Financial Aid Strategies in Tough Economic Times
IN A RECENT MOODY'S SURVEY, almost 30 percent of private colleges projected declines in net tuition revenues for the current fiscal year. This is likely not because enrollments declined, but because more financial aid was spent in achieving enrollment goals. Officials at institutions whose discount rates increased this fall are wondering if this is the new cost of doing business or whether they spent more than necessary.
The drivers behind increased discount rates are many, including:
- Increases in the percent of students who applied for financial aid
- Increases in average need that exceeded the increase in charges
- Cuts in state support that colleges either deliberately replaced with institutional dollars, or replaced by default through continuing to meet the same percent of need with grants as grant sources shifted
- More generous responses to appeals to ensure enrollment targets were met
What should officials do to prepare for fall 2010 and beyond? Here are 10 activities that make sense:
Tracking the admission funnel begins with looking at inquiries by source category (e.g., self-initiated, direct mail, etc.) and making comparisons to the same period in the prior year (the last two years would be ideal, as 2009 may either be an outlier or the new base year). This will provide a picture of how the admissions office is progressing toward goals.
Also, the number of financial aid applicants (new vs. returning students), average need, and average institutional grant (again, new vs. returning) should be tracked against figures for the prior year(s)' figures for the same time period. This will enable enrollment management staff to project total institutional grant expenditures based on growth in the average from the same time last year and the year before to the final figure for enrollees. Such metrics and projections will help avoid surprises and identify trends of concern while there's still time to intervene.
Institutions with higher sticker prices than their relative prestige positions would justify often find they must have higher than average discount rates to compensate for the "misalignment." In contrast, those with sticker prices lower than those of their competitors with similar prestige profiles often experience growth in demand despite relatively low discount rates.
Students and their parents are concerned about meeting college costs as well as finding employment after graduation. Provide convincing evidence of affordability and outcomes. Case studies and an income profile of the freshman class can help families understand that students from all economic backgrounds have found a way to meet your costs. Similarly, employment statistics, job titles, salaries, and employers by major can help build confidence in graduates' success.
Yet at many institutions, data on the employment or graduate school acceptance rates of recent grads are limited. Students have not been surveyed at all, or survey response rates are low. Addressing this "data gap" should be a top priority. In the interim, employer testimonials and stories about successful alumni can help provide evidence that graduates can expect a good "return" on their investment.
The need for strong links between financial aid and student accounts has never been more pressing. While providing seamless service to students has always been important, many families are now facing new challenges in obtaining private loans and meeting their share of charges. Working together, financial aid and student accounts staffs can identify students who might be at most risk financially and help them find a way to continue.
The admissions office is often held accountable for meeting targets for class size and composition, while the financial aid office is judged on whether or not they stay within budget limitations. These different goals can create tension and, in many cases, lead to suboptimal outcomes.
Holding both offices accountable for meeting net tuition revenue targets can ensure the two teams aren't working toward separate goals. Without this common denominator, an institution runs the risk of reducing net revenues by either spending too much to meet enrollment targets or missing the opportunity to increase enrollments to stay within an unrealistic financial aid budget target.
Some institutions decide to change merit programs or other aid policies based on what they know about a competitor's policies, or based on stories about how individual students responded to aid offers. Keeping an "ear to the ground" is important, but it's critical to balance these stories with an analytical examination of admit pool behavior. Examining yield rates by need and grant for different subpopulations and (ideally) using predictive modeling to understand the influence of grant on enrollment, holding all other factors constant, will help in assessing if a policy change is needed?and, if so, how much of an adjustment would be ideal.
New federal requirements for net price calculators on institutional websites will soon make some level of transparency universal. But in many cases these calculators will be driven by average awards and fail to highlight how packages may differ based on the quality of the student, family need, or other critical attributes. Posting clear criteria and award levels for merit scholarships and eligibility criteria for any "entitlements" (e.g., grants based on geography or religious affiliation) on the admissions website can help students know of at least some aid for which they would be eligible before even applying.
The downside of being transparent: Offering awards based on a variety of criteria can result in overfunding students who meet all criteria, while underfunding students who don't meet any. Also, because awards of circumstance often are targeted to students with a natural connection to the institution (e.g., discounts for alumni children, siblings, students from the institution's religious denomination, etc.), the highest awards can end up going to students who already have a high propensity to enroll, regardless of the aid offered, rather than targeting aid to populations who would not enroll without the additional financial incentive.
Setting high GPA requirements for renewing merit awards is the most common aid policy that can negatively impact retention. Examine retention rates for merit recipients and nonmerit recipients with similar GPAs to help determine if merit renewal criteria are too stringent.
Also monitor retention rates by levels of need and unmet need (defined as need minus grants from all sources) to learn if retention rates are being impacted by need-based aid policies. In the current economic environment, it's important to be open to appeals based on changes in family circumstances. Policies that hold grants constant for returning students, expecting families to absorb tuition increases, may have worked well in the past, but may need to be more flexible.
An increasing number of students who ultimately intend to achieve a four-year degree are starting at a low-cost community college. So colleges that are not transfer friendly may lose students twice—in freshman year to community colleges and in junior year to another institution with clearer credit articulation agreements, more generous credit acceptance policies, better housing opportunities, and special financial aid policies for transfers.
Since transfers are usually considering fewer alternative institutions than freshmen, they don't typically need to be discounted as heavily. But it's still important to make your education affordable to them and to offer aid programs specifically targeted to this population.
Concerns about affordability aren't new, but institutions haven't yet addressed rising costs in any substantive way. So students and families are increasingly coming up with their own solutions. They're loading up on AP credits in high school to complete college requirements more quickly, starting four-year degrees at two-year schools, and negotiating aid offers.
The most successful institutions in the future will likely be those that have found ways to truly reduce costs for students without sacrificing quality. Industry partnerships, more efficient delivery systems, focused curricular offerings, and stronger consortial relationships with other colleges are just a few options already being explored. Having these conversations on your campus is probably the most important action item to take away from the fall 2009 experience.
Kathy Kurz and Jim Scannell are partners in the enrollment management consulting firm Scannell & Kurz. Mary Piccioli is senior enrollment management consultant. They can be reached via their website, www.scannellkurz.com.