Business and Operations
Financial aid can be complicated.
Many schools find it difficult to balance financial aid applicant needs with budgetary concerns. Determining which families to award, how much to award, and when to give it should be approached thoughtfully. But instead of considering financial aid as an expense, think of it as generating revenue.
Though it may sound counterintuitive, your school’s financial aid budget does not matter. What really matters is the amount of revenue financial aid ultimately brings in.
The goal for any school should be to maximize revenue. Empty seats do absolutely nothing for you. They do not generate revenue, and they will stay empty until you fill them. As a general rule, if a family will pay at least 50% of tuition, take them! This is 50% of the revenue you would not get at all had the family not been granted aid.
Schools facing budget shortfalls have myriad decisions to make. When initial applicants exhaust the financial aid budget, is it necessary to cut costs, or can you afford to admit new students who can pay a discounted tuition? Should demonstrated needs be met, or should aid awards represent a percentage of that need? There are no right or wrong answers—every school’s budget and funding are unique.
ISM’s recommendation for managing your financial aid budget is to meet applicant needs, but not discount a penny more than demonstrated needs require.
Approaching Financial Aid as a Revenue Generator
It is practical to set targets numbers for aid. But, once you reach those targets, look at what you can afford to take off the top of your revenue. This will vary depending on the size and funding for your school.
Financial aid is not an expense, it is a discount.
A discounted tuition rate will fill an empty seat. While many think families paying full tuition fees are funding the aid for families who have financial needs, in reality, this discount is coming from your top line revenue. Once you enroll those students, you are essentially “stuck” with them, but remember that every year, your goal is to maximize revenue. Providing financial aid to reach capacity is just one way to do that.
When you provide financial aid, it becomes difficult to get parents to pay more in tuition in the future. As tuition increases, so does the expectation of further aid. Families and administrators must understand that once needs are assessed and met, that discount for families receiving aid increases only in accordance with the tuition rate. In other words, the family receives the same percentage of tuition discount, and pays the same percentage of that tuition.
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The fewer seats available, the more families will want to enroll with you. Being in high demand reflects the value of your institution and the benefits your students receive.
What if you have empty seats, and your financial aid budget is not exhausted?
A shortfall in families applying for financial aid leaves empty spaces in classrooms. If your school is not attracting families looking for an excellent education that their income can support, this may indicate that your school lacks financial diversity. Perhaps you need to reevaluate your admission programs. They are the student enrollment pipeline and should bring enough people in to consider the advantages your school offers.
In a K–12 school, it is important to bring in students early. Not only are the first few years of education most important, but those students enrolled in elementary grades are generally filling seats in the upper grades. You want to have enough families applying that you can tell others to apply early, or they may not get in at all.
Making Decisions in Tough Times
The most difficult decisions often need to be made when the economy is on a downturn. It may seem impossible to provide enough financial aid for families in need. In these times of fiscal belt-tightening, how much can you really afford to discount?
Your priority should always be to discount tuition for mission-appropriate families, but not more than what they need. When unemployment increases, it may affect many families. It is important that your school is preparing in a strong economy to have enough cash reserves to provide the best education in a weak economy.
You want to keep the students who are already enrolled and be able to provide aid to new applicants. Your cash reserves sustain your financial aid program and ensure you are still maximizing your annual revenue.
Make sure you evaluate which students are mission-appropriate: Does this family bring something more to the school?
Changing the way your school thinks about financial aid enables administrators to better evaluate applicants while making sure that there is a student in every seat. Exceptional students represent an opportunity; make sure you are not losing them and tuition revenue in an effort to maintain budget targets.
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Strategic Financial Planning: A Comprehensive Approach