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Aiding through Outsourcing

Financial aid departments turn to outsourcing for some operations
University Business, Jan 2008

FROM RAPIDLY EVOLVING STUDENT demographics and competitive pressures to regulatory changes, colleges and universities face new challenges all the time. One way to confront these realities in the financial aid office is to outsource some financial aid administration duties or student contact center services.

This could very well be a tipping point in higher ed institutions contracting with outsourcers. In my experience as an executive at Global Financial Aid Services, business process outsourcing, or BPO as it is known in other industries, is by no means a mainstay in higher education. It is quite the opposite. From an adoption curve, these are the early stages of what could be the last bastion of outsourcing. All other vertical markets have been employing this tool for years; various corporations, state governments, and even the U.S. Department of Education have contracted with BPO providers.

Only recently have higher ed administrators evaluated BPO. To my knowledge, there are approximately 600 campuses outsourcing front office or back office financial aid, but that's less than 100 unique colleges and universities.

Read on to learn why some higher ed institutions have moved down the financial aid outsourcing path and how those IHEs are making it work.

Ole Miss, as The University of Mississippi is affectionately known, has prided itself on its southern hospitality and works hard to deliver excellent service, not just to students but also to parents. Many Ole Miss students have parents as alumni. As such, they tend to have a good feel for the university's financial aid policies, which are traditionally longstanding, and often have quick access to the chancellor and his staff.

As at most traditional four-year institutions, university staff had to deal with peak periods that accompanied the major class starts in August and January. This caused a dramatic increase in call volume to the financial aid and bursar's offices. In August alone, staff experienced 25 percent of annual call volume. The accompanying longer wait times compared to the rest of the year were not acceptable to financial aid department leaders.

An outsourcing arrangement began in March 2004, and internal call volume has since been reduced by 90 percent, explains Dewey Knight, associate director of Financial Aid. "Our students are happy with the level of service, we get consistency through peak periods, and we deploy our campus staff to more complicated tasks that require their expertise."

Greenville Technical College (S.C.) is the "incumbent" community college to the area-the school that locals traditionally attended. But with neighboring Spartanburg Community College leaders looking to increase enrollment, Greenville officials had to address the fact that some prospective students were tempted to go there-or to a local, for-profit career college-instead.

As at most community colleges, Greenville Tech's financial aid department was working lean and mean and often did not have the staffing "bandwidth" to reach out proactively to prospective students to demystify the financial aid process. There were also times when voicemails piled up, especially during peak periods.

"Our president, Dr. Tom Barton, wanted to increase enrollment and improve our customer service for students that inquired about Greenville Technical College," says Nancy Welch, vice president of Student Services. "We always felt some people were being left out of school because they did not understand how to apply for financial aid, which is really a shame. We wanted to reach out to prospective students to answer financial aid questions, but we didn't have enough personnel to continue the follow up with students that had inquired."

Greenville contracted with a financial aid outsourcer in 2006. "We have been delighted with the results, which to date have included an estimated 1,200 new students," Welch says.

While financial aid isn't a tool to help prospective students gain admission, it can be a big perceived barrier unless the school works to break down that knowledge gap.

What do presidential elections and the recent student loan industry shakeup have in common? Both are driving financial aid officials to evaluate leaving the Federal Family Education Loan Program (FFELP) and go to Federal Direct Student Lending (FDSL). The exodus from FFELP has not occurred yet, but there are certainly many school officials seriously considering the switch.

With all three of the Democratic frontrunners for the U.S. presidency talking on the record about doing away with FFELP, there are bound to be concerns. The cut to FFELP rates is also shaking up the lenders and may cause some high-credit-risk students to not get FFELP loans at a competitive rate. It is too early to tell where this will lead, but the momentum is turning to direct lending.

Regulatory changes are a classic condition that could make financial aid outsourcing a possibility. Unless an institution has experience processing FDSL, the draw to go to a company with economies of scale and known relationships with the U.S. Department of Education can be attractive.

Despite the transition being a lot of work-with institutional leaders having to manage the analysis and transition process with the vendor-in my experience most institutions that have gone down the outsourcing road have found it to be rewarding.

As with any pending vendor relationship, administrators who have been there advise checking references.

In addition, IHEs that have succeeded with outsourcing financial aid seem to have some common threads. First, the financial aid department leaders tend to agree as a team on the desired results of outsourcing.

Second, understanding the motivations for outsourcing will be key in evaluating business requirements and identifying the right partner. That partner should share the institution's philosophy, values, and goals, advises Curt Martin, director of Financial Aid at Mesa State College (Colo.). Once a vendor is chosen, he says, "it is also important to measure responsiveness to requests for changes. As the partnership progresses, the company must be able to adapt to requests from the institution."

Having alignment in how to treat students also seems to be a key factor in strong client-vendor relationships. "At Ole Miss, we pride ourselves on delivering service in a very warm and personal way that is reflective of our desire to be a welcoming and hospitable university," says Knight. "It's a southern thing!"

Another common thread with IHEs that have successfully outsourced financial aid functions is having buy-in and commitment from the financial aid director all the way to the president. Project leaders who feel supported will be better able to work through any issues that arise.

These institutions also tend to document business requirements such as how students access consulting, applications, updates, etc. This is an important tool internally, as it aligns the different groups to achieve an integrated process from prospective student to enrollment to financial aid to admitted student. Success stories indicate that constant communication, ongoing quality assurance, and continuous process improvement are hallmarks of a quality partnership.

An institution is not able to keep up with student growth or changing demographics and needs help counseling students, providing estimates, collecting documents, etc., so that aid staffers can focus on growth, campus counseling, and more strategic work.

A school is adding the Federal Direct Student Loan program but does not have the expertise in-house.

A college or university is starting an online division and needs integration of enrollment and financial aid processes, expanded support hours, proactive counseling, fast estimates, etc., to serve this new population.

A large university system with many decentralized campuses seeks to consolidate certain call center, front office, or back office functions to achieve economies of scale, cost reduction, and standardization of processes.

An institution needs to proactively and frequently articulate to prospective students how they might afford college.

The only goal is to save money. Outsourcing saves money when there are either very inefficient operations or when there are several campus operations being centralized. Otherwise, expect better services, better flexibility, reduction of new-hire needs, service level guarantees, and the provider picking up the capital costs, but not dramatically lower operating costs.

An institution receives an audit finding and wants a "quick fix," but then wants to bring outsourced operations back in-house. Outsourcing is not a quick fix; it requires a three-to-five-year commitment to yield maximum results.

The director of financial aid has moved on. Institutions that are outsourcing due to a temporary staff loss need to reevaluate the goals of outsourcing. A major initiative of this sort should not be entered lightly. In this case an interim financial aid leader from an industry consultancy is a better option.

Matt Johnner is a partner at Global Financial Aid Services,

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