Nothing is so discussed–and perhaps so misunderstood–as college discount rates. And my opinion about the meaning of discount rates is changing, to boot.

You probably know that discount rates are calculated by dividing unfunded institutional aid by gross tuition revenue. So if you charge $100M in gross tuition and offer $40M in aid, your discount rate is 40%. It’s really an accounting transaction: You can’t decide to spend that aid in other ways (unless you are over-awarding aid by a lot) because you only spend it when it’s offset by real tuition dollars, either from the student, or other sources like state or federal aid, or other external sources.

When I started writing about discount, I discussed it against a back drop of tuition that was increasing much faster than inflation. In fact, to make it clear, I did the math in this presentation. In that scenario, if you don’t increase your discount, you’re likely to see your enrollment decrease, and may end up with less revenue than you’d expect.

But today, with tuition increases much closer to inflation, discount rate increases can be fatal; while your costs are going up, your revenue is going down in real terms. Managing total net revenue, average net revenue, size, quality, and diversity is a juggling act. You can’t just compare your discount to industry averages, or even to competitors.

And as you probably know, getting it right is more important than ever.