Over the years, the practice of tuition discounting has become increasingly commonplace.

The concept is simple, but the influences and effects are quite complex. Colleges provide discounted tuition to select students in the form of grant money and scholarships, allowing them to attend at a cheaper rate than the sticker price. In theory, such discounts can increase enrollment, leading to an overall increase in total tuition revenue for the university. In this context, tuition discounting appears to benefit all concerned: deserving, low-income students have access to a pricey college education, while the colleges are able to fill their classes with the kind of students that they desire and need.

But recently, as discounted tuition increasingly becomes the norm at universities, analysts have uncovered some potential problems with this practice in terms of the financial health of the institution.

A Numbers Game

In offering tuition discounts, universities take a gamble that their enrollment will increase. If enrollment decreases or stays the same, tuition discounting can lead to an overall loss of revenue. That’s because tuition discounts decrease the net tuition revenue per student, meaning that colleges must enroll more students to make it worthwhile.

Unfortunately, it often doesn’t work out that way. Over time, institutions lose money by giving steep discounts to students. The more students they enroll under these terms, the greater the loss. These losses can really add up after a while, especially if enrollment doesn’t meet expectations.

Factors Affecting Financial Impact of Tuition Discounting

Of course, not all universities are the same. Each of them is affected differently by the growing phenomenon of tuition discounting, and some can ride out the wave much better than others. Schools that have significant endowments already earmarked for financial aid do not need to employ tuition discounting to the same extent as colleges that aren’t so lucky. They can provide grants to needy and deserving students without as much effect on their bottom line, whereas other schools have no choice but to take the cost of discounted tuition out of the tuition revenue.

Additionally, schools at which a high number of minority and low-income students enroll have more access to Pell grants, making it much easier to invite such students to attend without breaking the bank. Unfortunately, schools with a high sticker price suffer because most of these students are easily scared away by that high sticker price.

Tuition discounting is one of many creative methods in which higher education institutions are trying to combat the rising costs of college tuition. But they may need to find other solutions that are not quite so damaging to their overall financial stability.