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How the Pandemic is Changing Tuition Pricing and Financial Aid

Episode 20

August 4, 2020 35 minutes


EAB’s Molly O’Connor and Carol Stack discuss the complex calculations that underly university decisions on tuition pricing and financial aid optimization. They examine ways the pandemic is shifting those calculations and why it’s so important for universities to communicate with students and families about the rationale behind the numbers. Finally, Molly and Carol urge university leaders to reach out now to students who may be in need of support or at least a discussion around financial aid.


00:11 Matt Pellish: Welcome to Office Hours with EAB. I’m Matt Pellish, and this is your weekly dive in higher education’s most pressing issues. As colleges and universities, they’re gonna spend the next few weeks making some of the final decisions about the fall semester, but as they’re doing it, it’s not just about social distancing, wearing masks, whether or not classes are gonna be face-to-face. There’s other big questions that they’re grappling with. Things like, “What should our tuition pricing look like if we’re remote? How much financial aid might students need given the entire economic situation? Or how do we explain all of this to families?” To walk us through some of the complex calculations that universities have to run to make any of these decisions are two of EAB’s brightest enrollment minds, Molly O’Connor and Carol Stack. They’ll talk us through how the pandemic is shifting the calculations and urge leaders to be a little more proactive in their outreach to students who might be in need of support at this time. Thanks for listening, and welcome to Office Hours with EAB.

01:13 Molly O’Connor: Hello, everybody. Welcome to Office Hours at EAB. My name is Molly O’Connor, I am a Senior Director with EAB. I am dialing in today from Arlington, Virginia, from the guest bedroom of my home, which shares a wall with a napping one-year-old, so I always give the caveat, if you hear any screaming in the background, no need to be alarmed. I am joined today by a colleague of mine, Carol Stack. Welcome, Carol.

01:44 Carol Stack: Thanks, Molly. And I’m calling in today from beautiful Saint Paul, Minnesota, right in the nation’s heartland, not that far south of Canada. So a different climate, and I’m probably a little cooler and not quite as hot and sticky as you have in Arlington.

02:01 MO: It can’t be more hot and sticky, because I actually said yesterday, I came home from the grocery store and I said, “We have to move. I can’t live here anymore.” It’s 95 degrees, we live in a swamp, which we already knew. It is very hot and sticky here, so I’m glad you’re enjoying some better weather.

02:22 CS: So I guess we better get on to our topic for Office Hours.

02:25 MO: Yes, let’s do it. We know price and aid are perennial topics of conversation all across the year, and particularly as we approach the new school year, but there is so much more complexity to it this year, I would say, with questions about re-populating campus, instruction modality, questions about what families will be able and willing to pay. So we thought this was a good time to have a conversation about this topic, share some of our insights about it, and I guess perhaps some of our open questions as well. I will kick it off. I have a question for you, Carol. A lot of the folks listening to the podcast, many are, but many are not experts in tuition pricing and financial aid optimization. I thought it’d be helpful to start off with an overview of what are schools trying to accomplish. I know as I have become more versed in financial aid, I’ve been a little bit surprised at how closely it’s tied to enrollment strategy, to institution-level enrollment goals, and all of the different ways financial aid can be a lever in recruitment and enrollment. So I think it’d be great if you started off with giving everybody an overview of that.

03:41 CS: I’m happy to do that, Molly. Financial aid is one of those things that is incredibly simple and simultaneously incredibly complex. For students and parents, it sometimes seems as though it’s nothing but a series of bureaucratic forms and have-tos and, “Ooh, do you really have to have your nose so far in my business, college or university?” From the college and university standpoint, what they’re trying to do is simultaneously accomplish several things at once. First, of course, be compliant with federal and state regulation when they’re giving away federal and state money. Secondly, be good stewards of their own money. Every college and university has either some sort of an endowment or a funding system so that they can support students. They have a responsibility to be good stewards, just as we all do for our own budgets. And then the third thing, of course, they wanna do is use their financial aid in a way to hit their enrollment goals.

