Tuition discounting: theory and evidence

It is frequently assumed that rising enrollment improves an institution’s financial condition. In fact, enrollment growth can have an adverse impact on the institution’s financial condition, even in the presence of excess capacity. The reason for this surprising conclusion is that the size of the subsidy required to attract additional students may cause the net financial impact to be negative. In the past two decades, private institutions have been very aggressive in their competition for gifted students. Administrators and their governing boards should carefully review their tuition discounting policies, since conventional wisdom may be misleading. This paper contains a theoretical discussion of tuition discounting policies and it explores how the marginal benefit, net of the marginal cost of increased enrollment, varies across public/private institutions and across institutions with different missions.  2002 Elsevier Science Ltd. All rights reserved. JEL classification: I22