By Anna Mullin
Across the nation, schools are slashing the costs of attendance for students. Competition between colleges is rising, and with it, student’s access to grants, scholarships, and other forms of financial aid. The “discount rate” describes the amount of total cost awarded to students through grant-based aid. According to the NACUBO (National Association of College and University Business Officers) Tuition Discounting Study, in 2006-2007 the national average discount rate was 35.1%. Since that time the rate has continued to steadily increase, and during the 2017-2018 school year the average discount for undergraduates reached a whopping 44.8%. This rise is not simply the result of rising tuition costs. NACUBO states that from 2008 to 2018 tuition and fees increased by an average of 42.1%, while in that same time the discount rate had increased by 77.6%. Institutional competition can certainly take a large part of the blame for this dramatic rise.
As schools compete for students, discount rates rapidly inflate. Currently, 97% of Earlham students receive financial aid, primarily through institution-based grants. This aid received by Earlham students is substantial, averaging $31,212 per student, per year. That’s more than quadruple the National average of $7,535. While aid awards enable students to attend private institutions such as Earlham at a comparable cost to other colleges, they also put immense strain on the institution. For every grant awarded, the college diminishes a major source of revenue. Stacy Davidson, Vice President for Finance and Administration/CFO for Earlham, explained “Our incoming class, Freshmen- 271 [students], brought in less than $10,000 a person.”
Discount rates at Earlham have increased steadily over time. In 2007 Earlham’s discount was 39%, seven percent less than the GLCA (Great Lakes College Association) average. Today the discount rate is 77%-78% and eighteen percent above the GLCA average. Over the last five years Earlham’s net tuition revenue has dropped by 12%. “When you look at having a discount rate at 78% and when you have an enrollment rate that’s not where you think it will be,” Davidson says, “the only other source [of income] is the endowment.”
Fixing the Problem
In order to increase tuition revenue without drawing from their endowment, colleges must either increase enrollment or reduce aid. Several efforts have been made to increase enrollment, including the creation of a new honors program. Davidson, who took the title of CFO in February, says “When I came in the door they were budgeting this year at 350 incoming students.” However, only 270 students joined the freshman class, resulting in a very different financial picture. To put that number in perspective, more than seven faculty positions would have to be eliminated in order to make up for the lost income. “We thought that [increased enrollment] was going to pull us out. The reality is our 10-year enrollment average is about 280, so what are we going to do to raise that number?” Davidson firmly believes that serious changes must be made “When I look at the deficit projections before 2015, we are right where they said we were going to be when we didn’t make any changes.” According to Davidson, tuition is a necessary part of these major adjustments. Out of $50 million of yearly revenue, only about $13 million comes from tuition. Davidson says, “Every dollar that we are not bringing in through tuition is putting us further in the hole.”
The most direct solution to the problem is decreasing the discount rate in order to profit more per student. However, some at the college worry that a decrease in aid risks the loss of certain demographic groups from Earlham’s student population. Lower income and international students are particularly expensive to fund. Davidson acknowledges that a diverse student body is integral to Earlham’s identity, but is resolute that the decreasing tuition trend can’t continue ad infinitum. “We’re trying to lower our discount rate for the incoming class.” Davidson explains, “From about 78% to more like 65%. And the reality on that 13% is significant to the college’s financial sustainability.” According to Davidson, the college will attempt to “gap students for up to $5500.” That is, they will provide up to $5500 to fill the gap between expected family contribution and other aid awards. Due to a dropping retention rate in recent years (currently at 81%), Davidson says, “with students who need more than that, we just can’t take the risk that they’ll leave.”
Where Earlham Stands
The strain of dropping tuition revenue is evident in Earlham’s 2015 Strategic Plan, in which it is stated that the college will strive to “Increase non-tuition revenue sources.” Although not stated in the strategic plan, “non-tuition revenue sources” primarily connotes drawing from the college’s endowment. In the 2009-2010 school year, 58% of Earlham’s income came from tuition revenue. During the 2018-2019 school year, that number has dropped to 43%. While room and board income has replaced 4% of this differential, gift aid and the Earlham endowment itself has made up for the other 11%.
Davidson remains positive about the college’s future, “We’re going to get through this, you know, Earlham college is still going to be here,
we may not be working with the same people.” At this point, Davidson urges, the college must focus on the question “what can we do on the other side of this to pull us back together?”
Since my conversation with Stacy Davidson, the college application season has come and gone. In their January update, the office of enrollment reported that it will continue to examine the state of discount rates at Earlham through EAB, a company that among many things, provides strategies to support enrollment growth and efficient resource allocation. As of December 31st, enrollment reported that more than 1200 applications had been received. Of those 1200 applicants, 360 were admitted.