Barriers Created by Having a Fixed-Aid Budget Model

Institutions devote significant resources to their scholarship and grant programs in support of desired enrollment outcomes. Often, they view these resources as “expenses” that should be included in a line-item budget.Since these programs are largely unfunded (i.e. they are simply a reduction in charges), treating them as expenses limits their effectiveness. Instead, campus leaders should understand the revenue-generating power of unfunded institutional aid.

The enrollment downfall of the “expenses” view of aid

Here’s a pretty typical example that my colleagues and I see in our work with campuses:

• A regional public university wishes to enroll 5,000 first-year students for the next semester.
• This university builds a comprehensive financial aid strategy.
• It anticipates “spending” an average of $5,000 in institutional gift aid per enrolled student.
• The budget office therefore includes a line item of $25 million for financial aid.

Fast-forward to “yield season.” The enrollment management division excitedly reports that commitments are running 10 percent ahead of expectations. Some of the early momentum seems to be a result of increased applications. The rest of it is attributable to favorable responses to financial aid awards. Indications are that the first-year student class will be larger than anticipated.

Upon learning this news, the budget office determines that the university will likely “spend” more financial aid than it had anticipated—perhaps $2.5 million more! To adhere to austerity measures implemented by the chief financial officer, an individual from the budget office communicates to a colleague in the enrollment management division that it cannot increase the budget for scholarships and grants.

This decision could lead to a couple of scenarios (or a blend of both):

• Some accepted students do not receive this aid.
• Some accepted students receive some aid, but not as much as they would have under the adopted financial aid strategy.

In either case, I would expect the departure from the initial strategy to have a negative impact on yield—meaning that the early indications of increased enrollment may not come to fruition.

How more aid can equal more revenue

Here’s how looking beyond a fixed-aid budget model can actually increase revenue for an institution.

• Assume that this university charges $15,000 for tuition and fees. 
• Since the university was already planning to award an average institutional gift of $5,000, that means each enrolled student would generate $10,000 in net tuition and fee revenue. 
• If the university went 10 percent over enrollment goal of 5,000 students, that’s 500 more students bringing in an additional $5 million in net revenue.

This is a good thing, isn’t it? If we agree that, we must also agree that it would not matter that the university awarded 10 percent more in scholarships and grants than it had budgeted for.

I would argue that the 500 additional students had chosen to enroll, in part, because they were satisfied with their financial aid award. If the university had held the line on its fixed-aid budget model, some (if not most) of these students would likely have enrolled elsewhere. The university would have generated less revenue because of a flaw in its budgeting process. 

How can you make this shift more strategically?

This is just an example of the work my colleagues and I do every day with colleges and universities. We help them shift their thinking and processes toward understanding how the comprehensive financial aid strategy supports their revenue-generating process.

RNL’s Advanced FinAid Solutions is designed to assist institutions in making this transition toward a comprehensive aid strategy. Contact us today and we’ll set up a time to talk about how we can help you meet the financial needs of students and while also meeting the revenue needs of your institution.