Tuition resets have become a controversial topic in higher education over the last seven years. In the past year, dozens of four-year institutions have drastically slashed their published tuition rates. These cuts have been significant, often in the range of 30 to 60 percent. Schools balance these tuition cuts with decreasing the amounts of unfunded financial aid (known as tuition discounts) offered to students. The tuition discount rate at four year schools has been growing at an alarming rate. Currently, it stands at around 56%, the highest ever recorded since this metric began to be tracked in 1994. For those uninitiated into this painful statistic, it means that, on average, for every dollar in tuition an institution receives, it gives back $.56 in unfunded financial aid, which is essentially a price cut.
The Tuition Reset Strategy
The general strategy with tuition resets is to make up for lost revenue in volume. The idea is that the steep cuts in tuition will result in dramatically higher application and enrollment rates, thereby boosting net tuition revenue.
But the practice has been controversial, to say the least. Many IHEs that have undertaken a tuition reset have seen a brief surge in applications and enrollment, only to see those increases slack off or even disappear within a few years.
The Issue of Relative Pricing
An essential component to consider when weighing a tuition reset is how the change in tuition will place an institution’s price relative to its peers. If most of the institutional peers competing with University A are more expensive than University A, the sudden decrease in price makes University A look like a relative bargain. But in future years, University A may have to resort again to tuition increases on par with the ones undertaken by its peers. And as a result, the competitive advantage University A gained by the tuition reset disappears, and its application and enrollment increases begin to taper off over time.
The scenario becomes more complicated, however, if some of University A’s competitive peers also decide to do a tuition reset. In that case, any gains University A might have otherwise garnered with its own tuition reset are diluted by the actions of those other schools who are cutting their tuition also.
So it seems the advantages of a tuition reset only really apply in situations where 1) most of your peer schools are less expensive than you, and 2) none of those schools undertakes a tuition reset of its own.
The Issue of Relative Selectivity
The relative selectivity of University A vs. its peer schools is yet another factor that will influence success here. If University A is a highly selective, well-endowed institution, a tuition reset will not help it much, since there will be a larger pool of prospective applicants who are already willing to pay full or close to full price to enroll there. On the other hand, a less selective institution like University B could potentially receive greater benefits, since prospective students are much more likely to shop around based upon price. In that case, University B, being the lower priced school, wins–provided everything else is equal, that is.
Of course, everything is never equal between IHEs, so even University B cannot depend upon a tuition reset alone to resolve ongoing financial problems. Instead, it must implement the wide range of other remedies advocated by industry leaders in tandem with resetting tuition. These remedies include new program development, strategic cuts to programming and personnel, more systematic fundraising, new marketing strategies, and the like. No particular array of remedies will apply in every case.
Conclusion
In sum, a tuition reset might be a good idea for University B if:
- the other schools in University B’s peer group don’t cut their tuition also
- University B implements a reset alongside an appropriate array of other cost-cutting measures, and
- University B makes up any revenue lost through the tuition reset through additional enrollments.
Those are some big ifs. I’m not saying it can never work. I know of at least one situation in which it has worked marvelously. But a lot of subtle factors must fall into balance and remain that way for a tuition reset to be a positive move long-term for a financially troubled institution.
So yes; let’s all do a tuition reset. You go first.