University of Charleston: How we cut tuition by 22%

After seeing enrollment decline for the first time in a decade, the University of Charleston slashed tuition by 22%. University president Edwin Welch explains why he took this unusual step and how the school will afford it.

NEW YORK (CNNMoney) -- After seeing enrollment decline for the first time in a decade, the University of Charleston, in West Virginia, slashed tuition by 22% for the upcoming school year hoping to entice more students.

The school, which currently has 1,006 undergraduate students, employed a series of initiatives to afford the cut, including reducing its financial aid, sharing professors with colleges in the region and graduating students early. As a result, tuition for new students will be $19,500 per year beginning in August -- down from the current rate of $25,000.

In an interview with CNNMoney, the university's president, Dr. Edwin Welch, explains why he took this unusual step and what the impact has been so far:

Why did you decide to cut tuition?

Last year, there were 30 students or so who had enrolled at the university but changed their minds after August 1. They went to different places -- we lost some students who transferred to community colleges. This was a new event for us.

We realized parents and families were now considering the overall price, not just the discount [financial aid and scholarships] they would be able to get. As universities we tend to market education the same way Joseph A. Banks advertises clothes, thinking the advertised price is not that important but the discounts are the most important part. But that's what is driving middle-class students away. So it seemed we needed to take a fresh look.

How did you decide on a 22% cut?

We had thought about cutting tuition by 20% at first, but the board said the total price should be under $20,000, so we cut it a little further and agreed on a ceiling price of $19,500.

How are you able to afford to cut tuition by 22%?

We've undertaken about half a dozen initiatives to reduce what it costs to run the institution.

We have a faculty-sharing program, which is a new initiative for this upcoming year. We'll share professors between five schools to teach certain subjects. We also have a fast-track program, and 35% of the students who come to our school and stay earn a degree in three years instead of four or enroll in graduate school. That means students can replace a year of tuition with a year of income.

We have not lowered salaries.

Has the school reduced the total amount of financial aid it is offering to students?

We reduced how much aid we're giving overall. We're guaranteeing no one will pay more than $19,500.

Numbers won't be complete until the end of the year, but if we had 1,000 students and reduced tuition by $5,500 per student, that's $5.5 million that's not going to be awarded in financial aid. But on the other hand, all of our students get a discount anyway because we reduced the overall price.

We still have financial aid available -- a significant amount. This year we probably gave $15 million in financial assistance. Next year, we'll give maybe $10 million.

What has been the impact of the decision to lower tuition so far? Have you seen applications increase?

So far, the reaction from parents and students has been very positive. We expected a spike in applications, and applications are up nicely in our primary markets -- West Virginia, Virginia, Maryland, Pennsylvania, and Kentucky. Total applications are ahead of our two-year average but slightly behind last year.

More importantly, our deposits are up 40%. This suggests that students and families who look at us are finding the new tuition structure attractive and are depositing at a higher rate than previously.

As part of its 5-year vision, your university hopes to increase enrollment -- which currently stands at a total of 1,372 undergraduate and graduate students -- by 79%. Do you think this is a realistic goal?

As part of our vision, we want to reach total enrollment of 2,500 students within the next five years. We are starting a physician's assistant program which should bring some additional students, and we would like to add another graduate program. We hope that the process of lowering tuition helps us in the undergraduate area.

Have you seen enrollment decline in recent years?

We've had 60% more enrollment over the past 10 years, and we've had 10 years of increases. Then we had a decrease in new students this year [the 2011-2012 academic year]. We were down 70 students. So our commitment was to make sure this was the one exception to the trend.

What if the tuition cut does not boost enrollment? What's next?

This all revolves around net income. We can meet our budget targets either by increasing enrollment, increasing net revenue per student, or a combination of both. If neither of those three occur, then we will need to reduce expenses or expand other revenue sources.

Do you foresee your decision to cut tuition sparking a price war with other colleges?

I was at a national meeting with college presidents this January talking about tuition reduction, and a number of presidents talked to me in the meeting and outside of the meeting, saying they are considering lowering tuition.

I would hope schools would start to get their advertised price more in line with what people actually have to pay, but presidents are nervous, boards are nervous. It takes a while because it is such a bold and daring thing to do. Most schools are going to be afraid to do it. Sewanee, University of the South, did it last year and their enrollment went up, and we followed what they did.

Which colleges do you expect will be the first to follow your lead and lower tuition?

Schools like us who are second-tier educational institutions. Not Harvard, not the University of Pennsylvania. Schools that already have high rates of financial aid and are willing to market the price over the discount and change the way they operate.

Correction: An earlier version of this story incorrectly stated the school is hoping to add 2,500 students over five years. It's trying to reach a total enrollment of 2,500 students in five years.