Financial - Issue Briefs - Publication Number: IB99-6 (April 20, 1999)

Student Fee Discounting

There is increasing recognition nationally and in Missouri of the important distinction between sticker price (what is charged) and net price (what is actually paid). This distinction is especially important for the University of Missouri because discounting sticker price has been increasingly relied upon to help offset educational fee increases.

The institutional student fee discount percentage is defined as follows:

• The institutional discount percentages in FY1997 are as follows:
  • UMC, 26%
  • UMKC, 23%
  • UMR, 26%
  • UMSL, 10%.
• The University of Missouri discounts a larger proportion of student fees through the dissemination of unrestricted scholarships and fellowships than do the AAU institutions. The institutional discount percentages for 3 of the 4 University of Missouri campuses are higher than that of the average of the AAU's; the exception is UMSL. For FY1997, the institutional student fee discount percentage was just over 15% for the public AAU institutions on average Table 1 (PDF 4 KB). The discount percentages range from a low of 4% at Pennsylvania State University to a high of 38% for the University of Illinois.

Figure 1 (PDF 6 KB) shows the trend in institutional student fee discount percentages for the University of Missouri campuses and for the public AAUDE average for the period FY1988 through FY1997.

• On average, the AAUDE institutions' discount percentage has increased just under 5%, from 11% to just over 15%.
• In general, the University of Missouri campuses have shown larger increases in the institutional discount percentages than the average of the AAU institutions (FY1988 through FY1997). The exception to this pattern is UMKC, with an increase in the discount percentage of only 4%. However, UMKC already had a discount percentage of 19% in FY1988. UMSL showed an increase which was somewhat greater than that of the AAUDE average, at 6%.
• The most dramatic increases in the student fee discount percentages can be seen for UMC and UMR. Both institutions had institutional discount percentages of 10% and 11%, respectively in FY1988. However, by FY1997, the discount percentages had increased to 26% for both institutions. It is important to note, however, that the greatest incremental increases in the student fee discounting percentages were during the period of FY1993 through FY1997. This was a direct consequence of two plans which the University undertook in FY1993. The University embarked on a five-year student fee plan in FY1993, which increased student fees above the rate of inflation. During the same period, the University established a five-year financial plan; one of this plan's overarching priorities was to address financial aid needs on the campuses. One of the guiding principles of the five year plans was that twenty percent of the fee increases be dedicated to financial aid.
• The University of Missouri needs to reexamine both the level of and growth in institutional student fee discounting through the dissemination of unrestricted scholarships and fellowships. Three of the four University of Missouri campuses show markedly higher institutional discount percentages relative to public AAUDE institutions. In addition, exacerbating the current problem is the fact that a large proportion of existing scholarships are fee-based, so as educational fees increase, so do these scholarship commitments and expenditures.

Table 2 (PDF 4 KB), Table 3 (PDF 5 KB),and Table 4 (PDF 5 KB)present the institutional student fee discount percentages for UMC, UMKC and UMSL relative to each campus' market comparator group (See Issue Brief IB99-5 - Peer and Market Comparisons of Sticker Price) for the period FY1988 through 1995. Because of the lack of engineering programs in other institutions in the state of Missouri, UMR does not have market competitors (except for UMC), and therefore no market comparator group has been shown for the campus. UMC and UMKC exhibit higher levels of student fee discounting than their "market" comparators. This situation needs to be evaluated to determine what, if any, advantage there is to this continued practice.

• In FY1988, UMC had a lower institutional discount percentage (10%) than the average of the comparator institutions (14%). However by FY1995, the reverse was true. UMC had an institutional discount percentage of 18%, whereas the marker comparator group was still averaging about 14%.
• UMKC has consistently had a higher institutional student fee discount percentage than the average of its market comparator group. In FY1988, UMKC's institutional student fee discount percentage was 19% as compared to the average of the market comparator group figure of 13%. By FY1995, the gap between these two variables was lower, but UMKC was still discounting at a higher level than the average of the comparator group (23% versus 18%).
• UMSL has consistently discounted fees at a lower level than that of the market comparator group and the gap between the institutional student fee discount percentages has increased over the eight year period. In FY1988, UMSL's discount percentage was 4%, as compared to the average of the comparator institutions of 6%. However, by FY1995, UMSL's percentage had increased to 11%, while that of the market comparator group increased to 16%.

• Table 5 (PDF 6 KB) displays the yield and institutional discount percentages for the four University of Missouri campuses for the period FY1992 through 1997. In all cases, as the discounting increased, the yield declined. This would seem to be counterintuitive; as the levels of discounting increased one would expect that the yield percentages would also increase. However, one aspect which needs to be considered is the quality of the incoming freshman class. If the institution is enrolling higher quality students, one of the reasons may be because of the increased discounting. This could also affect yield rates, since higher quality students may have multiple higher education institution options. The results in Table 5 (PDF 4 KB) indicate that UMC has been drawing a increasingly higher percentage of students who have ACT scores of 28 or above relative to the other four year public institutions in the state over the 6-year period. But this pattern does not apply to all of the University of Missouri campuses. UMKC shows essentially no change in the quality of incoming freshmen (as measured by ACT scores), and also has the smallest increase in the discount percentage over the period. UMR shows a marginal decline, which may be more an effect of the specialized nature of the curriculum rather than an effect of the discount percentage. Of the four campuses, UMSL shows the largest decline (1%) in the percent of students who have ACT scores of 28 or above relative to the other four-year public institutions in the state. However, as mentioned earlier, even though UMSL shows a large increase in the level of discounting, the institutional discount percentage is still lower than at most institutions. The Appendix shows additional detail relating to this data.
• Table 6 (PDF 6 KB) shows the institutional discount percentage and the yield rates for the AAU Public institutions as compared with those of the University of Missouri campuses. As mentioned earlier, on average, the AAU institutions discount at a lower rate than do three of the four University of Missouri campuses; the exception is UMSL. However, the average yield rate for the AAU institutions is 41%, one to four percent higher than three of the four University of Missouri campuses, UMKC, UMR, and UMSL. UMC's yield rate is approximately 7% higher than that of the average of the AAU institutions. Figure 2 (PDF 7 KB) graphically displays the comparison of the institutional student fee discount percentages with yield rates. As can be seen, there does not appear to be any real correlation between public AAU institutions' level of discounting and the yield rates.
• Another way scholarships are provided to students is by using earnings from the Endowment Fund. These endowment earnings are restricted funds, and their use is specified by the donor of the actual endowment. Some of the earnings are for scholarships, and the rest are for other uses, including professorships and research. If one looks at total institutional funds used for scholarships, there is an unfunded portion of this aid (i.e. scholarships are funded from unrestricted sources of funds), and a funded portion, which is provided through earnings from the Endowment Fund. In FY1997, Approximately 40%, or $4.2 million of the University's Restricted Endowment Fund income was used for scholarships and fellowships. This is an additional discount which students receive on their fees, which is provided through funds given to the University.