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Sticker Price Vs. Net Tuition for Higher Education
The content in this article is pulled from the 2022 Annual Higher Education Outlook. For more insights, download your complimentary copy of the 2022 Annual Higher Education Outlook today!
Rising Cost of Attendance
Understanding the relationship between the published price of tuition, fees, and room and board (sticker price) and the net tuition, fees, and room and board (NTFRB) helps institutional leaders evaluate trends in long-term sustainability. Many institutions focus their primary attention on enrollment figures without regard to the net cash flow of the incoming and returning class of students. However, many leaders across higher education, both financial and non-financial, are beginning to explore the impact of net revenues on financial health.
The following segment looks at the relationship between the sticker and net tuition, fees, and room and board and the rising costs of operating expenses. An examination of the average sticker price and NTFRB demonstrates a disparity between price and cash paid. Using data from the IPEDS database, we have provided average pricing by sector and enrollment size. Based on the inflation adjusted 2013–2014 dollars compared with the 2018–2019 dollars, it appears that NTFRB did not grow at the same pace as the sticker price or operating expenses per student. It is important to remember that student revenue is not the sole source of revenue; however, these figures are an indicator of long-term sustainability for the industry.
The growing sticker price for a private four-year education (Figure 14) has outpaced the actual cash paid across the entire sector. The smallest schools, which have the greatest enrollment pressure, had the smallest increase on sticker price to help entice new enrollments, and they had the largest net cash drop across both the private and public sector. Private schools with fewer than 1,000 students had an average sticker price uptick of 4.3 percent with a corresponding drop in NTFRB of 15.3 percent. In comparison, the next size of private institutions (1,000 to 4,999 FTE) had a 7.8 percent increase to sticker price and a 2.5 percent increase to NTFRB.
Next, we compared these revenue changes with the changes to average operating expenses per enrollment across the sector. The institutions with fewer than 5,000 students have operating expenses on an FTE basis that exceed NTFRB numerically and in percentage growth. On average, schools with 1,000 or less students had a decrease to NTFRB of 15.3 percent and an increase of expenses per student of 12.3 percent.
Private institutions in the 5,000 to 9,999 enrollment category followed a similar pattern where the sticker price (6.8 percent) outgrew the NTFRB (3.9 percent); however, operating expenses per enrollment grew at 3.4 percent.
Public four-year institutions (Figure 15) experienced larger average sticker price increases than their NTFRB grew. Like the private institutions, public institutions are seeing an uptick in unfunded institutional aid. Within the public sector, the smallest schools actually experienced a flat sticker price change and grew NTFRB. Although the operating expense per student still exceeds the NTFRB per student, the growth of operating expenses did not exceed student revenues over the same period.
Pricing and expense data on institutions greater than 1,000 students indicates an imbalance between student driven revenue sources and operating expenses. The sticker price grew faster than the NTFRB while the NTFRB grew slower than operating expense. For all other size categories, the public institution’s operating expense exceeded NTFRB at both a dollar amount and growth rate. Schools between the 1,000 and 9,999 size categories saw operating expenses just under 9 percent with NTFRB increasing fewer than 5 percent.
For both sectors of the industry, public and private indicators reveal an increasing pressure on non-student revenues to operate the university. Public institutions are also experiencing a decline in state appropriations. The entire industry must find other sources of revenues, such as private giving, auxiliary incomes, or other alternative sources of income to re-balance the operations of the school.
Public perception remains unfavorable to the rising cost of attendance. As such, institutions must provide value to prospective and returning students without compromising academic strength. This may be accomplished through adjustments to the traditional annual tuition increase with a refreshed approach toward institutional aid and the cost to deliver academic instruction. Based on the core expenses reviewed earlier, it is time for college leaders to take a look at institutional support and student service costs. These latter categories have outpaced all other costs on campus. While these increased costs may have been directed toward retention and recruitment efforts, it is time to review those original return on investment concepts to ensure resources are driving institutional mission.
For more insights, download your complimentary copy of the 2022 Annual Higher Education Outlook today!
