Tuition discounting through unfunded institutional aid at private baccalaureate colleges

Colleges and universities discount tuition by providing institutional aid to reduce the actual amount paid by a student. Discount rates are substantial and continue to increase, particularly at private institutions. Funded institutional discounts are linked to gifts or endowment income restricted to financial aid. Unfunded institutional discounts have no revenue source and represent tuition revenue foregone to incentivize enrollment.;The purpose of this study was to analyze the implications of tuition discounting on institutional market strength by examining the use of unfunded institutional aid at private baccalaureate colleges from 2000 to 2009. Price elasticity, the change in quantity demanded based on change in price, proved highly volatile and varied greatly among the sample and within institutions over time. Analyses found no statistically significant relationship of price elasticity for either full-pay or aided students with unfunded institutional discounting. Admissions selectivity was a significant predictor of unfunded institutional discounting with less selective institutions discounting more through unfunded aid. The most selective colleges also discounted to fewer students, whereas the bottom three quartiles aided more than 96% of enrolling students in 2009. These findings supported the conclusion that colleges awarding higher levels of unfunded aid have less market strength.;Analyses also found no significant changes in the ratio of funded and unfunded institutional discounting as a result of the economic recession, though unfunded institutional discounting did increase from 27.3% to 32.3% from 2000 to 2009. Jeremy Paul Martin.