Study: Private Colleges Up Tuition Discounts

Despite the annual sticker price shock, many students and their families are receiving tuition discounts at private colleges.

Under tuition discounting, a school offsets its published tuition price with grant aid from the institution to entice students to enroll at their college. It's a practice that began more than three decades ago -- and one that is more commonplace at many private schools, college financial aid administrators say.

But the gap between the published tuition prices and the amount students pay is widening for many private institutions -- especially at smaller colleges, experts say.

"From the financial crisis, discounting has grown more and more and is now at record levels," says Ken Redd, director of research at the National Association of College and University Business Officers. "Most schools have raised their tuition discounts substantially."

The average discount rate for first-time, full-time freshmen at private, nonprofit colleges was 48.6 percent for the 2015-2016 school year -- a figure 10 percentage points higher than a decade ago, according to a recent study by NACUBO.

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So for every dollar received at one of these schools in tuition and fees-- according to the study -- around 48 cents is returned in the form of a discount, as a scholarship or grant award. Ten years ago, that average rate was lower -- returning 38 cents for every tuition dollar.

Around 88 percent of all full-time freshmen at these private colleges receive some form of institutional grant, and the average size of that award covers about 56 percent of the average tuition price, the NACUBO study finds.

"It's nearly universal that freshmen students are getting some form of grant from private colleges," Redd says, who adds students and their families are more concerned with sticker price than financial aid.

But 55 percent of families are still crossing a school off their list because of the price before the application process even begins, a recent Sallie Mae survey finds. And less than half of families -- 44 percent -- wait to receive the financial aid package before making a decision.

Many college administrators say they feel pressured to discount tuition prices as a strategy to encourage more students to accept an offer letter.

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"People just don't have as much discretionary income as they did during previous decades," Mark Lindenmeyer, vice president for enrollment management and director of financial aid at Loyola University Maryland, told an audience at the National Association of Student Financial Aid Administrators conference in Washington, D.C., on the rise of tuition discounting.

For prospective college-bound students, here are some facts to know about schools that offer tuition discounts.

1. Most highly selective schools typically don't offer discounts. "A lot of the schools with large endowments only give need-based aid," says Blaine Blontz, a financial consultant at Financial Aid Coach, who advises parents and grad students on how to maximize financial aid awards.

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Harvard University, known for its large endowment, the amount of donated money that the institution invests, doesn't offer merit scholarships -- only need-based aid, college advisers say.

"Some of the schools don't offer merit scholarships and they keep it strictly to the need-based aid and that's going to be your upper-level privates and Ivies," the Financial Aid Coach says.

The Cambridge, Massachusetts, institution, for example, meets 100 percent of demonstrated financial need by offering combination of loans, scholarships and grants to cover the cost of attendance for those eligible for need-based aid. Need-based aid is usually determined by factors such as income, family size, tax data and assets.

Harvard University is one of 62 schools out of 1,136 colleges and universities, that reported meeting full financial need in an annual survey, according to U.S. News data -- other schools include Amherst University, Haverford College and Northwestern University, to name a few.

"These colleges that are highly selective have applications coming out of their ears," says Lindenmeyer from Loyola University Maryland, on schools that typically don't offer discounts.

The NACUBO study found 64 percent of the total institutional grants awarded by research universities in 2014-15, on average, were based exclusively for students' financial need, compared with 39 percent at smaller-sized colleges.

2. Tuition slashing is generally found at slightly less selective private universities and colleges. "We've been increasing merit scholarships out of necessity," the Loyola administrator says on maintaining a competitive base of students for enrollment. "We get into a downward spiral with merit scholarships and that has an impact on full payers."

Lindenmeyer says "full payers are rebelling," and unwilling to pay the full sticker price, too.

For the most part, the schools that offer tuition discounts are "middle-tier" schools that charge $50,000 or $60,000 sticker prices, says Blontz from Financial Aid Coach, who adds many of these schools meet around 60 to 100 percent of need.

"If you're in the high range of those schools, in my opinion, you're going to be someone who it wanted," he says on receiving additional non-need based grants. "And it's always worth calling or shooting an e-mail to the admissions office to see if they can do any better."

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Farran Powell is an education reporter at U.S. News, covering paying for college and graduate school. You can follow her on Twitter or email her at fpowell@usnews.com.