To put it simply, financial aid leveraging is the strategic use of institutional funds to impact enrollment and manage net tuition revenue.
Enrollment management is crucial to the long-term success of many institutions because, for colleges and universities, tuition revenue can make up 70% or more of their budget. As such, the ability for institutions to strategically manage revenue through their discount rate is at the core of the work that is done by enrollment management.
Financial aid leveraging is a tool and, when used effectively, can be used to bridge market reality with the institutional mission, help determine future academic offerings, and play a critical role in shaping the direction of the university.
Why do college and universities use financial aid leveraging?
Starting in the 1980s and 1990s, private colleges and universities faced a very difficult challenge. The cost of attending private institutions soared at a much faster rate than inflation, and those cost increases put many private institutions at a disadvantage. The sticker price was far greater than what most students could pay, meaning they needed more aid to enroll. Yet these private colleges and universities could ill afford to discount their tuition too heavily because it would deprive those campuses of the revenue they needed to provide a quality educational experience.
Many private institutions needed a new strategy — financial aid leveraging — to address this challenge. Financial aid leveraging is used to help campuses enroll the students they need to, control discounting and financial aid costs, and achieve the revenue they need. It helps institutions pinpoint the amount of aid students need to enroll. Leveraging has been very effective for private institutions, helping them get the biggest enrollment bang for their financial aid dollars.
Today we see public institutions have also begun to use financial aid leverage, driven by changing student demographics and a decrease in state funding. As the number of traditional students decline in many regions across the nation, institutions are using additional financial aid dollars to attract and retain students. In a majority of states, tuition revenue now makes up more of public institutions’ total revenue than state appropriation, increasing the competition for enrollment growth and highlighting the need to optimize financial aid.
What makes predicting yield so tough for many colleges and universities?
The biggest challenges are students who demonstrate genuine interest in a college and don’t always enroll. Nearly 25% of 2019 college freshmen who were admitted to their first-choice school did not enroll there. Beside taking into consideration student and family choice, there are also external factors at play, such as competing scholarship offers and macroeconomic conditions that influence college attendance decisions.
There are many factors that impact yield (socio-demographic, academic predictors and choice set—data from the FAFSA) and the importance of these factors vary from one institution to another. There is no one-size-fit-all solution to financial aid leveraging.
How can I shape an incoming class?
With rigorous analysis of your historical data, you can enhance existing markets and identify new opportunities. Funnel building starts with increasing your desired student population and then improving yield once they are admitted, something that can be done with targeted scholarships and grants.
Although colleges and universities have an abundance of student data, most are still struggling to translate demographic, social and educational information into actionable insights. We typically recommend a discovery process where we interview key stakeholders to understand a school’s unique student profile and identify which students are the right fit. This discovery, paired with some deep data analysis, will help understand what the true drivers are in growing enrollment and shaping your class.
How are scholarships and grants awarded and how do they influence enrollment?
The awarding of scholarships and grants can play a role in increasing the interest of prospective students, to get them apply, and to increase the probability of accepted students to enroll. The key is in the use of scholarships and grants to target the “right” population of students that will encourage them to choose an institution.
At the end of the day growing enrollment is an uphill battle. Even for the most popular colleges and universities, there is increased competition which has made it challenging to fill an incoming class.
How can you increase net tuition revenue?
Financial aid leveraging allows institutions to figure out whether they are using too much aid to yield students who were already going to attend and identify students who would have attended if they were offered the right amount of scholarship or grant. Essentially, financial aid leveraging analyzes whether or not an institution is over-awarding and whether there are pockets of opportunities to enroll more students.
So how do you increase net tuition revenue? You will need a well constructed enrollment goals along with tracking of projected outcomes during the enrollment cycle this will maximize revenue and reduce the probability of unanticipated results.
What should change about financial aid leveraging during COVID?
During this COVID pandemic, achieving enrollment targets has been more uncertain than ever before. On average, fall 2020 incoming freshman classes were down by 16% and enrollment across the nation down 4%. How can your institution respond? Do a deep dive into the enrollment funnel data to see where markets performed below expectations and where there are pockets of opportunities. Communicate to institutional leadership to hedge and invest appropriately in additional marketing and financial aid initiatives. It is even more crucial now to use financial aid leveraging to ensure scholarship and grant offers are competitive and to track how students are reacting to them.
How Echo Delta helps with financial aid leveraging
The experts at Echo Delta have many years of experience developing financial aid leveraging strategies from many different institution types (private, public, and for-private) and sizes (large, medium, and small), with a stellar track record of shaping enrollment, increasing net tuition revenue, and decreasing discount rates. We specialize in using the latest data science, predictive analytics, and visualization tracking techniques to develop a strategy that fits your institutional needs. Ready to make the next steps and get help with shaping your class at the same time increasing net tuition revenue? Contact us today and find out how.