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No Surprises

Financial aid reports that work.
University Business, Nov 2007

FINANCIAL AID EXPENDITURES, influenced by a variety of factors, are not always easy to predict. Which admitted students will accept their offers? Which upperclassmen will return? What will happen to external aid sources? Will the admit pool percentage applying for aid change? Will family contributions keep pace with increases in charges?

The answers to these questions can have a dramatic effect on institutional aid expenditures, discount rates, and net tuition revenues (NTR). Yet financial aid officers are expected to accurately assess their budget needs and, with others in enrollment management, keep senior administration informed of in-cycle shifts that could impact results. Even worse than missing net tuition revenue targets is having a deficit come as a surprise after the budget has been balanced and put in place.

Tracking historical trends is the first step to avoiding unexpected outcomes. When estimating future aid budget needs, look at retention and funding trends by class year rather than overall. The first chart (top right) illustrates why this is important. In this example, although the freshman discount rate and total enrollments have been stable over the last three years, the overall discount rate would need to increase, because "cheaper" senior classes are being replaced by more expensive freshman classes.

Understanding differences in discount rates by subpopulation, combined with trends in the applicant pool, is important in predicting how freshman discount rates may change. As can be seen in the second chart, although discount rates for in-state and out-of-state populations have not changed, the discount rate for the overall class has changed because the geographic distribution has shifted.

Potential impacts of proposed changes in federal and state funding also need to be considered when estimating aid budget requirements. For example, when state funding is tight, state grant award amounts may be reduced or eligibility criteria tightened. This could significantly affect the discount rate if institutions step in to make up the difference for needy students. Financial did staff typically are very aware of potential changes but may need senior team input regarding the institutional response. Don't be surprised to find that increased institutional aid to make up lost state funds approximately equals projected lost net tuition revenue from students who will withdraw without that financial support-a real catch-22 for colleges and universities.

Changes in family willingness or ability to pay have an impact on aid budget requirements.

Changes in family willingness/ability to pay also impact budgetary needs. For example, if yield rates among full-pay and low-need admits are declining and yields among high-need students are increasing, the discount rate will be affected, even if awarding policies themselves don't change.

No matter how well historical trends might project expenditures, student application, funding, and enrollment patterns can produce different results-so monitoring how well reality is matching up to expectations during the admissions, awarding, and registration cycle is also key.

Begin with identifying any unexpected changes in the applicant and admit pools. Historical data may show that different subpopulations likely require more or less aid. If high discount subpopulations are increasing at the expense of low discount subpopulations, then that may be a signal to expect higher financial aid expenditures even before students begin submitting financial aid information. For example, campuses will typically celebrate an increase in the quality of the applicant pool, but leaders must also recognize that yields may decrease as a result and that discount rates may increase because at many institutions quality costs money-merit awards.

Once financial aid applications (ISIRS) begin to arrive, date-to-date comparisons of the percent applying for aid, average need, and average institutional grant can be routinely generated. These reports should be run separately for freshmen, transfers, and continuing students.

For example, if last year average institutional grants to admits as of April 2 increased by $1,000 between that point and the final average for the enrolled class, and if the average institutional grant offer as of April 2 this year is already over the projected financial average, senior administrators need to be informed, and the average should continue to be closely monitored. Such reports can also help in projecting yield. For example, aid applicants typically yield at much higher rates than non-aid applicants. So if date-to-date comparisons show a significant decrease in the percent applying for aid, intervention strategies (e.g., outreach to the nonfiling population with assistance in filling out the FAFSA) may be required. Similarly, students who don't plan to continue their enrollment typically do not apply for financial aid for the subsequent year. If aid applications from continuing students are down, it could be an early signal of a retention problem.

(A common pitfall in aid expenditure tracking reports occurs when only aid recipients are analyzed. To understand the entire picture, discount rates, admissions, aid, and registrar data need to be merged. Another common pitfall is to track only some institutional aid funds. For example, merit offers made by the admissions office may not be recorded in the aid system until the recipient submits a FAFSA form. Similarly, the financial aid office may not be informed of academic department awards until still later in the process, when the student enrolls. Including all institutional aid sources in tracking reports is critical.)

Monitoring begins with identifying unexpected changes in the applicant and admit pools.

For schools on precipice, rather than rolling, admission, a snapshot of the economic distribution of the class, taken just before admission and aid letters are sent, can provide time to adjust admission decisions or awarding policies if necessary to meet budget targets. Some institutions actually package the pool in "simulation" mode and apply the historic yield rate on those offers to understand if budget targets for the entering class would be exceeded.

Of course, significant adjustments to packaging strategies to stay within financial aid budget targets would likely impact yield rates. Concerns about potential over expenditures in the aid budget should be discussed with senior management before intervention strategies are implemented. Exceeding the aid budget could be a good thing-particularly if an institution is under its ideal capacity-as long as enrollment and net tuition revenue targets are also exceeded. Unilateral action to "stay within budget" without considering the potential impact on yield or re-enrollment patterns could simply exacerbate the problem.

Track students affected by mid-course corrections, too. For example, if concerns about low early yield rates cause more generous appeal decisions, record what happened so leaders can determine whether there was a pattern related to who appealed and to understand whether the change in policy increased or decreased the total net tuition revenue generated by the class. Or if late filers receive less attractive packages because of funding limitations, flag those students for end-of-cycle analysis.

Producing effective reports to support projections and track outcomes is only half the battle. Effective communication around that analysis is critical for data-driven decision making. If the budget office ignores trend-based enrollment or aid projections produced by the enrollment management team, the net tuition revenue targets set may be unrealistic, for example. And if admissions and financial aid leaders don't share recruitment and awarding cycle trends they spot, the two offices can end up working at cross-purposes.

At the senior team level, if financial implications of enrollment goals (e.g., the "cost" of a stronger academic profile) aren't considered, NTR assumptions could be overstated. Teamwork is just as important as analysis to ensure no surprises.

Kathy Kurz and Jim Scannell are partners in the enrollment management consulting firm Scannell & Kurz. Samantha Veeder, formerly the director of Financial Aid at Hobart and William Smith Colleges (N.Y.), is the firm's senior consultant. They can be reached via their website,

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