Tuition discounting for revenue management

Over the past decade, institutionally-funded financial aid (or "tuition discounts") have been the fastest-growing item within most public four-year college and university operating budgets. One explanation for this trend is due to the changing structure of public colleges' revenue streams, as tuition and fees have replaced state appropriations as a viable and predictable source of funding. This analysis explores the extent to which expenditures on institutionally-funded financial aid generates additional revenue for public four-year colleges and universities. Using institutional data (n=175) from 2002 to 2008, the analysis implements a generalized method of moments (GMM) technique and concludes that aid indeed can be leveraged for revenue generation. However, this relationship is only sustainable to a certain point. When unfunded tuition discount rates exceed approximately 13 percent, institutions may experience diminishing revenue returns to this financial aid investment.