In the 1980s and 1990s, private colleges and universities faced a very difficult challenge. The cost of attending private institutions soared at a much faster rate than inflation, and those cost increases put many private institutions at a disadvantage. The sticker price was far greater than what most students could pay, meaning they needed more aid to enroll. Yet these private colleges and universities could ill afford to discount their tuition too heavily because it would deprive those campuses of the revenue they needed to provide a quality educational experience.
Many private institutions turned to a new strategy, financial aid leveraging, to address this dilemma. Financial aid leveraging is the strategic investment of financial aid funds to help campuses enroll the students they desire, control discounting and financial aid expenditures, and achieve the net revenue they need. It also helps institutions pinpoint the amount of aid students need to enroll. Leveraging has been very effective for private institutions, helping them get the biggest enrollment bang for their financial aid buck.
Because public institutions were not so tuition dependent and still very affordable, they didn’t need to engage in financial aid leveraging. However, during the past decade, public colleges and universities began to rely more extensively on tuition for their revenue needs, especially as the recession of 2008 dramatically impacted state funding for higher education. The Delta Cost Project recently published research showing that, as of 2008, four-year public institutions were now relying on tuition to cover about half their costs. With public funding for higher education in flux, that ratio is likely to have increased and will probably continue to rise, at least in the near future.
This development also comes at a time when college enrollments are swelling and the ability of students and their families to pay for college are diminishing. All of these factors—shrinking funding, rising tuition, increased student ranks, and greater financial need—are putting public colleges and universities in a huge bind. How do you recruit and retain more students in this kind of environment?
Financial aid leveraging is one strategy that can go a long way toward addressing these issues. It has served private institutions well when they encountered similar issues, and the time is ripe for public institutions and their students to also benefit from it. Here are five of the biggest benefits:
1) Increase access to higher education. Contrary to the misconception that leveraging is about buying a better class or ditching needy students for wealthier ones, financial aid leveraging promotes access by better using existing financial aid resources so that dollars are not wasted. It’s a data-driven process that finds the amount each student needs to enroll, greatly reducing overawarding of aid to some students and underawarding others. Furthermore, it can identify the aid they need across their entire academic careers, a key to student retention.
2) Align awarding policies with enrollment goals. Not surprisingly, cost increases have increased the enrollment implications of awarding policies. It’s more important than ever to make sure your institutional gift aid is in synch with your enrollment objectives. Leveraging can do that. You can make sure that your awards help shape your class and enroll the student populations you desire—in-state, out-of-state, underrepresented populations, students with specific academic profiles, or any other combination of student characteristics.
3) Pinpoint a student’s ability and willingness to pay. This is the heart of any good financial aid strategy. All students have certain financial needs that must be met if they are to enroll. However, they also have a more difficult figure to pin down: how much they are willing to pay, which can be quite different than their actual need. Leveraging can identify those points and make it easier for you formulate your award packages for each student.
4) Maximize your net revenue. With greater tuition dependency, net revenue has become a bigger factor for publics. Net revenue is what allows you to fulfill your mission of providing a quality higher education experience. The greater precision of financial aid leveraging means that you’ll maximize tuition net revenue by identifying the amount of aid each student needs to enroll.
5) Increase accountability in the aid process. Leveraging is a data-driven, transparent process that makes it very easy to justify every dollar that you award. You trade guesswork or less-reliable awarding metrics for a process that combines enrollment and financial aid data into a very clearl guide for awarding.
These benefits are just some of the ways leveraging can benefit four-year public institutions. I am happy to discuss financial aid leveraging with you in more detail or answer any questions you may have. Just drop me an e-mail or leave a question in the comments and I’ll answer it.
Best of luck as you formulate your aid packages for this coming fall.
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