Jim Slattery Senior Educational Manager Higher Education Solutions The College Board

1. Strategic Utilization of Financial Aid:The Power of Informed Decision-MakingMASFAANovember 14, 2002 Jim Slattery Senior Educational Manager Higher Education SolutionsThe College Board

2. The Evolution of Financial Aid • From a mechanism used to promote equity, access and choice… • To becoming a significant factor in determining an institution’s competitive position and financial well-being. Financial aid policies must address both: social values and fiscal realities.

3. Trends Leading to Strategic Use of Financial Aid Similar to those which prompted enrollment management models: • Intense external competition • Competing internal pressures • Enrolling desired numbers, quality, mix • Achieving revenue goals • Staying within financial aid budget • All-consuming focus on revenue

4. Discount Rate The difference between the amount of tuition the institution collects and the amount it returns (“discounts”) to students in the form of institutionally funded grants. • The “litmus test” of fiscal risk by which financial aid policies are measured. Drivers of an institution’s discount rate include: • Trends in the economy which affect family contributions and numbers on aid; • Commitments to diversity and quality resulting in awards unrelated to financial need; • Responses to competition; • Yields by levels of need and grant awards.

5. Key Questions • Is our institutional aid being spent wisely? • Are we providing enough need-based aid? • What about scholarships? • What about awards to individual students? Are they for the “right” amount? • If we change our policies, what will it cost, and what will be the impact on quality, revenue and class characteristics?

6. Without analysis,paralysis.

7. Goals of Enrollment Management • Understand factors that influence enrollment behaviors • Positively influence enrollment decisions, then retain and graduate those who enroll • Optimize size & composition of student body, consistent with mission • Control expenditures

8. Influences on Enrollment Decisions Academics Reputation Location STUDENT CHARACTERISTICS PRICE Net price is the single, easiest factor for the institution to control

9. Enrollment Decisions • Net price is key to the enrollment decision for many students • Willingness to pay has emerged as another important factor to consider in addition to ability to pay

10. Willingness to Pay • Willingness to pay varies from student to student and is influenced by a variety of factors: … Perceived value of educational offering … Commitment to institution – students will pay more to attend their first choice … Even if you are their first choice, they must perceive the “price” as affordable

11. Willingness to Pay • You can determine willingness to pay by blending research with analytic tools, such as econometric modeling. • Evaluating the enrollment rates of students with different combinations of academic ability and need can also help you better understand the relationship between willingness and ability to pay.

12. Without data, you’re just another person with an opinion.

13. Role of Data • The need for a data-supported approach to awarding financial aid has never been more important. • Sophisticated models and tools are needed to fully understand the trade-offs and impacts of various strategies.

14. Data Analysis Progression:No Data  Strategic Use of Data • Historical data captured & retained but files not merged • Data files merged but strategic questions not asked • Aggregate data analysis • Segmented data analysis (group data) • Regression analysis (individual data) • Econometric modeling & simulations Source: Scannell & Kurz, Inc.

15. Objectives of Modeling • Modeling starts with flexible thinking • What questions are you trying to answer or what goals are you trying to achieve? • What facts do you have available? • What assumptions are reasonable to make?

16. Objectives of Modeling • A good model… • Allows you to test the impact of various strategies • Allows you to ask “what if?” • Becomes the basis for a plan • Assists in the assessment of the plan • Modeling helps you understand the differences between enrolling and non-enrolling admits.

17. Data Components For best results, analyze admissions, financial aid and other relevant data for individual students admitted for the past 2-3 cycles. • Admission fields: application type and status, quality measures, enrollment indicator • Financial aid fields: need, gift assistance, other awards • Demographic fields: ethnicity, gender, state of residence

18. Outcomes of Modeling • Identifies student characteristics that are important in predicting enrollment. • Pinpoints opportunities to use aid resources thoughtfully and effectively to achieve enrollment and fiscal goals, and to support institutional values. • Makes clear the consequences that would result from changes in awarding policies.

19. Enrollment Probability General Rule: The probability of enrolling is a function of individual student characteristics, including financial need, and the total amount of grant assistance offered. You can respond to this information through strategic financial aid/pricing policies (tuition discounting) …but should you?

20. Role of Financial Aid “Financial aid packaging has become a sophisticated process driven by complex models designed to optimize the use of financial aid resources to achieve a complex mix of institutional objectives.” McPherson & Schapiro

21. Financial Aid Policy Issues • Focus may shift from concern for meeting students’ financial needs to concern for meeting enrollment and net revenue “needs” of the institution. • What are the implications for our values and institutional missions, our sense of fairness and students’ perceptions of our practices?

22. Competing Priorities VALUES If more funds are directed at middle- and high-income students, low-income students may end up with more unmet need or self-help. REVENUE To focus solely on equity could quickly deplete resources and therefore be fiscally inefficient. BALANCE Focusing on the efficient use of funds may increase the opportunities for the use of aid funds in the pursuit of equity.

23. Strategic Use of Financial Aid • If there aren’t enough students bringing tuition dollars to campus, there will be inadequate resources for delivering a quality education and inadequate resources for need-based financial aid.

24. Strategic Use of Financial Aid • Strategic: “Of great importance within an integrated whole or to a planned effect.” According to Webster • Strategic use of aid provides a way to capture the necessary revenue to preserve educational quality while offering as many students as possible a net price they find affordable.

25. What is your mission?What are your target groups? • Underrepresented populations • Academically gifted • In-state/out-of-state • Special majors (engineering, nursing) • On campus vs. off campus • Special talents (musicians, athletes) • _____________________________

26. Policy Alternatives • Need-based approach • Non-need-based aid • merit scholarships • Differential packaging • merit within need • preferential loans • Gapping • Admit/deny • Need-aware admissions

27. Strategic Use of Financial Aid What are the trade-offs of various policies? Each institution, according to its mission & values, must determine who is helped & who is hurt, while keeping an eye on the target: Offering a rewarding educational experience to current students while sustaining the ability to continue to offer such an education in the future.

28. Strategic Use of Financial Aid Resulting aid policies should: • Be congruent with mission & values • Optimize enrollment of desired mix and number of students • Encourage retention & degree completion • Blend principles of meeting need with awareness of market realities • Seek to balance ideal with practical

29. Ingredients for Successful Decision-Making Data and information resulting from modeling + Lessons learned from experienced practitioners + Intuition + Institutional context and values = Well-founded and informed policy decisions

30. Defining “Success” • Short-term view: • Enrolling the right number, quality and mix of students at the “right” price • Long-term view: • Measuring success by retention and graduation rates. Unless admitted students persist to degree completion, efforts toward access, equity and fiscal controls are wasted.

31. Conclusions • Business as usual will not continue to work for most institutions. • Without careful analysis of data, any change in policy or practice is equally likely to succeed or fail. • The stakes are high enough that no institution should “fly blind,” especially since risk can be minimized through effective data analysis and modeling.

32. Contact Information Jim Slattery The College Board • 781-890-9153 • jslattery@collegeboard.org