04:45 CS: When we think about financial aid as a lever, the most obvious ones that all of us know and have seen over the years are athletic scholarships. But there are also scholarships tied to academic performance, tied to music, tied to maybe the one student who wants to study organ and is able to receive a full ride scholarship for that, or institutions that are tied to particular religious denominations or have a particular focus of their mission, say on sustainability or civic responsibility. The way in which they choose to give their scholarship or grant-made money becomes a reflection of institutional mission and values, with the understanding that those funds are limited, and that’s where things get hard. It would be wonderful if I, at Carol Stack’s Pretty Good University, was able to give to every student I offered admission the kind of funding that that student and her family felt the student needed to enroll, but generally, that’s not the case. Funds are limited. And so optimization is the process of deciding what the strategic enrollment goals are for the university, how we wanna distribute those, and can we do it in such a way that it makes it possible for students to enroll without, and this is gonna sound really evil, without giving them one more dollar than we have to? Does that help, Molly?

06:25 MO: Very, very much so. I think particularly the nuance you provided helps. It always strikes me about higher education as someone who works in it, when I have conversations at family reunions or just family dinner, everyone feels like they know a lot about higher education because everyone has their experience as a college-goer, as a parent of a college-goer, as a sibling of a college-goer, the interactions they’ve had with the school, the messaging they’ve gotten from the school, and so I think it’s helpful to get the overview of all of the different inputs to the decisions that any particular perspective or admitted college student just gets one piece of paper summarizing.

07:05 CS: Exactly. In the United States, we have an incredibly complicated and robust system of higher education that responds to the needs of all kinds of different populations by geography, by the economic needs of a particular part of the United States, by history and overall attitude. So it’s a remarkably rich and diverse industry, and I’m still amazed after way too many years in this business, I still am learning more about colleges and universities that were foreign to me. Because I don’t know about you, but it’s what makes our jobs, I think, really fun.

07:51 MO: I completely agree. And I think… And on a serious note, obviously, what’s going on right now in the economy from a public health perspective is very challenging in many ways. It has also been fascinating to see all of the decisions that institutions are making, are being forced to make, and all of the different pressures that they are balancing, and I’d love to ask you another question on that note. This is something that’s been top of mind for me and that you were talking about what an important role schools play and how many different demographics and student segments they serve. They are also, this year, dealing with very real financial pressures due to, perhaps, declining enrollments, due to uncertainty about what instruction is going to look like, and then pile on top of that an economy entering a recession, and there’s just a lot of questions.

08:43 MO: I think the biggest question I’m hearing now is what are families going to be able and willing to pay? And they’re two distinct questions, not just next year, but the year after. And so I thought it would be helpful if you could shed a little bit more light on how are schools balancing that. The very real desire and need to support students to provide them with the aid they need to welcome them to campus, with the reality that expenses are actually going to be higher, costs are going to be higher next year. Switching to remote instruction is an added cost, having to put additional public health measures in place to keep students safe is an added cost, having fewer students on campus is a reduced revenue source, so how are schools weighing those two things against each other?

09:36 CS: That’s a great question, Molly. And I think one of the lessons that we’ve all learned since the middle of March is the value of not just communication, but excellent communication between colleges and universities, and students and families and other stakeholders. A higher education institution is an incredibly complicated enterprise because it involves everything from almost hotel-like residential issues, beds that have to be maintained, food that has to be provided, workout facilities, but then there’s that all-important, all-encompassing part of the educational part of the program as well. And I think what happened in the spring, we saw a number of… Well, we were all blindsided. Certainly, right? I have to admit I think I’m a very good consumer of the news, I pay attention to the world, and I can still recall a conversation with a friend in mid-February where he said, “Yeah, I just don’t understand why we’re so worried about this virus in China and why it’s going to be worse.” And I think we were a little surprised when the middle of March rolled around and the world changed.

