One of the most consistent trends in higher education over the past 10-15 years has been rising tuition discount rates. NACUBO’s annual Tuition Discounting Study for private institutions and the College Board’s Trends in College Pricing and Student Aid both highlight a sobering reality: Inflation-adjusted tuition and fee revenue per student has fallen over the past 15 years.
While tuition costs have increased (often outpacing inflation), institutional financial aid has grown even faster. We all recognize the contributing factors: rising costs, increased price sensitivity among families, growing skepticism about the value of four-year degrees, and intensifying competition for a shrinking student pipeline.
But there’s a more fundamental challenge that our work at Carnegie has revealed as we design institutional grant and scholarship strategies. It’s a reality that deserves honest discussion.
Financial aid optimization can’t fix your broken Student Search.
How Low-Interest Applicants Are Driving Up Discount Rates
Many institutions are recruiting ever-larger pools of less interested students in pursuit of ambitious enrollment targets. As yield rates decline, they increase discount rates to achieve headcount goals because this approach seems easier than having candid conversations about student interest, institutional fit, and realistic enrollment expectations. Unfortunately, these strategies—especially when repeated over multiple enrollment cycles—often lead to lower retention rates and reduced net tuition revenue, compounding the original challenges.
University leaders often acknowledge the external factors contributing to rising discount rates. What’s rarely acknowledged is the disconnect between institutional enrollment goals and market realities. This disconnect creates a pattern:
- The institution sets aggressive enrollment targets with little grounding in market position, student pipelines, competitor landscape, or recent outcomes.
- To meet these targets, the institution invests in high-volume Student Search campaigns that prioritize quantity over quality, sometimes offering nearly frictionless application processes that further inflate pools with low-interest prospects.
- These low-interest applicant pools produce declining and unpredictable yield rates despite increased recruitment investments.
- Faced with slipping yields and pressure to meet headcount goals, the institution turns to a familiar solution: more aggressive financial aid to boost enrollment at the expense of discount rates.
Three Ways to Strengthen Your Enrollment Approach
One of our biggest challenges as higher education enrollment consultants is that financial aid optimization is often viewed as “the solution” to a series of prior strategic missteps rather than one element of an integrated enrollment approach. In fact, discounting may be the least effective response to low-affinity search campaigns. When discounting becomes the primary tool to generate interest from weakly-aligned prospects, net tuition revenue per student drops, and often, total revenue declines as headcount gains fail to offset per-student revenue losses.
Many institutions now face a pivotal moment. For years, disappointing outcomes could be attributed to extraordinary circumstances like COVID-19 or the FAFSA rollout challenges. As we move beyond these disruptions, we’re discovering that concerning patterns—yield declines, waning student interest, rising discount rates—were present all along, merely amplified by these external events.
Here’s what higher ed enrollment leaders should consider:
Establish Enrollment Goals That Reflect Your Institution’s Market Position
I can already hear enrollment leaders saying, “Tell my President that!” and presidents responding, “Tell my Board that!” My answer: I’d be happy to have those conversations, and you should initiate them, too. Encouraging realistic discussions about enrollment expectations is essential, even when uncomfortable. The good news? In our financial aid optimization work, we often find that stronger net tuition revenue comes from slightly lower headcount targets than institutions typically pursue.
Recalibrate Expectations About Applicant Pool Size
Higher education has long associated institutional quality with growing applicant pools and declining admit rates. This perception is reinforced when ranking systems ask peers to evaluate institutions they may barely know. While admit rates have been removed from some ranking calculations, institutional leaders understand that scarcity signals create perceptions of quality among both peers and prospects. This dynamic encourages volume-driven Student Search strategies, sometimes at staggering expense.
Prioritize Affinity and Genuine Interest in Your Student Search Strategies
Carnegie’s approach focuses on quality over quantity by employing predictive modeling and data analytics to identify high-potential students. We enhance engagement through personalized communications, interest-based engagement scoring, strategic timing, and continuous refinement based on outcomes. This approach builds meaningful connections rather than relying on volume alone.
Join the Movement Toward Sustainable and Smarter Student Search
In summer 2024, the University of Dayton made headlines by announcing an intentional reduction in undergraduate enrollment, part of a broader strategy addressing what President Eric Spina called the “mainstream drumbeat” of challenges facing higher education. This announcement garnered attention because it represented something rare: an acknowledgment that pursuing ever-higher enrollment targets would become increasingly unrealistic and would compromise both revenue and student success. This welcome shift toward realistic planning serves as a valuable precedent you can reference when having those difficult conversations with presidents and boards. You’re not alone in recognizing that sometimes, right-sizing expectations is the most responsible path forward.
Carnegie’s quality-focused approach to Student Search helps institutions build stronger relationships with well-matched prospective students, ultimately improving yield rates and student satisfaction compared to high-volume tactics while contributing to more consistent tuition discounting. Contact us to learn more about our philosophy and approach to both Student Search and financial aid optimization.