Should My Institution Consider a Tuition Reset?
Robert Van Cleef
Market Strategy Analyst
October 9, 2019
As reports of students eliminating colleges from consideration based on published prices alone show, an increasing number of colleges are asking if they have priced themselves out of their market and are considering a tuition reset strategy. Where high sticker prices traditionally signaled institutional quality and potential for large scholarships, students and their families increasingly see high prices as reason to believe attendance at a four-year not-for-profit college is simply out of reach.
Q. When you considered which colleges you/your child might attend, did you eliminate any schools based on cost at each of the following steps in the college application process?
‘”How America Values College”, Sallie Mae and Ipsos Public Affairs 2015-2018
One approach an increasing number of colleges are exploring to address such sticker price sensitivity is the tuition reset. Tuition resets involve the reduction of published tuition, but also a reduction of financial aid such that net price is approximately the same. Common goals for a tuition reset involve increasing the number of students who would consider (and ultimately enroll at) an institution, reduction of discount rate, and increased overall net revenue. Since 1996, over 146 institutions have performed tuition resets for specific programs or the whole institution.
However, risks involved with a tuition reset are real. In a study of 71 private not-for-profit institutions that reset their tuition between 1996 and 2018, half the institutions saw no increase to enrollment. Half the institutions also saw net revenue from first-year students decline by 4 percent. Lost revenue from current full-pay or near-full-pay students can be significant. But there are also examples of institutions benefiting tremendously from tuition resets. Factors lending to successful outcomes include sticker price sensitive populations in the years preceding a reset announcement, high discount rates at the time of announcing a tuition reset, strong financial health, investment in promotion and advertising campaigns, and ability to reach new prospective students with news of the lower tuition.
Institutions considering a tuition reset should consider a range of questions
- What are your goals for the tuition reset? How does a tuition reset advance your institution’s mission? Will your lead message be price transparency or affordability? What are the targets for new applications, new enrolled, and discount rate? Given the history of institutions which have done tuition resets, are these expectations reasonable and consistent with your lead message?
- What is the price sensitivity of your prospective students? Will a reduction of sticker price have a greater influence on enrollment relative to a reduction of scholarships/financial aid? Most students in most markets are still more sensitive to financial aid than tuition. Thus, the premise of a tuition reset is somewhat contrarian to normal market dynamics and will work in only specific markets.
- How strong is your institution’s reputation? Would a tuition reset be perceived to be a reactive slashing of prices or as the next step in a positive story of institutional growth and vitality? Tuition resets work best as a growth accelerant, not as a strategy to reverse declines.
- Would we lose tuition and fee revenue from full-pay or near-full-pay students? Even institutions that give institutional grant aid to 100% of their students frequently find they would lose revenue from near-full-pay students in a tuition reset and therefore need to recruit even larger cohorts of first-year students than they initially considered.
- How many more students do you believe a tuition reset will attract? What are the new market segments you expect to attract? How much are you looking to invest in advertising and promotion to gain their attention?
- Is there excess capacity in residence halls, classrooms, and other facilities to support such growth if it can be generated? Tuition resets are a volume play and require an increased number of students to break even or provide growth.
- How would your community respond to news of a tuition reduction? Would faculty associate a cut in price with declining commitment to academic quality? How would young alumni—some with significant debt loads—respond to news their institution is now lowering its price?What would be the expectations of current students for savings when they hear their institution is reducing published tuition? Would current students need to see some savings at the net price level to believe they have benefited?
- Is your communications infrastructure ready for the demands of a tuition reset? Launching a tuition reset requires the ability to discretely conduct feasibility analysis behind the scenes (lest inappropriate expectations and criticisms form), ability to execute a detailed choreography of communications to different stakeholders both inside and beyond the institution, and robust web infrastructure (so the website doesn’t crash the day of an announcement).
- Would a major campaign of brand awareness focused on institutional strengths provide more benefit with less risk?
RNL’s perspective is tuition resets should be explored as a component of a brand awareness campaign with a price component rather than as a price strategy with a promotional campaign. We recommend committing to the tuition reset strategy only after careful analysis and planning are performed that support a data-informed decision. We recommend a period of 12-18 months of planning to chart a comprehensive approach through a tuition reset, and to explore other strategy options to increase awareness and preference.