10:51 CS: I know that was true at college and university campuses as well, and sometimes those communications with students and parents were perhaps not as compelling as they might have been. And relationships, financial relationships, went off on the wrong foot. And I think what we’ve learned over the summer is the value of really good communication to explain what is the essence of what we do on a campus, what do we need to do to provide that kind of education, what are these fixed costs? And yes, we still have to charge what we have to charge. I think, Molly, I’m sure you’ve talked to some of our partners who have talked about the kind of investment they’ve had to make in remote education in order to do it well, in order to do it to the standard that they would provide on campus. It’s a huge investment.

11:50 CS: Of course, maintaining the faculty and staff that they have so that the product that every student receives is of the highest quality is important as well. So I think we have to remember that keeping people informed is more important than ever. I think we’ve seen some terrific examples. I’d like to call out Bowdoin College, did a terrific job, I think, of explaining both in writing and with video why they are charging what they are charging. Berkley College of Music just last week made an announcement about a change in program for the fall, and I thought wrote a very compelling letter to students and parents of students to explain why it is they’re doing what they’re doing, why they’re charging what they’re charging. And to me, that makes all the difference in the world. I think where we’ve had missteps, it’s been when colleges and universities have perhaps been just a shade high-handed in their communication. And not unlike the parent who says, “Because I said so,” doesn’t always get the best response from students and families.

13:04 MO: It strikes me as well, and this, I think, is always true when we’re talking about financial aid conversations, but there’s such a human element to it, and I think it’s easy to get lost up in, “Well, if they don’t like what we charge, there’s nothing we can really do about it,” and I think that there’s so much that schools can do to message compassion and flexibility, to show prospective students and families, as well as returning students and families, that they understand what a difficult time this is, they’re trying to work with them as best they can. And that always strikes me that when you’re thinking about your communication strategy, so much of it is just about building that connection and maintaining that connection. And to add insult to injury, that’s so much harder virtually. So when we look at what happened over the last year, you’re used to these in-person connections and these much more frequent face-to-face connections, and now trying to have these conversations, really difficult conversations, with parents who maybe just lost a job or who are really realizing they might not be able to make it work next year. And so just how that conversation goes, I think, has such a big impact on the students’ likelihood to return to the institution or trust… That family to trust you with their student in the first place.

14:25 CS: I think you’re absolutely right, Molly. Those conversations are fraught at the best of times, and we’re no longer in the best of times. Over the years, I’ve been privileged to do a fair amount of training of admission and financial aid staff members about how to have conversations with families about making the investment in their students’ higher education. And I always remind them of two things, that you are asking a family for two very important things. You’re asking them, first off, for a financial commitment, and that commitment may be $500 or $25,000. To that family, it’s important, it’s a significant part of their discretionary income, and they’re making a commitment in that way. But we’re also asking them for a second commitment that maybe is even more important, and that is we’re saying to them, “You’re not only gonna give us all this money but you’re gonna give us your child as well, and you’re going to trust us to educate them and tend to them and take good care of them.”

15:30 MO: During a scary time now.

15:33 CS: Absolutely, it’s a very scary time now for that. And we need to remember, and it’s… Excuse me. Even though we can communicate with one another on the telephone and maybe via Zoom or another kind of service, it’s still not quite the same as the ability to sit down around a table together and talk things through and understand how a family can manage the investment in their child’s education. I think though we’re at the point now where as we think about this fall and what’s happening, as I’ve been talking with our partners over the last week or so and with my colleagues, what we’re seeing at this point for the fall is certainly for new students, I think if we are seeing any melt in commitments for the fall, at this point, it’s really not related so much to pricing.

16:33 CS: I think there are other kinds of factors that our families are considering, whether it’s sending their child to a state that might have a two-week quarantine in place for students coming from their home residence, to concerns about other family members’ health. I think we’ve kind of shifted for new students, they’ve got their aid awards, they’re set, they’re ready to go. On the continuing student side though, I think we’re seeing maybe a little bit of change there. Certainly, the examples of places that were planning to go face-to-face and now are shifting to remote. We’ve seen a variety of different approaches in pricing. And I think from what I’ve seen, colleges and universities have done a great job of choosing the strategy that makes the most sense for them.

