WHEN ANALYZING FINANCIAL AID strategies for our clients, one of the questions we always ask is “Are you at capacity?” For many institutions, this is a difficult question to answer, and often we hear different answers from different corners of the campus. Yet the answer has a big impact on how the institution should be thinking about its financial aid budget.
For institutions that have empty dorm rooms and underused labs and classrooms, the financial aid budget can be viewed as a tool for generating additional enrollment and net revenue. At these institutions, a focus on simply controlling the financial aid budget or the discount rate can be shortsighted. If an institution’s applicant pool is very responsive to additional grant aid, increasing the discount rate could raise the total net tuition revenue (or net tuition and room revenue) produced by the class.
How many students could
you add before having
to build or renovate
residence halls?
For institutions that have no room for growth without adding significant fixed costs, the average net tuition revenue per student (a function of the discount rate) needs to be the metric of importance, and the campus needs to clearly understand the tradeoffs between the discount rate and other enrollment goals (e.g., quality and diversity).
How can administrators begin to measure their institution’s capacity? Consider the costs related to campus facilities, personnel, and students.
FACILITIES
• Residence halls. How many students could you add before having to build or renovate residence halls? Could you change institutional policies to allow more students to live off campus? Could you “recapture” college-owned space that is being used for other purposes, such as rental property? How would tripling some rooms impact quality of life and student satisfaction?
• Dining halls. How long do students currently wait in line at peak times? How long do the peak times last? During what hours can students just walk in and be served immediately? Are there seats available, even at peak times? Is your serving area capacity sufficient to handle higher volumes? The answers to these questions can help in establishing the number of additional students that could be served before an additional dining facility would have to be added.
• Classrooms. During how much of the day are classrooms fully used? At many institutions, classroom space is only fully used between the hours of 10 a.m. and 2 p.m. four days a week.
As for specialized facilities, often the space most at a premium is that used for special purposes such as labs or sports and recreation buildings. Again, measuring current usage is critical to understanding whether those facilities could handle larger volumes.
PERSONNEL
Does your institution need to keep the student-faculty ratio constant in a growth scenario, or can the ratio shift? If faculty members need to be added, will they be tenure-track or adjunct, full-time or part-time? Obviously, the costs of those options are quite different. Similarly, will it be necessary to add administrative staff? Here benchmarking with institutions that are already at the size being contemplated can be helpful.
In fact, the National Association of Student Financial Aid Administrators website (www.nasfaa.org) has a staffing model for aid offices to help in understanding whether an institution’s current staffing levels are above or below those at institutions with similar volumes.
STUDENTS
It is important to understand where the breakpoints in the marginal cost of additional students will occur.
For example, an institution may be able to add 50 students with only the addition of two faculty members (plus very small increases in “overhead” costs such as electricity). In this case, the marginal cost of the first 50 additional students would be very low. If, however, the next 50 students would mean that the institution would have to add an annex to the dining hall, or expand lab facilities, the marginal cost of those 50 students would spike.
LOOKING AHEAD
Once the institution’s capacity for growth has been determined, another important question remains: Can you assume that the average cost of recruitment and the average institutional grant for the next 25/50/100 students will be the same as your current averages?
