Whether your institution is a small, expensive private college that began working with aid optimization consultants decades ago or a large, low-cost regional public university that only recently felt a need for more strategic use of aid, all universities must be sure they are getting the most from their allocation of financial aid. But financial aid optimization is complex. It’s hard to know what strategic use of institutional funds looks like and if your university is getting the most out of scarce financial resources.
This briefing is a primer on institutional grant aid, the money your university gives students to offset the cost of attendance. It will help university leaders understand the basics of aid strategy and assess whether or not their institution is deploying limited aid resources efficiently.
This resource is part of the Get the Most from Allocating and Communicating Financial Aid Roadmap. Access the Roadmap for stepwise guidance with additional tools and research.
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Evaluating the present state of aid allocation
For the past decade at private colleges, while list prices have continued to rise, net tuition revenue growth has been anemic, barely above the rate of inflation. This is a new phenomenon for private colleges. For most of the decade before the recession, tuition revenue grew at a steady rate, even as list prices increased faster than net prices. The change in revenue growth prompts institutional leaders to consider if there is some alternative pricing and aid strategy their institutions should employ. As we explain later, while revenue growth is often presented in the context of financial aid, aid strategy isn’t responsible for revenue stagnation.
Understanding the mechanics of aid optimization
The fundamentals of discounting, demonstrated in the table below, are straightforward. In three scenarios, the college with a list price of $10,000 offers different amounts of aid to all 100 admitted students. If the college offers no aid, relatively few students enroll. If it offers $2,000 to each student, significantly more students enroll. If it increases that amount to $5,000, more students enroll, but these additional students do not offset the higher outlay of aid. For every group of students at every college, there is a sweet spot of aid that generates more tuition revenue than more or less aid would.
Self-assessment of aid allocation
EAB has designed a short self-assessment consisting of 18 yes-no questions about the university’s aid allocation that enrollment leaders should be able to answer and use to guide discussions with the cabinet. The questions fall into four main categories: enrollment and financial aid strategy, aid policy, statistical model, aid implementation. Enrollment leaders should raise any concerns identified by the self-assessment to the cabinet.
Related resource
Universities must be sure they are getting the most from their allocation of financial aid. But financial aid optimization is complex. Read our primer on institutional grant aid to understand the basics of aid strategy and assess whether or not their school is deploying limited aid resources efficiently.
