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The Role of Financial Aid and Retention

What the realities are and smart retention strategies
University Business, May 2011

Typically, when institutions conduct exit surveys for students who withdraw prior to completing a degree program, featured prominently are financial aid, cost, or affordability. They usually garner one of the top slots for reasons listed for withdrawal prior to graduation. But research shows there are a number of other drivers that influence re-enrollment trends.

First and foremost is level of academic success (e.g., term 1 GPA) followed by variables such as entry qualifications (GPA in high school, standardized test scores, etc.); residential versus commuter status; attempted hours; participation in intercollegiate athletics or other extracurricular activities; gender; and race. Variables such as amount of borrowing, unmet need, and level of grant do sometimes emerge as statistically significant variables in predictive retention models, but their influence on behavior is often minor.

Consequently, it's likely that financial aid, costs, or affordability are listed on withdrawal surveys with such great frequency because they're a proxy for more personal and difficult reasons for withdrawing, such as loss of confidence, loss of focus, and loss of purpose. Michael Collette, vice president for marketing and strategic planning at Anderson University (Ind.), believes that financial aid or costs are much more important for "first purchase" than "repurchase" decisions.

Collette notes that "degrees of dissatisfaction and satisfaction (the latter involving esteem, relationships, etc.) are the real drivers to re-enrollment behavior. External variables such as cost typically do not drive the majority of students away from campus. Rather, it's internal variables such as relationships, connections, and involvement that are the real influencers."

While there is evidence in this economy that more and more students are leaving four-year institutions (public and private) and enrolling at two-year institutions near home to save money, Anderson's experience over the last few years is worth noting. In 2009, Anderson lost a substantial number of students from fall to spring semester who ultimately enrolled in Ivy Tech, Indiana's community college system. So it would seem logical to conclude that money was the factor in this case.

Anderson officials took note of this and introduced a number of strategic interventions in the fall of 2010, including a freshman year experience and graduate assistants who build relationships with student athletes around their academic success. Retention from fall 2010 to spring 2011 is the highest it has ever been, and it is not because the economy rebounded in the midwest. A lesson to be learned in this instance is that when students are satisfied and connected to the campus, concerns about money can be overcome.

Make no mistake, given the financial rollercoaster currently impacting students and families, affording higher education for four years is a major commitment. Many families are experiencing catastrophic financial reversals. And some families are planning for the first year but not for years two, three, and four. Still others are looking at levels of indebtedness and questioning whether the investment will pay off.

William N. Black, senior vice provost for enrollment management at Temple University (Pa.), worries a lot about levels of indebtedness combined with hours worked per week. When Temple conducted price sensitivity analysis of its new and continuing students and adjusted its financial aid strategies accordingly, the study revealed that money was not the primary driver for retention. In many cases, credit hours attempted was a major player. Students attempting less than 12 credit hours at Temple re-enroll at a much lower rate. As a result, Temple now focuses its counseling and advising sessions in part on the number of hours students worked per week and scheduling to maximize attempted hours.

Like most institutions, Temple doesn't alter financial aid packages once a student enrolls. Students receive their same merit and need-based awards, assuming they meet academic requirements necessary for retaining their merit and financial need doesn't change substantially. Temple is looking to create a database of its endowed awards for continuing students so that students with increased need can apply for those additional resources.

Costs and affordability are likely a proxy for more personal reasons for withdrawing.

Too often, colleges and universities, particularly at the departmental level, use endowed funds to reward continuing academic success rather than respond to levels of increased need among returning students. Academically successful students are more likely to retain anyway.

As a start, examine where breakpoints in retention occur at various levels of unmet need (need minus all grants) to help identify which populations are most at risk financially. As can be seen in the table, retention to term 3 at this institution drops off when unmet need exceeds $10,000 and is significantly lower when unmet need is greater than $15,000. Note: There could be a correlation between high current unmet need and low quality and therefore, predictive modeling provides a more comprehensive picture.


If econometric modeling finds the majority of these students are experiencing academic success, the institution could do a cost/benefit analysis of what it would take financially to close the gap for the 182 students with unmet need greater than or equal to $15,000 to improve on their current 37.4 percent retention rate to term 3. The college could project how many additional students would need to be retained from this group in order to make that an economically sound investment.

Another tested strategy is providing additional on-campus employment opportunities for upperclassmen. This can be more effective at improving retention than simply increasing gift aid. At first glance, this may appear to be in conflict with the earlier concern over hours worked and attempted credit hours, but this is about working on campus a reasonable amount of hours (e.g., 10 or 15 per week) that would not interfere with a student's class schedule. In our research, for every $1,000 earned through campus employment, a student is less likely to achieve a low term 1 GPA (or, for every $1,000 earned through campus employment, a student is more likely to retain to term 3).

The benefit of additional work study hours or opportunities is twofold. Certainly, money earned can be used to pay for books, personal expenses, transportation, etc. But even more importantly, work helps build connections and relationships with an adult or series of adults in the campus community. These connections, similar to participation in intercollegiate athletics, are often found to be statistically significant influencers in determining who stays versus who withdraws.

As noted earlier, very few schools can adjust need-based awards when need increases simply due to cost increases. There is little evidence that making these adjustments in need-based aid make a difference in who stays and who leaves.

Yet, the length and breadth of the recession means that more families have more financial need. Financial aid offices are reporting an increasing number of appeals and professional judgment cases.

Jud Shaver, president of Marymount Manhattan College, responded in a dramatic fashion to the plight of families who were laboring financially. Just before Thanksgiving 2008, President Shaver wrote this to all MMC families: "Our highest priority will be to provide assistance to families who experience a serious financial reversal such as loss of employment, but there is much we can do in less difficult circumstances too." He had secured a six-figure gift for emergency use and wanted to support MMC families with the most need. Families had to document their change in circumstances.

Over the course of the next few months, 91 families petitioned for assistance. Shaver reports that 88 were retained to the following semester at a cost of $244,000 in additional financial aid. Unusual times call for unusual action, he explains. The generosity of one benefactor made this extraordinary institutional response possible.

Stephanie Anderson, assistant vice president for enrollment management and undergraduate admissions at Texas State University-San Marcos, sees the role of financial aid in retention as being a "tipping point." When students have financial aid issues plus concerns about their academic performance, campus relationships, and other issues, this can bring students to the "tipping point" faster. Affordability problems, plus excessive amounts of work hours and lack of academic success, often create the tipping point.

The bottom line takeaway for administrators: Assuming money is the main driver to improving retention is not sufficient. Allocating additional financial resources without the data to demonstrate and fully understand the role of financial aid might feel good but runs the risk of not producing the retention results desired or anticipated. Even when aid is a factor, it is important to develop targeted intervention strategies to impact other retention drivers, as well.

Jim Scannell is a partner in the enrollment management consulting firm Scannell & Kurz. He can be reached via the firm's website,