It's important to have the perfect financial aid formula to make sure you are awarding the right amount of aid to the right families.
When was the last time you carefully examined your school’s financial aid budget?
The budget is often a sticky subject among school finance professionals. For most schools, financial aid is the second largest budget line. But, because its inner workings are carried out behind closed doors to protect the identity of families, it can be difficult to know if your school is on the right path.
Your team wants to strike the delicate balance between offering mission-appropriate families the right amount of aid while also preserving your school’s bottom line.
There is a right way to budget your financial aid program. The proper way ensures that you use it as a tool to advance your school’s mission, while also strategically increasing revenue and enrollment.
Start With Mission
When looking at your financial aid policy, always start with your school’s mission. Your mission gives your school purpose (and enables you to be competitive within the marketplace).
Every decision the school makes must keep the mission in mind, including how to set a financial aid policy that’s fair and appropriate for your students.
Questions Your Board Should Ask
Decisions about financial aid vary from school to school, and even by division and grade level. To help determine what course your school should take, have your Board and Financial Aid Committee ask the following questions.
- After total financial aid is granted, what is the net tuition revenue (actual cash) available to pay per-student cost? What percentage of cost does this represent, and how has it increased or decreased in the past five years?
- What increase in your financial aid budget is necessary to allow you to meet the needs of current families and the new families who wish to enroll?
- What are the long-term financial effects of providing financial aid to a student in the early grades and “carrying” that aid into the upper grades?
Use these questions to take a hard look at your financial aid strategy. Weigh your alternatives—considering the particular needs of your school and its families—and decide accordingly.
Tune in to ask questions related to this Source article or other topics you've encountered lately.
Visit our NEW Community and start posting.
Understanding Your School’s Financial Aid Process
Once you've established your mission, and after your Board has satisfactorily answered those questions, you will turn your attention to your financial aid award strategy. This strategy is essential.
Any money a school uses to discount or waive tuition for families is typically funded by 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.
Then you must look at how to calculate a family’s ability to pay. While we sometimes refer to it as a “formula,” it’s really a subtraction problem.
Income minus allowed expenses = dollars available to pay tuition.
Many schools complain that their financial aid program often rewards families who have chosen to buy expensive clothes, cars, or housing. This is usually a symptom of misunderstanding how their school’s financial aid process works.
The two main factors in determining appropriate financial aid are the applicant family’s income and their expenses. Income encompasses wages and salaries, interest and dividends, alimony, Social Security, support offered by grandparents and other relatives, and income tax refunds. Assets include cash, savings, home equity, other real estate investments, stocks, bonds, securities, retirement accounts, stock options, and vehicles.
It’s unreasonable to expect a family to have no savings, home equity, or retirement funds. With local economies differing across the country, you’ll need to set reasonable expectations for a family’s living allowance. This will differ for families of varying sizes. Once you’ve determined a set of thresholds that make sense for your area, you’ll be better able to assess each family’s needs.
(Download) Financial Aid Formula Worksheet
Financial aid determination is about serving a school’s mission and strategic objectives, as well as assessing a mission-appropriate family’s ability to pay. It is as much an art as it is a science. Schools that keep these concepts in mind serve their families well and assure a fair and consistent process that supports everyone in their community.
ISM's FAST Aid software is crafted for accountability and powered by theory. Fill your seats with mission-appropriate students. Make responsible, appropriate awards with confidence and support. Click here to learn more.
