Chapter 10

Funding

Student Loans, Scholarships, and Endowments

Santa Ono, Kristi Nelson, Gisela Escoe, and Caroline Miller

This chapter will consider loans, scholarships, and endowments and suggest strategies for managing these factors in strategic ways that enhance both yield and retention of students. In the current environment we know that more students are “shopping” at rates not seen before, and funding strategies focused on retaining students will be as important as those geared to attracting the incoming class. Strategic managers will need to view this challenge through all-funds management and must establish processes that support participation of both students and families in the conversation about how to pay for college. Skillful fund management must consider price, state and federal grants and loans, institutional endowment and annual funds awards, discounting levels, donor awareness of needs and goals, school-related employment opportunities, and student and family financial literacy.

A discussion of funding students in the 21st century must consider management of the new normal. This includes consideration of the following:

• Changing demographics in all respects
• Family choices around value and cost
• Shrinking resources (yours, mine, and ours)
• Loss of personal wealth
• Declines and chaos in federal and state funding and the inability of institutions to close the gap
• Changing attitudes toward debt (governmental, institutional, and household) and declining availability of credit

The College Completion agenda goal for 55% of Americans to hold a postsecondary degree is a daunting challenge, particularly in the face of the demographic shift that will occur between 2010 and 2020. The Western Interstate Commission for Higher Education (WICHE) projects that students of color, who composed approximately one-third of all high school graduates in 2005, will make up almost half of all graduates by 2020.¹ The magnitude of these shifts varies greatly by geographic regions. Historically, such students have been less likely to attend or complete college and more likely to need significant levels of financial assistance.

The lingering recession and the decreased value of family assets have raised the price sensitivities of parents and students significantly. Over half of those responding to the Eduventures Collaborative research project on college choice reported that cost impacted their decision. The recession has resulted in dramatic subsidy cuts in the public sector, as well as significant tuition increases across all sectors. The advent of cost calculators prominently displayed on admissions and financial aid websites, intended to clarify costs and resources associated with paying for college, is in many cases complicating the picture because the assumptions on which they are built vary greatly. It is very likely that these issues—both real and perceived—regarding affordability will change the college choice process well into this decade. Whereas there is much evidence to support that earning a baccalaureate degree significantly increases earnings over one’s life span, the economic downturn has triggered changes in both attitude toward debt and tightened availability of credit.

Finally, recent trends in awarding institutional aid have created confusing expectations for families. Over the past few years, campuses seeking to be competitive for academically talented students shifted monies from need-based aid to merit scholarships. With costs escalating, many of these campuses are now shifting dollars back to help meet need. Though most campuses are “need blind” in admissions, very few can fully meet need for their students. Campuses that moved to no or minimal loan awards for low- and middle-income students are finding those to be unsustainable.

It is in this context that leaders and managers must carefully conceptualize the complexities of price, institutional aid (discount and endowment), and the leveraging of state and federal aid to assure that they are aligned with the institution’s strategic goals. It is in this context that all forms of aid resources must be connected to effective communications and supportive resources to foster student success.

Required Institutional Action to Maximize Enrollment Through Pricing

Start with an inventory of institutional aid allocation, such as the following:

• How is institutional aid allocated?
• Who controls and directs the allocation of institutional aid?
• If aid is awarded by multiple internal entities, how effective are the partnerships?
• How does institutional aid align with the institution’s strategic priorities?

Identify mismatches and holes.

• How is institutional aid used to leverage other forms of student aid (federal, state, and external scholarship sources)?
• How effective are the aid awards in yielding targeted students?
• Are internal aid sources maximized in the yield and retention of students?

Completing this inventory will require the deployment of a multidisciplined team that includes representatives from various university offices including financial aid, enrollment management, endowment, institutional research, and units membership.

Recognize That Aid Allocation Does Not Stand Alone

While it is true that the most recent recession has raised the level of concern expressed by parents of students in the college search process, it is still only a part of the college selection process.² Strategic campus leaders will assess the allocation of aid consistent with institutional brand, with supportive resources, and within a context of developing and deploying a clear value proposition.³ A survey led by Eduventures of admitted and enrolling students on public campuses in the summer of 2009 indicated that the economic situation did impact their college choice, but they expressed that the cost and the benefits of enrolling on a given campus were about equal. Enrollment leaders surveyed that same summer thought cost would dominate the decisions. A disconnect exists. Leaders should again assess their institutions relative to the value proposition.

