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Enrollment Capacity

A major driver to an institution?s ?best? aid strategy
University Business, Jan 2009

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.

— 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.

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 ( 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.

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.

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?

For institutions that are not need-blind in admissions and that have low acceptance rates, this is not an issue. They have the ability to select the next 50 students from their current applicant pool and ensure that their average need and grant will be on par with or even lower than the current average.

Using institutional aid to grow enrollment could result in less net tuition revenue generated.

However, institutions that are need-blind in admissions have less control over the average need of additional admits. And institutions that are already accepting a high percentage of their applicants need to understand both the cost of building the applicant pool and the cost of increasing yield rates.

Again, financial aid can be a tool in support of growth. If yield rates are already high, or if the impact of grants on enrollment behavior at an institution is low, however, using institutional aid to grow enrollments could be costly—and could result in less net tuition revenue being generated from the larger class, even though gross revenue increases. Institutional leaders can’t afford to get this wrong. Historical data can help in understanding past responses to grant aid in order to understand what opportunities exist to increase net tuition revenue (NTR) through growth. The following examples demonstrate this point.

— Case One (tuition is $15,000 and the freshman yield rate is 35 percent): For students in the lowest quality group, the institution offers loan/work/and gap of $8,000 before offering any of its own grant assistance. The 100 admitted students in this quality group with need below $10,000 yield at only 15 percent. Those with need of $10,000 to $15,000, on the other hand, who receive an average institutional grant of $4,500, yield at 40 percent. A safe assumption would be that if the university met the first $5,000 of need with grants, rather than with loans, and work, yield rates on the 100 low-quality, low-need students would increase to 40 percent. The change in net tuition revenue would be projected as follows:

Current NTR: 100 x 15 percent = 15 enrollees x $15,000 tuition = $225,000

Projected NTR: 100 x 40 percent = 40 enrollees x $10,000 tuition = $400,000

In this example, although the discount rate on this population has increased from 0 percent to 33 percent, both enrollment and NTR increase.

— Case Two (where tuition is $15,000 and the freshman yield rate is 35 percent): This institution has the same packaging policies as in Case One. However, the 100 admitted students in the low-quality, low-need group yield at the average rate of 35 percent. Those with need of $10,000 to $15,000, who receive an institutional grant of $4,500, still yield at 40 percent. In this example, the change in net tuition revenue would be projected as follows:

Current NTR: 100 x 35 percent = 35 enrollees x $15,000 tuition = $525,000

Projected NTR: 100 x 40 percent = 40 enrollees x $10,000 tuition = $400,000

Here, although five more students would enroll, NTR would decrease, because the cost of offering aid to students who would have enrolled without it exceeds the additional tuition revenue generated by the enrollment growth.

Institutions are becoming increasingly sophisticated about assessing whether changes in financial aid to certain populations will increase or decrease NTR, using predictive modeling and simulation tools like the College Board’s Financial Aid Strategy Tool (FAST), which will be transitioning to Scannell & Kurz this spring.

The current economic environment is intensifying the need to use financial aid resources as strategically as possible. Students will likely be demonstrating more need for financial assistance, families will be considering lower-cost options even more seriously than in the past, state aid programs are likely to be reduced, and institutional resources (e.g., endowment funds and public support) will be shrinking.

Budget planning will need to be conservative, but scrimping on financial aid and recruitment resources will not be a wise choice for most institutions. It will be critical that institutions turn to their data in answering tough questions about capacity, the cost of growth, and the role of financial aid in meeting the economic crisis facing us all.

Kathy Kurz and Jim Scannell are partners in the enrollment management consulting firm Scannell & Kurz. They can be reached via their website, G. Richard Wynn, vice president for finance and administration and treasurer at Haverford College (N.Y.), shared his thoughts for this article.