17:22 CS: For some of them, it’s simply been to say, “We will discount our tuition for the fall 10% because of the fact that it’s going to be all remote instruction.” That’s one way of recognizing the fact that it’s not the same, and simultaneously recognizing the fact that the institution has to make some investment to do that remote instruction well. Other places have chosen an approach that I kind of personally like better, which was to maintain the same tuition structure and use COVID grants to perhaps reduce the pricing for the fall. That allows a little bit of nimbleness and flexibility that maybe a straight percentage tuition decrease doesn’t. But I don’t know, Molly. What have you seen and what do you think?

18:09 MO: Well, it reminds me, the COVID grants… And this is something, we’ve had a lot of partners who think… Go back a few months, there was much bigger picture decisions being made about pricing and things like, “Do we do a tuition reset? Do we completely revisit our pricing strategy for the fall?” I think in most cases, we felt like that wasn’t the right decision to make at the time. Let’s wait and see. There… Even now, maybe four weeks out from the start of school on most campuses, there are still so many unanswered questions about what school will look like in the fall and how many students will be able to stay on campus. So I agree with you, a strategy that can be a little bit more nimble and responsive is what we have been recommending to partners.

18:56 MO: And it reminds me, we often talk about how, for better or worse, a scholarship feels more valuable to a student than a tuition discount. So a tuition level and a certain amount of a scholarship, we often say, “The scholarships get bigger and it’s better, whereas tuition gets lower and that doesn’t feel as good.” And so when we think about a COVID grant, for example, I think that that sends a message of value. We really want you to come on campus, we acknowledge this is not what you initially signed up for, and so we want to provide some acknowledgement of that. The other theme I think we’ve been talking about a lot today is the importance of communication and being able to share, just naming something, a COVID grant, I think, sends a message about responsiveness, about acknowledgement of what families are going through.

20:01 MO: Something that we haven’t talked about yet today is just the disparity in how the pandemic is playing out in different households and the demographics of different institutions. So we know that low-income households and minority households have felt an outsized impact, both from a health perspective and from an economic perspective, due to the pandemic. And so schools, obviously, every school knows their own population and the students that they’re working with, but schools who have a large percentage of perhaps Pell-eligible students or other under-represented minority students are probably going to see, our data shows, lower deposit rates this year and lower rates of students filing FAFSA. Both of those are… Those are the best indicators we have of whether a student intends to enroll in the fall. So those are both very worrying trends as we think about what enrollment might look like for the fall, but I also think they prevent an opportunity.

21:00 MO: These are students that… Carol, you and I discussed this earlier this week, these are students that suffered a lot from their high schools being closed, who relied on their guidance counselors for help with college application completion and filing FAFSA, and having that support community as they went through that process. And so there’s a lot of outreach schools can do to send reminders about the importance of filling out the FAFSA, remind them the money they may be leaving on the table if they’re not completing that application, providing support, providing FAFSA 101 sessions or Zoom sessions where students can come and actually complete it together. Those are gonna be really important, I think, financial levers to pull to make sure that the class is as full as you hope to be in the fall.

21:50 CS: Absolutely, Molly. As we’ve looked across the data for our 165 some partners, that’s exactly the population, the one you described, where we’ve had concerns. We saw a number of FAFSA filers down, we’re seeing deposits lagging. And if there’s a good part to that story, the good part is it’s reinforcing of the value of personal interactions on both the secondary school side and the college and university side. The sad part for students is that for many of them, without the opportunity to sit down with someone in their high school or with someone in a financial aid office to actually say, “Walk through the verification process. What is a tax transcript? I’ve got these three things that my mom gave me, I don’t understand which is the right one.” So it’s very reinforcing of the value of personal interaction and conversation. Unfortunately, it’s an expensive and hard lesson to learn that way.