• How can your institution better articulate its value proposition to parents and students in the search process?
• What educational, professional, and personal outcomes are most important to your market during the search process?
• What educational, professional, and personal outcomes are most important to your students as they continue enrollment at your campus?
• What college experiences do students and parents believe are most critical to students’ development during college?
• What college experiences do future employers and graduate schools believe are most critical to students’ development during college?
• How well does your institution educate its market, its current students, and its stakeholders on its unique value proposition? How do you know?
• How is institutional aid deployed to maximize the value proposition?

Deploy Aid to Enhance Access, Affordability, and Attainment

In a white paper prepared for the Education Trust, David Kalsbeek and Brian Zucker reinforce the criticality of this principle.⁴ They encourage strategic leaders to operationalize their market position through access, affordability, and attainment principles. The deployment of aid and the establishment of price are critical to success in this arena. The Kalsbeek and Zucker model is as follows:

Access

Which Students Can Access a Given Institution and Which Students Can an Institution Access?

This assessment should be viewed through three strategic domains:

• Demography and parental educational attainment
• Geography, affinity, and legacy
• Academic preparation and profile

Affordability

Which Students Can Afford a Given Institution and Which Students Can an Institution Afford?

This assessment should be viewed through another three strategic domains:

• Need analysis
• Aid leveraging
• Self-help (including education-related employment opportunities, such as internships and cooperative education)

The idea of including student, school-related earnings may be novel to enrollment managers, but these placements can be very important. Experiential learning opportunities, such as internships, cooperative education, and undergraduate research are often paid placements. These activities are not only sources of income for students but also contributors to learning, future employability, and student retention. The earning potential of these opportunities, especially from cooperative education, is very significant. While a comprehensive list of data over cooperation education earnings is not available in the public domain, personal communication with the co-op directors of the six large North American schools vested in the field (University of Cincinnati, Rochester Institute of Technology, Northeastern University, Drexel University, University of Waterloo, and Georgia Institute of Technology) shows that these institutions alone generate in excess of 50,000 student placements annually, resulting in aggregate student earnings exceeding $300 million a year. The University System of Ohio reports in its 2008 strategic plan that 46,400 students participated in co-op and internships statewide. While these numbers include part-time assignments, as well as a number of unpaid internships, it seems likely that total statewide student earnings range between $100 and $200 million per year. This is a conservative estimate considering that the 5,500 placements generated by the University of Cincinnati (UC) alone result in aggregate student earnings of $39 million. In 2010, UC numbers show average student earnings of $15.00 per hour (individual salaries vary between minimum wage and $30 per hour), which for 6 months of co-op a year results in approximate earnings of $15,000 per student. These numbers alone indicate that cooperative education, on both individual and national levels, is an economic force and has a strong impact on the affordability of higher education.

Attainment

How Can an Institution Leverage Its Students’ Capacities to Enhance Student Success?

Again the three strategic domains for student success are the following:

• Accommodation and adaptation
• Experience and engagement
• Progress and performance

Review the Student and Family Friendliness of Aid Attainment

The final critical area for review is the level of institutional user friendliness. How complicated is the process for understanding and accessing financial aid on a campus? In 2008, the College Board released a set of recommendations regarding strategies for enhancing college completion.⁵ The focus of their recommendations regarding financial aid plus a few other suggestions can be used as yardsticks against which to review the award process at an institution.

• Is the process simple, clear, and transparent?
  • Does it eliminate duplicative paperwork?
  • Are awards based on clearly communicated principles?
  • Are communications clear, easy to find and easy to follow?
• Does the process minimize student debt, focused on keeping it at a manageable level?
• Does the process deploy an appropriate array of aid types?
• Are award communications clear and comprehensive?
• Are staff knowledgeable and assistive in the process?
• Are websites easy to find, current, and user friendly?
• Are decisions made in a timely manner?
• Does the institution provide mechanisms to enhance student financial literacy?

Final Thoughts

Strategic managers will understand that the recent recession has had a significant impact on attitudes toward debt and debt management. This is true whether one focuses on governments, institutions, or households.

Institutional leaders will require a disciplined assessment of the inventory and how it is deployed in the context of market and strategic targets. They will be able to maximize the likelihood of organizational success. The breadth of higher education institutions is expansive; we collectively serve highly variable populations with even more variable missions. Using the previously mentioned strategies with an “all funds” coordinated mind-set should result in a much-improved process for the awarding of aid in a strategic manner that aligns with institutional goals and priorities.