Tuition discounting became a required component of financial reporting practices with the implementation of GASB 34 and GASB 35.

The National Association of College and University Business Officers (NACUBO) issued Advisory Report (AR) 2000-05 in 2000 that provided guidance for the application of financial aid to reduce student accounts receivable. At that time, two methods were proposed:

• The first was referred to as the case-by-case method — This method was not feasible for most universities due to a lack of detailed data available from student and financial systems.
• The second was referred to as the alternate method — This method was allocation based and became the preferred method of determining tuition and fee discounts for public higher education institutions in Texas.

In April 2023, NACUBO issued AR 2023-01 to supersede AR 2000-05. The new guidance highlighted the capabilities of more modern student and financial systems and the ability of higher education institutions to execute more accurate methods of estimating tuition discounts.

Four methods with several student financial aid allocation options are described within AR 2023-01. The Texas Association of College and University Business Officers (TACUBO) Accounting Principles Committee adopted three methods and one student financial aid allocation for use by Texas institutions of higher education effective as of fiscal 2025.

Universities may select one of three tuition discounting methods (A, B or C) based on the institution’s ability to gather tuition and fee and student financial aid data from internal systems. Deviation from this standard is acceptable if necessary to avoid a material misrepresentation of the financial statements.

Step 1 – Identification and Classification of Tuition Discounts

Student financial aid transactions must be properly classified prior to beginning the tuition discounting process. The following workflow questionnaire provides a conceptual framework for identifying and properly categorizing student financial aid transactions for financial reporting purposes. Accurately accounting for these transactions is important for both the financial statement presentation and the tuition discounting process.

See the Texas Higher Education Coordinating Board’s Exemptions and Waivers Information for Institutions for more information.

Workflow Questionnaire

To determine discountable student financial aid, follow the below financial aid classification workflow questionnaire.

1. Assess whether a transaction that reduces the student’s receivable account balance is considered student financial aid. Financial aid is the difference between the stated charge for education services, and the amount paid by the student and/or third parties on the student’s behalf. Is the student expected to repay the institution in connection with the resource received?
   • If yes, classify as a loan. This classification is for instances where the institution is acting as the lender or is responsible for the administration of loan balance.
   • If no, continue to question 2.
2. Is the transaction a payment from a person or entity that is not affiliated with the institution, either legally or through a legal agreement? These transactions are payments from the student, family members, employers and lending organizations. These transactions do not include external grants that are administered by the institution (such as Pell).
   • If yes, classify as a payment. These transactions are not considered financial aid for tuition discounting purposes.
   • If no, continue to question 3.
     1. From this point forward, transactions are considered student financial aid and should be reviewed for tuition discounting purposes. The following questions identify how certain student financial aid transactions should be classified to ultimately obtain the transactions that are discountable student financial aid.
3. Has a legally unaffiliated person or entity restricted the aid by disallowing it from being applied toward a student’s receivable account? This is a situation where all aid must flow to the student directly. (Examples were the HEERF student federal awards.)
   • If yes, classify as scholarship expense directly without including these transactions within the tuition discounting process.
   • If no, continue to question 4.
4. Is the aid part of an exchange-like transaction for essentially equal value between two parties? These transactions will regularly be part of a documented benefits package and be subject to tax withholding. (Examples are employee tuition assistance plans for eligible individuals.)
   • If yes, classify as compensation expense (when applicable to employees). Reduced tuition is a component of the compensation and benefits package contingent on services rendered.
   • If no, continue to question 5.
5. Is the aid a reduction in charges that results from the difference between two published rates? An example is aid where specific groups of nonresidents are allowed to pay the Texas resident tuition rate.
   • If yes, classify as contra-tuition revenue. Tuition and fee waivers are a common example, and these transactions are reported within the tuition and fees revenue line.
   • If no, classify all other aid as scholarship and fellowship expense and use as discountable student financial aid. Examples aside from true scholarships include tuition exemptions and assistantships where academic, rather than employment, criteria determine eligibility for aid.

Step 2 – Assignment of Student Financial Aid to the Tuition Discount or Scholarship Expense

Select a tuition discounting method based on the level of detail the higher education institution is able to obtain from student and financial systems.

• Method A utilizes a student-term level of analysis.
• Method B utilizes a student-year level of analysis.
• Method C utilizes a year level of analysis.