22:57 CS: I think what it means for aid offices in particular, is that coming into this next cycle, we need to be cognizant of the value of good communication, and not only promoting the FAFSA, but thinking in communication channels that are particularly accessible to this group of students. So let’s think about things that can be done off mobile phones and smartphones, rather than necessarily requiring a computer. Think about ways in which you can maybe provide some service in an abbreviated way or a more simple way than in the past. There’s obviously a need for it. I completely understand how families can get caught up and confused in the FAFSA filing process. None of us speak Federalese… Well, maybe those who live in DC speak it more fluently than those of us who live in the Midwest. But…

24:03 MO: I don’t think that we really do. Sorry, Carol, I was just gonna say, I feel like we… To sum up what we were talking about in terms of pricing levers that schools have at their disposal, we recommend generally some kind of very clear, easy-to-message one-time tuition reduction or a grant. I think the amount is hard to provide generalized advice on ’cause that’s so institution-specific. But thinking about tuition is 10% reduced for this semester, everyone receives a one-time X amount COVID grant to offset some of the additional expenses you may have. I feel like most schools, at least the ones that we’ve been talking to in our capacity, are on board with that. Looking ahead, as you think about, again, there’s so much uncertainty for the spring, maybe schools will have more students on campus in the spring, we might see a second wave and there will be fewer students on campus in the spring. So as you think about a school revisiting this conversation a few months from now, looking at the spring, would your guidance be different? Or I guess, I’d be interested to get into the minds of some of the schools you might have spoke with. What are the things they’re thinking about or strategies they’re thinking about when they next have to make this tuition and aid decision?

25:32 CS: I think for the spring, many of them, at this point in time, are assuming they will continue the pricing system they put in place for the fall, assuming they have the same delivery system they’ve put in place for the fall. What I keep reminding them of is you can never talk about your pricing without your value proposition. Don’t forget the value of the enterprise. When you become so focused on the dollars and cents, then it becomes easy for students and their families to do comparisons only on the basis of price and not on the basis of the actual educational program. And so underneath it all, as I said early on, I think communication, it’s just been a huge theme here this morning, we need to reinforce the value of the educational program at our particular institutions.

26:29 CS: I have heard some places begin to talk about pricing in the long term. That’s, of course, been something we’ve been hearing about for the last couple of years as we launch into another presidential campaign series, and the notion of “free college” which I object to because free college is something that seems to carry no value to it. So at this point in time, for fall ’21, many unknowns. For fall ’20, at this point, I think that things are really pretty well said, other than making sure that you have an aid office and an enrolment operation that is responding to any appeals that may come in from newer returning students, and always listening before they talk. The basis of any kind of good communication.

27:26 MO: Yeah, that makes sense. I think… I guess one of the final questions on my mind is if as schools have determined their strategy for the fall, are preparing to welcome some number of students back to campus, what’s the plan if they have to shut down again and send students back home? I know we talked a little bit in the beginning about how that went in the spring, but that was all due to everybody… That was completely unpredictable in the spring, and that’s a little bit different now looking forward. Is your sense that schools have a contingency plan for that, or are just hoping that doesn’t happen? How do you see that playing out if that does happen again in the fall?

28:12 CS: I would say most of the partners with whom I have spoken have a plan in their back pocket for that. I think they’ve done a great job this summer of doing two things: Doing a terrific debrief on what happened in the spring and what they handled well and what they didn’t handle well, and launching into the fall with a commitment to not repeat any mistakes if mistakes were made. Certainly, we all hope that that doesn’t happen, but we also all know that hope is not a strategy. And so having a contingency plan or two ready to go should things change dramatically, I think, is simply good business at this point in time.

29:00 MO: So as we’ve, I think, alluded to a couple of times in our conversation so far, we feel like between now and the beginning of the school year, whatever melt schools do see will largely not be for financial reasons. I feel like most of those conversations have been had, most of that melt has happened if it is going to. So what are the things schools should be thinking about in the next month to optimize enrollment for the fall?

