A higher education leader once asked, “Our discount rate keeps rising and our board keeps asking if we’re giving away too much. But we can’t afford to lose students. Are we on a dangerous path?”
If you’ve ever had a similar thought, you’re not alone.
Presidents, boards, and administrators often view the discount rate as a critical financial metric. Most of the time, leaders feel their undergraduate discount rate is too high. But what defines a “good” discount rate? Is such a thing even possible?
What Is a Discount Rate?
The National Association of College and University Business Officers (NACUBO) defines a discount rate as:
The percentage of a college or university’s gross tuition and fee revenue that’s awarded to undergraduates in the form of grants.
In other words:
Discount Rate = (Institutional Aid ÷ Tuition and Fees) × 100%
For example, if a university charges $40,000 in tuition and offers an average institutional grant of $20,000 per student, the discount rate is 50%.
Two decades ago, a 40% discount rate was considered high. Today, many Christian institutions are above 55%. Instead of asking if your discount rate is too high, the real question is “Does your aid strategy align with your institutional goals?”
Why Are Discount Rates Going Up?
There are three main reasons:
1. Tuition Increases Are Outpacing What Students Can Pay
Raising tuition by $2,000 doesn’t mean students suddenly have an extra $2,000 to pay you. We see this play out as institutions offer increasing amounts of institutional aid to meet student financial needs.
When the gross price rises faster than the net price, the discount rate must go up.
2. Overlooking the Power of “Perceived” Financial Aid
Students want to feel valued. Yet, nothing communicates “You’re just another student” more than a generic institutional need grant. Schools invest significant time and money in attracting students, only for the financial aid package to send a message that there’s nothing unique about them.
If you’re skeptical, try this experiment: If you award athletic-based aid, tell your athletic department you’re converting all athletic scholarships into need-based institutional grants. Their reaction won’t be laughter; it’ll be panic. They understand that student-athletes want to feel valued for their hard work. So why don’t we apply this principle to our non-athlete students?
3. Failing to Differentiate Strategically
Imagine walking into a grocery store to buy a soda. If every soda looks similar but is priced differently, you’re likely to choose the cheapest one. Why? Because without any meaningful differentiation (e.g., branding, taste, etc.), price becomes the deciding factor.
The same principle applies to Christian higher education.
Why don’t all students choose a low-cost community college? Because they perceive a clear difference between the value of a Christian institution and a community college. But, if Christian schools fail to communicate their distinctiveness, students will default to the lowest-priced option. That forces institutions to increase financial aid, further driving up the discount rate.
Should We Care?
When a Rising Discount Rate Is a Problem:
- If it’s increasing due to a lack of strategic differentiation.
- If financial aid packages fail to communicate student value.
- If the institution is forced to discount more simply to remain competitive.
When a Rising Discount Rate Is a Strategy:
- If it’s intentionally designed to meet net tuition revenue and enrollment goals.
- If it helps attract and retain the right students while maintaining financial sustainability.
The Bottom Line
A rising discount rate isn’t inherently bad. The real danger isn’t giving away too much aid, but failing to strategically use aid to strengthen your institution’s long-term sustainability.
Does your financial aid model serve your mission or is it a reaction to short-term enrollment needs?
If you’re unsure or concerned, let’s talk.
At TG Three, we help Christian institutions turn their discount rate into a strategic tool to achieve enrollment and financial goals in pursuit of their mission.
-Nick Willis (nwillis@tgthree.com) is a Builder Leader, Mathematician, and Partner at TG Three. TG Three is a values-driven strategy company dedicated to serving Christian institutions to help get them from where they are to where they want to be.