an endowment of $70,000,000 is even more tuition dependent and doesn’t even come close to paying for discounts with endowment and annual fund payouts.</p>