Tuition Pricing – Independent Colleges and Universities

1. Tuition Pricing – Independent Colleges and Universities Michael K. Townsley, Ph.D. Phone: 302 593-2221 Email: mtown@dca.net

2. 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

3. 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.

4. 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

5. How Enrollment Influences Tuition Rates • 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. • Stable or declining enrollment – tuition rates increases must offset any differences between changes in fee revenue or miscellaneous revenue and expenses growth rates.

6. 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.

7. 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.

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

9. 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.

10. 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

11. 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

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

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

14. 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.

15. 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.