The success of this September’s freshman class is heavily influenced by the merit and need-based financial aid award packages that are right now being reviewed by admitted students and families. Are you confident that your institution’s awards are optimally calibrated to result in the headcount, class composition, and net revenue that is expected?
After many years developing financial aid strategies for hundreds of institutions, we’ve seen what works, and, more importantly, what does not work. Here we share the most common—and avoidable--financial aid missteps we’ve repeatedly encountered over the years.
The higher education marketplace evolves at a rapid pace. It makes sense that an institution’s financial aid strategy should be recalibrated annually to adjust for new competition, new audience dynamics and market opportunities.
Unfortunately, we’ve seen far too many institutions stick with the same financial aid strategy year after year, without analysis or adjustments. The telltale metric in many of these cases is consistently declining class yield and net revenue. Students who used to enroll in the past now take their tuition dollars to other colleges because stagnant aid packages are no longer competitive. Or families’ net cost (what they have to pay out of their own pockets after scholarship and grant aid is taken into account) no longer aligns with their perceived value of the institution.
At many institutions, scholarship or merit-based aid is still viewed as a “reward” rather than an “award.” Rewards are given for good academic performance while awards are designed to encourage yield, balance discount rate, and generate revenue. A good financial aid strategy uses a combination of rewards and awards — not solely one or the other.
Far too often, the bulk of scholarship or merit aid (non-need-based aid) is reserved for the highest academic achievers — most of whom don’t enroll because they have so many college choices and competing offers. At the same time, academically strong students who just miss the scholarship cutoffs are offered little to nothing in terms of institutional scholarship or grant aid. These desirable students who might have graduated and become lifelong supporters of the college end up taking their tuition dollars to the competition who showed greater interest and offered better financial aid packages.
Financial aid is not an expense — it’s a recruitment investment. Too many times, institutions essentially strangle themselves by not offering institutionally funded merit and need aid to enough students or capping aid offers too low in an effort to control the discount rate. Quite often the end result is that the institution doesn’t put enough financial aid offers “on the street” to yield the class or net revenue that is desired.
Often, this situation occurs when the institution pays more attention to expenditures than potential revenue without factoring yield into the financial aid strategy. To enroll a class, you have to “spend” money (in offers) to make money (through enrollment). In other words, financial aid offers cost as much as the paper they are printed on. The offers only turn into and expense when a student decides to enroll at your college. The key is to use those offers strategically across admitted students to incentivize yield among enrolling students who will help your institution achieve enrollment, retention, and revenue goals.
One fact remains true: If students don’t enroll, your institution loses out on the net revenue that they would have brought with them. One surefire way to ensure admitted students don’t enroll is to offer them too little institutionally funded merit and need aid or none at all.
It feels great to tie a ribbon around a financial aid strategy in October or November. But a lot happens between then and May. When the financial aid budget is “locked down” much too early in the enrollment cycle, it leaves admissions and financial aid professionals unable to respond to changes in numbers or profiles of applicant and admit pools.
The most effective financial aid strategies are designed to compensate for smaller — or larger — applicant and admit pools because the current year probably won’t be a mirror image of previous years. The same goes for the profile of the pools from which you have to choose students.
A smaller than expected application pool might require more robust aid offers to meet enrollment and revenue goals in September. An increase in student need may require larger need-based aid offers to yield those students. A larger percentage of high achieving students in your pool (which is great for retention and long-term revenue) might require more “up-front” money in the form of scholarships or grants to incentivize those students to enroll. Your primary competition might change their awarding strategy in an effort to increase market share. All these situations require mid-cycle flexibility in an institution’s awarding strategy.
Achieving annual enrollment goals is more difficult than ever as the higher education recruiting landscape changes so quickly. A good financial aid strategy is a critical component of a larger recruitment plan. How effectively your institution leverages its aid dollars can make or break next September’s freshman class.