Every year higher ed. institutions have to make a difficult decision about how they are going to strategically award institutional aid to their students. It’s difficult because your financial aid strategy has massive financial implications both for students and for your institution. Institutions can have various goals for their aid – commonly to increase incoming student headcount, maximize net tuition revenue, or a mixture of the two.
But what role does financial aid actually play in a student’s choice to come to our institution?
This question is an important one right now because many institutions are considering tuition resets, financial aid optimization projects, or an internal financial aid overhaul. I would like to give you a few of my insights into this question as a financial aid strategy consultant.
No One Really Chooses You for Your Financial Aid
We first have to debunk a myth. The idea that students choose their institution based on their financial aid package alone. You do not have to look around very hard to see that there are options for higher education that are extremely cheap (community college, online options, etc.) but students are not always choosing them over more expensive options. Students are looking for total value, not the cheapest option. Factors such as “how the college makes me feel”, academic programs, brand, and student experience all play an important role in making a college decision. That said, you can use your financial aid as a tool to help students feel something positive about your institution when they receive their financial aid award.
Then How Does Financial Aid Play a Role?
I often tell institutions that I work with that students don’t ever choose you for your financial aid package, but they often don’t choose you because of your financial aid package. This difference is important to understand. Financial aid (cost of attendance) should be thought of as an obstacle for students, not an incentive. If you have your marketing, admissions, and brand dialed in, a change in financial aid strategy could be a huge win for your institution’s strategic goals. Students might really be choosing to go elsewhere based on your current poor financial aid package. If, however, one of your marketing, admissions, or brand functions is broken, then a financial aid change (or even tuition reset) might do absolutely nothing (or worse). Knowing when to implement a new financial aid strategy takes clarity around how your institution is performing in key revenue driving functions. Financial aid must be seen as one piece of a bigger enrollment and marketing strategy.
Reality vs Perception
I tell clients that there are really two different types of financial aid: real financial aid and perceived financial aid.
Real financial aid is important to students and parents. It is what ultimately tells the student whether or not they can afford to come to your institution. It is the students’ bottom line cost. If you give out more institutional aid dollars, more students should be able to afford your institution. If you made your institution 100% free, many more students would be able to choose you (probably too many and you could not afford to operate). On the other hand, if you made the cost of tuition one million dollars per year, almost no one would be able to choose you. So, the actual bottom line cost to students clearly matters. This also hints that there is a sweet spot that balances what the student can afford and what the institution needs to operate.
Less thought of, but also just as important, is perceived financial aid. Perceived financial aid is how the student feels about their financial aid package. The way the aid is given out creates a feeling for the student around how much they are valued and wanted by the institution. A student might truly choose a school that gives less of a total aid award because they feel more wanted based on the way that the award is given. Let’s look at an example of how this works. Here are two equal awards. How do they make you feel?
- The institution gives out a “legacy” award to students. Let’s call it a $1,000 award per year based on your parent or grandparent formerly attending the institution.
- The institution gives out a leadership award to a student. This is also a $1,000 award per year given out to a student because of the potential that they see in the student as a future leader on campus.
Which of these awards would make you feel more valued by the institution? Very likely the one that sees something special in you and not something special in your parent or grandparent. Today’s students want to be valued for who they are, not for who their parents are (or what their church is, etc.). Many institutions completely whiff on this idea. They give out lots of aid in many different small awards, but the awards don’t really mean anything to the recipient. Every line of a financial aid award letter should make a student feel valued by the institution. If it doesn’t, that money should be repurposed or the award renamed to make them feel something. Students are not calculators. They have feelings. Make sure that when they read their award letter they perceive that they are highly valued by your institution.
Two Final Thoughts
I would like to leave you with two key takeaways:
First, financial aid should always be thought of in terms of a bigger enrollment and marketing strategy for your institution. It is not a strategy unto itself. Don’t think that shifting a little money around in your award packages is going to get you many more students.
Second, you have to have a strategy around both real and perceived financial aid. If you address the former without considering the latter you will be less than impressed with your results.
–Nick Willis is a partner and a financial aid consultant for TG Three. If you are thinking about changing your financial aid strategy, please give us a call and learn how TG Three thinks differently about financial aid strategy. We would love to help you grow your enrollments.
Recent Comments