The Liberal Arts College Discount Rate

When I first began teaching at Hartwick College in 2004 I was somewhat puzzled by the talk about fluctuations in the discount rate: the difference between the tuition sticker price and the actual amount that students pay. Having attended a need-blind liberal arts college, a high discount rate seemed like a good thing: didn’t that mean we were providing substantial scholarships and financial aid to increase accessibility?

After lots more discount rate talk, I know more than I did back then. As I discussed in Liberal Arts College Financial Aid, the elite and need-blind colleges often include a built-in discount rate for the wealthiest: they do not charge full sticker price of what it costs to provide their education, and so they are already operating with a 15-25% discount rate. They make up this discount rate through endowment draw and donations, selling themselves as providing scholarships-for-all, but in a truly need-blind school this difference is really a subsidy for the wealthy. For a tuition-dependent college, we are unable to provide this subsidy, and so end up with an inaccurate accounting of educational value. If an elite liberal arts college really charged $80,000, it might make the value of the middle tier more apparent.

For tuition-dependent colleges, even a small change in the discount rate can open up a hole in the operating budget–without endowment or donation draw, this can mean painful cuts. We’re already operating on a lean budget, providing relevant and personal liberal arts education to people who might not otherwise have access to the liberal arts experience.

So now I read with interest articles like how the discount rate continues to rise at private colleges: “In inflation-adjusted dollars, the net revenue per student at private colleges has not grown at all in the past 13 years.”

Of course in the tuition-dependent world everyone is trying to play the game to somehow reduce the discount rate. That means plenty of work for higher-education consultants who sell tactics promising discount rate reduction. But as the candid quotes from the article on discount rate escalation make clear, this is not easy:

“We hired an outside consultant to help construct a leveraging strategy,” said one business officer, suggesting they were looking at ways to maximize the use of discounting. “No, it was not successful.” . . .

Another business officer . . . was blunt about another strategy to reduce discounting: “We made an attempt to decrease our discount rate through targeted enrollment strategies meant to increase the yield of full-pay students. And no, the strategies were not all that successful.”

A third officer from a small college in the Great Lakes region had a similar experience when the college tried to reduce its discount rate: “Enrollment plunged.”

So it is certainly a bit disconcerting to have been part of a planning group, under the guidance of an outside consultant, with an aim (among other things) of reducing our discount rate. However–and I have talked about this before in regard to the difference of trying to come up with a plan as opposed to a vision and a path or a strategy–I am somewhat comforted by the fact that we do not necessarily possess a blueprint to reduce the discount rate but rather a vision to take us to a different place.

It is not so much that liberal arts colleges need plans, but more that we need foresight and anticipation, as outlined in Tim Ingold’s Making: Anthropology, Archaeology, Art and Architecture:

This is a matter not of predetermining the final forms of things and all the steps needed to get there, but of opening up a path and improvising a passage. To foresee, in this sense, is to see into the future, not to project a future state of affairs in the present; it is to look where you are going, not to fix an end point. Such foresight is about prophecy, not prediction. And it is precisely what enables practitioners to carry on. (2013:69)

I’ll hope to have more to say about planning, prediction, and prophecy soon.

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