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Three innovative ways to use financial aid to promote student success

June 25, 2015

Institutions of all types are making big, new investments in student success, but it’s clear that we’re still not using every tool in our success toolbox. For example, we spend enormous amounts of time and money calibrating aid in the recruitment process, but aren’t thinking as creatively as we could about leveraging aid for retention. And while there’s robust literature out there on the impact of different amounts of aid on persistence, we need to step back and think about how to design new aid programs to give us more retention bang for our aid buck.

We all know that increasing our financial aid budgets can help students stay in school, but it’s becoming more difficult to secure increases in unfunded aid budgets. I want to highlight three ways that innovative aid program design can improve success.

1. Financial aid is about more than just finances—it can incentivize behavior correlated with success

Traditionally, we’ve thought of institutional aid as a tool to help students pay for college and reduce the need to work or take out loans. But aid can also incentivize good academic behavior or foster greater engagement with an institution.

Unfortunately, merit aid—our classic tool for rewarding academic success—typically goes to existing high-performers who often need it the least.

Moreover, merit aid is typically tied to a GPA requirement. But at-risk students may not understand the academic behaviors correlated with success, such as taking 30 credits per term. They need more explicit guidance about what specific actions will lead them to succeed.

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By targeting the most at-risk students and tying scholarship money to specific behaviors, we reduce students’ needs while arming them with the tools to be academically successful—a double retention dividend. Initial results from Temple University’s “Fly in 4” program, which includes a $4,000 behavior-based grant for the neediest students, suggest that freshmen receiving the grant retain from fall to spring at five- to six-point higher rates and have a first-term GPA almost half a point higher than students with similar EFC (expected family contribution) levels. The behavioral criteria include taking 30 credits per term, meeting at least once per term with an advisor, setting and following a degree plan, and meeting the relevant priority course registration deadline.

2. Clear communication and financial aid opportunities is an enrollment imperative

We’ve known for a long time that students find the financial aid process, and financial aid offers in particular, very confusing. Still, despite years of political pushes for reforming the aid process, financial aid literacy is still dismal—a recent NACAC survey suggests half of college-intending juniors don’t even know what FAFSA is.

Groundbreaking research by University of Virginia scholar Ben Castleman and his colleagues have also pinpointed a lack of aid literacy as a top reason for attrition among low-income, first-generation and other at-risk populations. Even if students from these groups complete the admissions process, they simply won’t come if they don’t understand or have confidence in their aid package. In one recent study, 30% of college-bound seniors from the Big Picture charter school network melted, even though 100% of them completed the admissions and aid application processes.

We’re now seeing a number of initiatives at the institutional level to clarify the financial aid process, particularly offer letters. Members are proving that relatively small tweaks to offer letters can increase yield, boost retention, and reduce cumulative debt. Our research consolidated the dozens of disparate recommendations for improving aid letters into four core principles, many of which can be satisfied with existing public tools. For example, Purdue University was able to reduce cumulative student debt at graduation by 3% over three years simply by adopting the federal shopping sheet as a model aid letter. Clearer aid communication also frees up aid counselor time for higher-touch, proactive counseling for the most at-risk groups.

3. Strictly enforcing unpaid balances is a lose-lose proposition for institutions and students

Problems with unpaid balances are inevitable–our research suggests 1-4% of undergraduates are purged from the rolls for unpaid bills every year. The traditional policy has been to purge students with any balance immediately after the payment deadline and hope the student comes up with enough money to return. Bursar holds are designed to pressure students to pay their bills, but they create their own set of bureaucratic problems and are only effective if a student has the funds and will to continue.

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In reality, stopping out even once can doom a student’s chance of completing; some institutional studies suggest that less than half of leavers will ever re-enroll. And purging a student means the institution loses any tuition, loans, or grants connected to the student for the current semester, as well as future terms. By forgiving small balances, institutions can keep a student on track while retaining millions in tuition that otherwise would have been lost.

It’s increasingly clear that waiving, forgiving, or “granting away” partial balances can both keep students in school and maintain tuition revenue. Some members object that forgiving balances will create a perverse incentive, leading students to intentionally underpay bills in the hopes of getting an institutional hand-out. But the research suggests that disciplined targeting and data collection on the institution’s part ensure that administrators know which students are truly in need, reducing the chance that students will game the system.

Learn more about how to encourage positive student behavior

Our experts have worked extensively with institutions to identify best practices for encouraging better student decision making. Listen to our webinar to learn more about using “nudging” to increase student success.


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