The Student Aid Conundrum: Right Now, It May Feel like Damned If You Do, Damned If You Don't. but Clear Analysis of Your Financial Aid Mission and Adoption of an Action Plan Can Deliver Solid Benefit to Students and School. (Strategy)

By Clinton, Patrick | University Business, October 2002 | Go to article overview

The Student Aid Conundrum: Right Now, It May Feel like Damned If You Do, Damned If You Don't. but Clear Analysis of Your Financial Aid Mission and Adoption of an Action Plan Can Deliver Solid Benefit to Students and School. (Strategy)


Clinton, Patrick, University Business


A dip in the economy is hard on everyone, but for higher education, hard times are aggravated by a kind of triple whammy of financial need: When the economy dips, more parents and students are out of work, and more investments shrivel. The result: Colleges and universities are asked to meet more financial need. State legislatures, faced with eroding tax revenues and increased demands on the state coffers, cut funding to education. The result: less money to meet the increased student need. Colleges and universities, for their part, tend to respond to decreased resources by raising tuition, sometimes sharply, increasing the gap between the price of education and what families can afford to pay.

The whammy doesn't necessarily stop at triple. For schools that have endowments, asset value drops, and with it, the amount available for payout. Worse, trustees often ratchet back endowment spending even tighter than spending formulas would dictate, figuring that no matter what you originally intended, a rainy day is no time to use the money you've saved. And a weak job market can push many would-be workers back to school; for some schools, especially community colleges, rising enrollments can eat up even more scarce financial resources.

More need and less money to fill it. Whenever the economy dips, that's the prospect faced by most colleges and universities. And as students and families feel the pain, they turn unfailingly to the one spot in the institution that ought to be able to help them: the Financial Aid office. What's the best way for the Financial Aid office to respond? University Business spoke to some top experts in financial aid, enrollment management, and the economics of higher education. Here's what they had to say.

Challenges Across the Board

The crucial point to remember, says Williams College economist Gordon Winston, a noted scholar of the economics of higher education, is that different sorts of institutions face vastly different challenges. "The publics, the wealthy privates, and the not-so-wealthy privates are three totally different worlds," Winston says. "One of the troubles, of course, is that we use the term `financial aid' to mean radically different things. It can mean price discounts to get customers or improve student quality on the one hand, or it can mean income redistribution policies on the other hand, and they're very different things. Those three different populations are in very different circumstances, and the toughest are the circumstances faced by private, not-awfully-wealthy private institutions that have been shading price to improve quality or to maintain quality in the face of others shading price through merit aid. Schools like this are increasingly running up against declining endowment returns and are really getting a squeeze. If the question is what are they supposed to do, I'm damned if I know."

What makes it even harder for schools to cope with economic hard times, Winston says, is that so many institutions refuse to acknowledge what kind of financial aid they actually engage in. "There's an awful lot of unclarity," he says. "A lot of social respectability and panache goes with having only need-based financial aid. That's what the good guys do. So everybody has a strong desire to treat their own financial aid as if that's what they are doing. But, in fact, they're doing student enrollment management. They're cutting prices and modulating deals for superior students, and trying to steal good students from other schools. That makes it very hard to talk about a financial aid policy. You refuse to admit how much your old policy has been abandoned, because it's embarrassing. You don't really want to be one of those tacky people who cuts price to lure students. But, on the other hand, when someone else is cutting their price and luring your students, you don't want to let them get by with it.

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The Student Aid Conundrum: Right Now, It May Feel like Damned If You Do, Damned If You Don't. but Clear Analysis of Your Financial Aid Mission and Adoption of an Action Plan Can Deliver Solid Benefit to Students and School. (Strategy)
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