The importance of explicit prioritization when planning your college or university’s financial aid allocation strategy can’t be overstated.
While EAB data shows that college costs for students have steadily risen since 2008, net tuition revenue growth has been anemic. As a result, colleges have turned to strategic financial aid allocation to help offset those rising costs.
But with this method of offsetting cost to students, you really need pay attention to where these dollars are coming from. Allocating too much financial aid to one subset of students takes away from money you can award to others, so determining your priorities in advance—and sticking to them—is imperative to ensure your financial aid strategy supports students and also supports your college’s overarching goals.
Set priorities with tradeoffs in mind
Enrollment leaders often discuss priorities and tradeoffs by what’s known as the iron triangle—the concept that the three core enrollment goals of diversity, academic profile, and revenue generation are often at odds with another, and focusing on one might mean sacrificing another.
For example, take the case of improving diversity. Underrepresented students are often also low-income and clustered in under-resourced high schools. Therefore, recruiting underrepresented students may involve accepting a slightly lower academic profile or allocating more aid.
And since higher-ability students often base their school decision on the best aid package, requiring you to allocate more aide to recruit them, making progress on any of these goals often requires making sacrifices on the other two core enrollment goals. Under the right circumstances, universities might make progress against any two or even all three goals simultaneously, but such a situation is rare.
Questions to ask to evaluate tradeoffs
Prioritizing important tradeoffs is important to successfully setting goals for your team. Your enrollment team must communicate to senior leadership the ways in which different goals can potentially conflict. Leadership should then determine the relative importance of goals and the tradeoffs associated with them.
Below are some areas where tradeoffs are necessary and some questions you should ask when deciding on them.
If the college or university missed their revenue target but hit all its other targets, would this be acceptable?
If the college or university could enroll more students but generate less revenue, would that be desirable?
Is the university willing to trade academic profile and/or revenue to enroll a more diverse class?
Is it more important to enroll more high-ability students or improve diversity?
How prioritization helped increase first-year net tuition revenue by $6M
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As part of a team with EAB Financial Aid Optimization, we worked with one noteworthy small private college in the Midwest that minimized how much their goals conflicted with one another.
The college wanted to increase net tuition revenue, but they didn’t have a precise, predictive financial aid model to determine how they offered aid to the top-quality and diverse students they were seeking. And with 100% of first-year students living on campus and more than 75% of income dependent on tuition, there wasn’t much room for error from one year to the next.
They also hoped to optimize yield to enroll more domestic students of color and more men while simultaneously raising academic quality and controlling the discount rate. At the time, they were in a holding pattern at 9% students of color and 44% men in its incoming class.
Last, they wanted to improve quality. More broadly, the college also sought opportunities to further enhance its brand, market, and national reputation. Their admission overlap group included flagship universities and selective private colleges.
After determining their priorities, they developed new strategies to:
- Maximize aid dollars
- Expand their early decision program
- Design new limited loan and no-loan programs for students of color
- Increase the yield of students from middle-income families through better strategic packaging
- Revamp marketing outreach to change how it bought search names from the College Board, devoting more outreach to all-boys’ high schools across the country, and retooling some of its messaging.
As a result, their net tuition revenue for first-year students increased from just over $9 million in 2003 up to nearly $15 million in 2013. The college’s current discount rate of approximately 34% has been more stable than many of its peers. So too has been its percentage of full-pay students: 56% in 2013 compared to 55% in 2003, a model of consistency during turbulent economic times.
The college was also successful in their effort to increase diversity. The enrollment percentage of U.S. students of color in the incoming class more than doubled—from 9% in 2003 up to 19% for fall 2013. Enrollment of male students rose from 44% to 46% during the same period.
While most financial aid departments at colleges and universities understand the need for this prioritization, every school’s needs are different. We hope this post has helped set the foundation for your aid allocation priority discussions and given some encouraging examples of a well-executed strategy.
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Financial aid is a confusing terrain for students and parents alike. Complex jargon, hidden fees, and misconceptions about loan repayment are barriers to enrollment, and many students are deterred based on sticker price alone. Delivering financial aid touchpoints that immediately break down net price, use clear language, and provide guidance at points of uncertainty will increase the likelihood that financial aid is a bridge to further engagement with students in the enrollment process.