Tuition Pricing – IndependentColleges and Universities Michael K. Townsley, Ph.D. Phone:

Tuition Pricing Model Model Presumes A Balanced Budget Tuition Price is subject to changes in: Enrollment Fee Revenue Tuition Discounts Miscellaneous Revenue Expenses Tuition Price is constrained by: Competitive Structure Financial Condition

How the Model Works Tuition rates rise or fall depending on changes in– Enrollment relative to non-tuition revenue and expenses. Non-tuition revenue relative enrollment and expenses. Changes in expenses relative to enrollment and non-tuition revenue.

Tuition Rate Management Managing Tuition Rates Requires Balancing revenue growth with expenses. Weeding out declining academic programs Controlling expenses growth. Market positioning Flexibility in the market – responding to changes. Information on student pools and competition. Decisions on enrollment growth

How Enrollment Influences Tuition Rates 1.Increases in enrollment – If faster than expense growth rates – reduces pressure to make major tuition increases. If less than expense growth rates – tuition rates will be moderated by increased revenue. 2.Stable or declining enrollment – tuition rates increases must offset any differences between changes in fee revenue or miscellaneous revenue and expenses growth rates.

Enrollment – Good News Enrollment Should Grow Over the Decade – Given Theses Conditions: Traditional ages will grow most. Metropolitan areas will grow faster. Parents continue to seek a quality – reputable education for their children. Working adults will continue to seek degrees and training.

Enrollment - Challenges Preparation of traditionally age students will decline. Rural areas will grow more slowly. Religion will be much less of a factor in choice. Price – tuition discounts – will continue to have a significant impact on choice.

How Fee Revenue Influences – Tuition Rates 1.Fee Revenue is closely correlated with tuition revenue. 2.If fee rates don’t change and enrollment is stable or declines – increased revenue is not produced to help offset expense increases..

Tuition Discounts Tuition discounts have a very subtle long-term impact on tuition rates. On the surface – they are a wash. Generating excess revenue requires tuition rates to grow faster than discounting. Tuition discounting reduces cash flow – in the long term tuition rates must grow faster than discount rate growth – all else being equal.

How Miscellaneous Revenue Has Shaped – Recent Changes in Tuition These revenue sources have become more volatile or are even declining. Government funds and grants Gifts Interest Income Losses here are translated into increases in tuition

Economic Pressures on Expenses Replacing retiring baby boomer faculty Scarcity of replacement faculty Cost of maintaining up-to-date technology Inflationary increases – fuel, benefits, property insurance, Government regulations Marketing expenses

Internal Pressures on Expenses Adding new positions Increasing pay faster than rate of inflation New departments New services

Competitive Structure and Tuition Direct competitors – targeting the same student pool Aggressiveness of direct competitors Advertising Recruiting Price discounting

How Demand, Costs, and Price Interact Static demand and rising costs yield higher posted prices and static discounts. Declining demand and rising costs yield higher posted prices and larger discounts. Rising demand but fixed enrollment and rising costs yield higher prices. Rising demand with growing enrollment and rising costs may reduce price discounting.

Final Thoughts Pricing tuition used to be a step to balancing the budget. Now Pricing is recognized as Market Driven, Dependent on Federal Support, and Internal Financial Decisions And you thought that you higher education was isolated from the hot house pressures of business.