This blog post is part of the Finance Committee Chair Toolkit, a resource that highlights a variety of perspectives, including how to assess disruptive scenarios and what types of actions to consider.
Higher education finance is a complex and hotly debated topic among lawmakers and the public. As the public expresses concerns about the rising cost of higher education, many are asking what colleges and universities are doing to proactively support students’ financial needs. Meanwhile, institutions are increasing their efforts to broaden educational opportunities for more students. As institutions tailor their financial aid policies to better align with students needs, understanding the financial complexities of the enterprise is increasingly important.
Institutions are strategically lowering their tuition prices.
Many colleges and universities offer institutional grant aid to lower tuition and fees for select students. Recent data from the American Council on Education and the Center for Policy Research and Strategy found that 55 percent of students received some form of grant aid, which decreased their cost of attendance. The act of incentivizing students to attend a particular institution using institutional grant aid is referred to as tuition discounting. This pricing strategy enables colleges and universities to strategically offer competitive tuition prices to students of various backgrounds to shape the institutional culture and academic experience. For instance, an institution might employ this strategy to attract and enroll students from a variety of socioeconomic backgrounds. According to the National Association of College and University Business Offices (NACUBO), the average discount rate for all undergraduates at private, nonprofit institutions in the 2017-18 academic year was 50.5 percent. This means that the average student paid 50.5 percent less than the published tuition price at a private, nonprofit institution. It also means that colleges and universities will forgo tuition revenue when they offer grant aid to students and must diversify their revenue channels to remain financially sustainable.
Institutions are leveraging their endowments to reduce costs for students.
Tuition discounting is made possible in large part by an institution’s endowment—a set of funds given by donors for specific purposes, including financial assistance for students. Endowments typically consist of gifts that carry legal restrictions, limiting the spending of proceeds to specific uses, including scholarships, capital spending, research, and faculty salaries. Each institution’s board sets its spending policy to support current priorities while ensuring that there is sufficient funding for future generations. In 2018, the NACUBO-TIAA Study of Endowments revealed that among the 802 participating colleges and universities, institutions used roughly 49 percent of their endowment spending to support student scholarships. This allocation shows institutions’ commitment to supporting students through financial aid.
Board members may have the opportunity to speak to an audience that does not traditionally engage with higher education. They have a voice of an outsider to higher education, but with the knowledge of an insider. Students and families may not know about the nuances of the higher education business model, or how it affects them, but board members can be part of the response to this gap in understanding by sharing this information when convenient.
The AGB Guardians Initiative encourages board members to become advocates for the value of higher education. Want to find out more about the cost of college? Check it out here.