University Business - May 2010 - (Page 30)

money m at t e r s Admitted students and their families are comparing award letters. If a competitor institution decides to list the estimated state aid and yours doesn’t, it could put you at a competitive disadvantage. The financial aid process is confusing to many families. It will not always be obvious to a student that the same state grant is available. In many states the available grants are determined, in part, by cost of tuition, so a student may already be seeing varying amounts based on whether the award letter is from a private or public institution. Total grant is known to be a key factor in many students’ decisions to enroll, so enrollment leadership must think through the approach and be even-handed based on the best information available. Yet, the financial aid office should not carry the burden of that decision alone. 2. The state cuts are imminent and the institution has some time to prepare. In this scenario, an institution has a much better opportunity to use data to inform decision makers about how to proceed. Predictive modeling can assist in determining how much, if any, of the state cuts should be made up by the institution. Use statistical modeling to simulate the amount of total grant necessary to enroll the expected class size. By simulating a reduction in state grant, you can get a reasonable idea of how many students will not enroll if the entire reduction is implemented and how that will affect the net tuition revenue (NTR) of the institution. Further, you can simulate, using statistical modeling, what changes to class size and NTR would occur if, for example, 50 percent, 75 percent, or 100 percent of the lost award amounts were replaced with institutional dollars. Depending upon the price elasticity of the admit pool, funding the reduction in state aid with institutional funds may serve only to decrease the school’s bottom line. That is, if the admit pool is price in-elastic, enrollment would not be adversely affected by not increasing institutional grants to make up for state aid reductions. However, if the 30 | May 2010 admit pool is price elastic—if increases to grants (or decreases in price) would increase enrollments sufficiently to generate more NTR—then making up some or all of the funding would make sense. 3. State aid cuts are made after May 1. In some ways, this may be the most difficult scenario. Students have “committed” to the institution with an enrollment deposit and now your state is finalizing cuts to state aid. If the cuts are minor, there is probably not much to worry about. But Funding the reduction in state aid with institutional funds may serve only to decrease the school’s bottom line. consider the dilemmas faced by institutions in Indiana when large reductions to state grants to individual students were made in July. Would affected students pull out and opt for less expensive institutions or postpone college attendance altogether and work for a year? In these instances, having already established how price elastic your population is will help guide the decision about using institutional funds to make up for some or all of the reductions. It is also important to understand what other institutions are doing, to the extent that your competitors will divulge that information. Decision Time michigan state was able to fund approximately $8 million of the state’s reduction and elimination of aid programs with federal stimulus money to assist more than 8,000 students who lost state grants. Rick Shipman, director of the office of financial aid, had this to say about funding a significant portion of the reductions: “The institutional mission includes a commitment to needy resident students that led to a decision to replace all of the lost Michigan Promise Scholarship for the needy students and the fall award amount only for those without demonstrated need. The Michigan Competitive Scholarship, which is based on demonstrated financial need and academic merit, was partially funded [by MSU].” A number of Indiana institutions also opted to fund some or all of the reductions. Some made fundraising appeals to cover the new grant funds. Others dug deep into their “rainy day” funds. What about next year? Moving forward, Shipman says, “We are facing an increase in total cost of attendance of just under $1,000, no state financial aid to assist in these costs, a federal Pell Grant increase of $200, an overall increase in demonstrated financial need, and a 13 percent increase in institutional grant funds. ... We used the Financial Aid Strategy Tool (FAST) [from Scannell & Kurz] to determine the optimum level of institutional grant to offer students with various levels of need. We convinced ourselves we could reduce awards for some students without impacting their ability to enroll and use the freed up funds to assist other needy students. We are still feeling uncertain about what the future brings for us, but having data from a time-tested modeling tool increases our comfort with changing our fund distribution system.” One thing is for sure, many more institutions, public and private, will face these tough decisions over the next few years and beyond. The Center on Budget Policy and Priorities reports that at least three-quarters of states are cutting funds to higher ed operations and financial aid. There will be proposals for reductions, large and small. Some states will follow through, others won’t. Clearly, using data to inform your decisions about how to respond is critical to the financial and enrollment health of your institution. NOTE: FAST is a web-based modeling and simulation tool, available through Scannell & Kurz, that allows institutions to pinpoint effective, strategic use of financial aid. universitybusiness.com http://www.universitybusiness.com

Table of Contents for the Digital Edition of University Business - May 2010

University Business - May 2010
Contents
Editor’s Note
College Index
Company Index
Advisory Board
Behind the News
Viewpoint
Human Resources
Money Matters
Models of Efficiency
Fast, Friendly Fix-its
Go With the Flow: Campus Traffic and Parking Solutions
What’s New
Community Colleges
End Note

University Business - May 2010