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Open Access Publications from the University of California

Accounting for the Relationship of the Financial Position of Private, Baccalaureate-level and Above Institutions to Tuition Discount Rates

  • Author(s): Browning, Julianna
  • Advisor(s): Dar, Luciana
  • et al.

Institutions have increased the practice of tuition discounting; that is, the strategic use of price discrimination. During the past 30 years, both the average percent discount given to students and the proportion of students receiving tuition breaks have increased. As this practice has increased, there are financial determinants and implications that must be addressed. The purpose of this study was to provide a thorough investigation of one of the issues embedded within tuition discounting practices: the relationship between an institution's overall financial position and its price discrimination practices. The five component ratios of the financial vulnerability index (FVI)-- debt ratio, revenue concentration index, surplus margin ratio, administrative costs ratio, and size ratio--served as a proxy for institutional financial position. Integrated Postsecondary Educational Data System (IPEDS), The Institute for College Access and Success (TICAS) and Barron's Profiles of American Colleges provided the financial and institutional data for the academic years of 2003-04 to 2007-08. Ordinary least squares regression and analysis of variance were tools used to test the data. There were three main indications in the findings. First, institutional financial position had a relationship to tuition discount rates for stable institutions (FVI < .10). As the FVI decreased for stable institutions, tuition discount rates increased, showing that institutions with financial resources used them to create a class that would further their mission, increase prestige, or a combination of the two. Second, on average, unstable institutions with enrollment decreases over the five-year period did not demonstrate significant changes in discount rates. In this circumstance, unstable institutions had a limit to the amount they could invest in their futures. Third, institutional financial position had a relationship to tuition discount rates for unstable institutions (FVI > .20). As the FVI increased for unstable institutions, tuition discount rates increased, indicating that institutions used their current resources as an investment in the future of the institution. In addition, descriptive statistics were used to understand the relationship between tuition discount rates and the four institutional control variables used in the study: total enrollment, percent white enrollment, percent Pell, and selectivity.

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