FAST Answers to Financial Aid Questions
Vol. 14 No. 8
Q: Okay, last month you explained how financial aid awards should be “mission appropriate.” I think I understand that, but could you talk a little more about what makes awards strategic?
A: Since ISM released the FAST financial aid system over 10 years ago, we have seen many, many schools that want to grow their award budget without having any justification for the increase beyond “feeling” like they should. Understanding why schools award scholarships and discounts to students seems cloudy at best, summarized in a vague, “It’s what we should do and Other School is doing it” rationale.
Ultimately, schools’ Boards of Trustees should be examining how their financial aid budgets were set—and whether those award numbers were set strategically.
We can’t understate the importance of thoroughly understanding the strategy behind your financial aid awards. Any money a school uses to discount or waive tuition for families typically comes from a combination of full-pay families and donors, past and present. This money should be handled respectfully and used strategically for the dual purposes of furthering the mission of the school and increasing the school’s marketability.
As ISM sees it, there are three main reasons for giving financial aid that benefit the school beyond making the community “feel good” about its altruism. These reasons are what we term "strategic aid." A school strategically gives aid:
1. To create a sense of security and family. This aid is given to families that were formerly full-pay families that have suffered a hardship such as loss of job, divorce, medical issues, or downturn in business. This aid allows you to show families that you have their back—that they’re more than just a tuition check.
These are typically considered temporary awards, to help the family “bridge” the hardship and return to full pay status once circumstances turn around.
2. To attract students of some specific value who support the mission or enhance market position and would otherwise not be able to attend. This award is often set aside to help generate "diversity," but it can also cover specific needs, such as gender balancing or targeted talents.
Before such awards are given, however, the school’s need for those specific qualities must be clearly and definitively demonstrated and justified within a broader marketing-mission context. In other words, don’t just try to “create diversity” or attract specialized students without understanding why your school needs it or them, respectively!
3. To create revenue by turning an empty seat into a seat that contributes to the operating budget, keeping tuition down for full-pay families. Think of it this way: Any otherwise empty seat in a classroom is essentially on 100% financial aid. Since the space and faculty are already paid for, as you’re already paying for a classroom and teacher for the currently enrolled students, it's as though your school were subsidizing these seats to remain empty.
In terms of budget revenue, these seats will “cost” the school very little to fill and can bring it predictable revenue. This type of aid should only be employed in classes that are not currently fully enrolled. Otherwise, you’d be replacing a full-pay family with a subsidized seat.
Remember, too, that if you bring in a student on a reduced tuition load, expect to keep that student at the reduced amount. It might be financially worthwhile to keep that seat empty for a year or two if you can reasonably expect to fill it with a full-pay family later at a more in-demand grade level.
These descriptions are basic, but useful in starting to think about how a Board of Trustees should budget for financial aid. Ask yourself: does your school’s financial aid awards fall into one of these three categories?
Have your financial aid questions answered! Submit your issue, and we may answer it in a future column.
Additional ISM resources:
The Source for Private School News Vol. 14 No. 7 FAST Answers to Financial Aid Questions: "Mission Appropriate" Aid?
The Source for Private School News Vol. 14 No. 6 FAST Answers to Financial Aid Questions: Effective Appeals Process?
The Source for Admission Directors Vol. 14 No. 2 Diversify Your Applicant Pool—The Right Way
Additional ISM resources for Gold Consortium members:
I&P Vol. 36 No. 4 The Three Types of Need-Based Financial Aid
I&P Vol. 40 No. 12 "Rainy Day" Financial Aid: The Need for Proper Communication
I&P Vol. 39 No. 13 Strategic Financial Aid: Filling the Empty Seat
I&P Vol. 35 No. 15 The Real Cost of Financial Aid