Private Colleges Offering Record Tuition Discounts to Lure Students

Amid all the grim news about the skyrocketing price of a college education, here’s something to celebrate: Colleges are asking students to shoulder less of the costs.

In the 2015-2016 school year, the discounts on tuition that private colleges gave to students in the form of scholarships and grants hit a record high, according to the National Association of College and University Business Officers (NACUBO) annual report.

Last school year, private colleges gave freshman an average tuition discount of 49%, and all undergrads an average discount of 43% off the published price of tuition.

At the same time, the percentage of students who received some discount on tuition and fees—88%—remained relatively steady, the NACUBO report says.

Doling Out Discounts

Such discounting is nothing new. Rather, it is a continuation of a long trend of private colleges lowering prices to boost enrollment. Ten years ago, the average tuition discount was 34%, according to NACUBO.

Private colleges generally offer more in grants and scholarships than public universities do because they have richer endowments. It’s also a bid to lure higher-ranked students into choosing their school, says Kal Chany, author of "Paying for College Without Going Broke.”

Schools offer bigger discounts to students with higher GPAs and test scores, which can improve the ranking and reputation of the college, says Chany. “How much merit money you get is a function of how much the school wants you. Your reach schools aren’t likely to give you as much merit aid.”

Those who are in the bottom of their high school class may be more willing to pay more, so they don’t have to give them as much aid, says Chany. “The top half of the class gets financed in part by the bottom half of the class.”

Still, the tuition discount is coming off a steep starting price. The average published price for tuition and fees at a four-year private college today is $32,405 vs. $23,893 for a four-year public university for out-of-state students and $9,410 at a public school for in-state students, according to the College Board.

Borrowing Costs Dropping Too

For students, there was more good news about college costs: The interest rate on federal student loans is coming down.

Starting with the 2016-2017 school year, federal student loan rates will drop to their lowest in a decade, thanks to new Treasury rates announced last week. Loan rates are set each year and take effect in July. Congress used to determine student loan rates, but that changed two years ago. Now federal loan rates are market-based, pegged to 10-year Treasury notes.

For students taking out loans for the coming year, undergraduates will get a fixed 3.76% rate on federal loans, down from 4.29% this year. Graduate students who take out direct federal loans will pay a fixed rate of 5.31%, down from 5.84%. Graduate students and parents who take out PLUS loans will pay interest rates of 6.31%, down from 6.84%.

When interest rates are reset in future years, because of caps they can go no higher than 8.25% for undergraduate loans, 9.5% for graduate loans, and 10.5% for PLUS loans.

About three-quarters of seniors graduate with student loans today, averaging about $30,000. While the drop won’t make a huge dent in your monthly bills if you borrow a lot, every little bit helps, says Chany.