Budget Planning Breakdown
IN ITS SIMPLEST FORM, ENSURING the linkage between financial aid and enrollment projections is about two things: solid data analysis and communication. How many new and returning students will there be, and how much institutional grant aid will they require? Who needs to be informed of the projections, and when? Of course, the devil is always in the details. So let us break it down into the basic components.
All segments of an institution of higher ed should be accounted for in enrollment projections, given the nature of the particular institution. For many IHEs, this would begin with projecting the retention of returning students, both graduate and undergraduate.
The projection of returning students is typically derived using historical information—for example, a three-year or four-year average of the percentage of freshmen who return as sophomores, sophomores who return as juniors, etc. Graduate student retention should be calculated separately, because enrollment patterns of graduate students are often quite different from those of undergraduates.
And then, of course, new students must be included in the mix, both freshmen and transfer students, as well as new graduate students. It is not unusual for a registrar or institutional research officer to be involved in developing the returning student projection. The chief admissions or enrollment officer is typically the most well-informed regarding the number of new students that should be included in the projection.
To illustrate the planning process for the full-time undergraduate portion of the population, consider the chart Step One, in which a hypothetical enrollment projection has been calculated. In this example, the new freshman and new transfer numbers were supplied by the admissions office, and the returning student counts were provided by the institutional research office. Returning student counts were projected by applying a three-year average retention percentage to the previous year’s class size. (Many institutions prefer to separate out the number of previous-year freshmen who returned but did not advance to sophomore status. These are the “returning” freshmen.)
For Step Two (see chart), it is important to know not only how many students are expected to return but also how much institutional grant aid the returning students are expected to retain. Again, historical percentages are typically the best guide to projecting the change in aid from class to class and the percentage of the class receiving aid, both of which factor in to the total projected expenditure of institutional aid dollars. By separating out the previous year’s returning freshmen who did not advance (and their associated institutional grant aid), the new freshman count and the new freshman aid picture are not muddied by including those students who did not advance to sophomore status. (The new transfer students from Step One have been allocated to their appropriate class years for the financial aid calculations. Institutions that enroll a significant number of transfer students may wish to do a completely separate analysis for freshmen and transfer students.)
Finally, for Step 3, net tuition revenue and discount rate can be estimated. In the example provided here, if tuition is $8,500, gross tuition revenue would be $8,500 x 4,273 = $36,320,500. Net tuition revenue would then be $36,320,500 - $3,830,614 = $32,489,886. (Note: If you are projecting from fall to fall, rather than from year end to year end, you would need to adjust for expected mid-year attrition in students and recovery of aid dollars. Again, this adjustment should be based on historical trends.)
Remember that both the enrollment projections and the associated projections for institutional grant aid should be repeated for other segments of the student population (e.g., graduate students, part-time undergraduates).
Most colleges and universities have some amount of endowed scholarships and grants to use in funding the total institutional grant budget. All endowed awards should be counted in the Step Two analysis (see chart). In order to determine how much unfunded grant aid is necessary for budget purposes, the endowed awards would be subtracted from the Total Aid line.
Although the sample projection model offered is for one year, the assumptions can be extended beyond that to provide a longer-range net tuition revenue (NTR) planning model for each population.
Communication is crucial in this process. Institutions have differing administrative structures that may influence who is involved at what stage. At many higher ed institutions, an enrollment management structure brings together the first three stages of the process—the enrollment projection that includes new student counts from admissions, returning student projections from institutional research, and the financial aid award information from the financial aid office. However, the results of the enrollment management modeling would need to be communicated to the budget and finance area. Similarly, enrollment management staff would need to be involved in conversations about tuition increases to ensure that the “voice of the market” is heard.
No matter the structure, and especially if there is not a traditional enrollment management organization in place, it is incumbent upon the involved parties to communicate as often as necessary to ensure that the component pieces of the analysis are accurate and up-to-date.
The best approach calls for meetings at defined intervals throughout the year. The timing of the meetings depends, in part, on the institution’s budget cycle. The frequency of meetings should be determined by the involved parties with this in mind: You cannot overcommunicate when it comes to this topic.
The institutional grant budget is significant at most institutions, particularly at private colleges and universities. Senior leaders, and in particular, chief financial officers, must have confidence in the projections and be well-informed about their derivation so that they can effectively communicate the information to other constituent groups, including the board of trustees.
Even after the initial budget has been sent, meetings should continue to occur in order to review whether the assumptions behind the projections are still valid. Ask these questions:
- Are we on track for the new student goals from all sectors?
- Is the average grant for new freshmen still on target, or is the discount rate increasing based on factors such as a change in the academic or financial need profile of the admitted student population or changes in the economy?
- Have there been other recent changes either to the retention rate or to the percentage of students receiving aid that would render the use of a three-year average inaccurate?
Modifications may be necessary because of recent changes in an IHE’s own student population. Other adjustments, not based on historical data but on intentional changes in institutional grant packaging strategies, should be incorporated as soon as officials have made the decision to adjust the strategy. For example, when administrators use sound data analysis to change merit award or need-based grant policies, those adjustments should be incorporated right away into the projection for new student institutional grant aid.
The process is about more than just data analysis and projections of new and returning students. It is about getting the right people in the room to ensure there is an understanding of how the numbers were derived, how realistic they are, and where the problem areas might be.
Institutions just can’t afford to get this wrong!
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.
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