29:30 CS: Certainly, if I were on a campus right now, I think I would be paying great attention to my continuing students. It’s sometimes easy when you’re on a campus to become so tied up with daily new student numbers that you forget that the bulk of your enrollment and the bulk of your revenue is coming from those continuing students. We know we have a series of markers we can look at with continuing students, and they’re specific to each university or college campus. Whether it’s that in a normal year by July 15th, we’ve sold 1,500 parking permits to continuing students, and this year we’ve only sold 200. Or in a normal year by July 28th, we know that we have continuing students, X number of pre-registrations for the fall at each level. Whether we’re gathering data from faculty and staff that work with student musicians or theaters, students or athletes about the intention that they’re hearing. We have a multitude of sources on campus that give us hints about students’ intention to re-enroll. I would certainly be paying attention to every one of those markers.

30:53 CS: And from the aid office, I’d look at things like, if we normally have X number of families who apply for a Parent PLUS Loan, is that happening this year? How about student loans in general? Is that happening? Or applications for work-study jobs? So we have to use all of the information that we have at our disposal. And then most importantly, we need to use that information in an actionable way. And if in fact we see that Molly O’Connor, who has always bought a parking permit and done these things the prior two years hasn’t done anything yet this year, then it’s reaching out to Molly to say, “Ah, what’s going on? How can we help? We’d love to have you back. Where’s the bump in the road?” So it’s being intentional about looking at data, and then most importantly, it’s using it in an actionable way.

31:55 MO: Which circles back to, I feel like, where we started with communication. Obviously, so important to have all of that data, have the ability to analyze it and look for trends and then be able to actually operationalize that with outreach campaigns. And I think it’s been interesting, some of the other conversations we’ve been having with partners are about admissions work for the fall. So how do we do admissions work when we can’t visit high schools and we’re not largely welcoming perspective students to campus? And one of the interesting things that has come up as a hidden opportunity is there’s actually so much more capacity staff have if you take out travel time and all the logistics of travel. So they’re able to have so many more meaningful one-on-one conversations, albeit virtually, but with prospective students. And we know that that personal connection, those one-on-one conversations, are often what turn the dial for a student if they’re deciding what’s the right fit, or deciding if that school is gonna be… They’re gonna be able to trust that school with the challenges they’re facing.

33:07 CS: I think you’re right. I think we’re going to see some remarkable creativity this coming year from the admissions side of the house. And I’ve been in this business a very long time and done more than my share of high school visits, and I have to say, I’m not necessarily sad to see them go away. I’ve met some marvelous students on high school visits, but I’ve also spent a lot of time sitting in a cafeteria by myself talking to no one. So I think there are more efficient and effective ways, and certainly, working with a generation of kids for whom connecting virtually is something they’ve done their entire lives, they’re very comfortable with it and they know how to use it as a channel and a medium to be the most effective for them.

33:56 MO: And necessity is the mother of innovation, so…

34:00 CS: Absolutely.

34:00 MO: What happens this year. Well, it’s been great talking with you, Carol.

34:03 CS: Always good to chat with you, Molly.

34:05 MO: Yes, thank you so much. Any final thoughts or pieces of advice for schools as we approach the fall semester?

34:13 CS: No. We’re going at it sort of day-by day in the Aid Optimization Group as we work with our partners, trying to see it as a wonderful creative challenge. And we know that’s hard when maybe you have colleagues that have been put on furlough or things have wandered off a bit in the wrong direction, but I think that I’ve seen the best of my partner schools. I’ve seen people really come to the forefront and think about things creatively and with the best interests of students in mind, and so that’s actually made this all quite a delight.

34:56 MO: That seems like a great thought to end on.

35:00 CS: Bye bye, Molly. Talk to you next week.

35:03.MO: Bye bye. And thank you for listening to Office Hours at EAB.

35:13 MP: Thanks again for listening. Join us next week when EAB’s Brittany Murchison and TJ Reid share the results from a new EAB survey of more than 1,000 perspective degree completers. They will also share some new strategies for engaging and re-enrolling these students as a way to boost enrollments in what looks to be a pretty uncertain fall. For Office Hours with EAB, I’m Matt Pellish.

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