Note: The methods produce different tuition discounting estimates ranging from the most accurate (method A) to less accurate (method C). The trade-off for accuracy is a more demanding estimation process and professional judgement is required to select the method that is best for each institution. Also, methods A and B align more closely with ongoing GASB projects and selection of these methods may avoid changing the tuition discounting method in the future.

All methods begin with the assumption that student financial aid is first applied to tuition and fee revenue, then to auxiliary revenue. For illustrative purposes, the three examples (methods A, B or C) on the Exhibit and Samples page assume the student financial aid applied to tuition and fee revenue is first applied to the Education and General (E&G) fund group and then to the Designated fund group. Institutions should choose a fund group summarization level that best represents their financial reporting practices.

Step 3 – Allocation of the Tuition Discount to Scholarship Expense

Identifying the student financial aid offset associated with scholarship expense is accomplished using a proportional allocation. The allocation is based primarily on the amount of discountable student financial aid recognized in each fund group. Generally, the functional expense classification for the offset will also apply to scholarships and fellowships. However, for institutions with material amounts of student financial aid awarded in other functional expense categories, an offset allocation by fund group and functional expense category is recommended. Examples may include student financial aid awarded in support of instruction (such as teaching assistantships) or student financial aid awarded in support of research (such as research assistantships).

Step 4 – Journal Entries and Net Position Rebalancing

The final step consists of combining output from steps 2 and 3 to create the tuition discounting journal entries for year-end reporting purposes.

The student information presented in each example is identical. The only difference in each example scenario is the tuition discounting method applied in step 2. The process to complete steps 3 and 4 does not differ by method.

• Step 3 totals represent the amount of scholarship expense to be reduced by fund group.
• Step 4 values represent the amount of each journal line needed to record the tuition discount, scholarship expense offset and rebalancing fund balance transfers for each fund group.

Note: The fund group imbalance offsets described in step 4’s row identifiers 4 and 5 may differ based on the imbalances found in row identifier 3.

Note: A “one size fits all” template is not practical for the updated tuition discounting process. The examples provided below merely contain sample data for each of the tuition discounting methods discussed in this reporting requirement.

Examples:

NACUBO provides guidance for institutions of higher education regarding HEERF Programs which consist of funding for:

• Coronavirus Aid, Relief, and Economic Security (CARES) Act
• Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA)
• American Rescue Plan Act (ARPA)

All HEERF allocations are comprised of two parts:

• Student aid portion
• Institutional portion

Under GASB 33, both student and institutional portions of HEERF I, II, and III are considered voluntary non-exchange transactions. Revenue can be recognized when all applicable eligibility requirements are met. In other words, as public institutions comply with student aid disbursement requirements and identify coronavirus related expenses (including lost revenue) all eligibility requirements would be satisfied and revenue can be recognized.

• Recording HEERF Student Aid Expenses — Report the portion of the HEERF funding for direct emergency aid to students as student aid expense (a natural expense). Since the payments do not reduce the price the student pays for his/her academic program or residential services, the amounts are not shown as a discount to revenue, nor are the payments included in the macro-level formula used by GASB institutions to calculate the discount.
• Functional Classification — For all universities, emergency student aid payments (under the HEERF Programs) result in an increase of student aid expense (a natural expense) over the prior fiscal year. Whether public or independent, all universities must categorize the student aid expense under the functional “Scholarship and Fellowships” category.

Note Disclosure Requirement

Effective fiscal 2025, all Texas higher education institutions must include a note disclosure within their annual financial report (AFR) due to the AR 2023-01 methodology change. If an institution elects to apply an additional change in methodology after fiscal 2025, a new note disclosure is required.

GASB 100 requires disclosure of accounting changes. This includes a description of the nature and reason for the change, the affected line items and why the new method is preferred.

Sample Note Disclosure

During the implementation of GASB 34/35, an allocation methodology was adopted to estimate the discount associated with student tuition and fees revenue. The allocation was based on pooled student refunds for the fiscal year. The use of refunds as the basis for the discount introduced non-discountable transactions into the calculation process, reducing the accuracy of estimates. Enterprise system advancements have created the capacity for more accurate estimates using a methodology that reflects the financial aid process flow. The new calculation methodology for tuition and fees discount estimation was adopted in fiscal 2025.

The Discounts and Allowances and the Scholarships and Fellowships line items within the Statement of Revenues, Expenses, and Changes in Net Position are affected by the described change in methodology.

Note: This sample note disclosure is meant to serve as a starting point. Institutions of higher education should consider a more tailored version suitable to their specific situation.