Private colleges facing sustained pricing pressure: Five strategies for monitoring and meeting enrollment and financial goals

We’re seeing signs of improvement, but private colleges are not yet out of the woods when it comes to dealing with the post-recessionary environment and the pressure it is bringing on pricing.

For an up-to-date reading on this critical area, we recently completed a study of 139 private colleges that sheds some light on what is happening (see our 2011 Discounting Report.) The private colleges in the sample, from across the U.S., all partnered with Noel-Levitz during 2009-2010 to strategically manage their financial aid awards and pricing.

On the positive side, last fall’s average overall discount rate for the sample increased only a modest 1.2 percent while freshman enrollment grew an average of 5.2 percent. This good news, following a subpar year in 2009, showed that these private colleges may be finding a “new normal” in today’s economy.

It is also clear, however, that changes in family income during the recession have fundamentally altered families’ ability to pay for higher education. New student enrollment last fall saw a dramatic increase in students with higher levels of need and a substantial drop in students who demonstrated no need for the institutions in this study. Specifically, the number of students with the highest level of need increased 17.8 percent in fall 2010 over the already-high levels from 2009 while the number of students with no need dropped 9.3 percent from the 2009 level. On top of these changes, the average amount of need increased 8 percent over the previous year.

Also disturbing: Private institutions may be failing to keep up with the levels of financial support they were able to provide over the previous decade. For the institutions in this study, the average level of unmet need students and families had to annually finance out of pocket has increased by over $5,000 in the past three years. This decline in aid packages’ ability to meet need coupled with a decline in parental income of over $2,000 makes financing an education more challenging than ever for students and families. According to the Salle Mae study How America Pays for College, more families are accessing retirement accounts to cover the increased out-of-pocket costs for higher education. This is a recipe for instability in the college marketplace and adds additional pressure on private institutions to find solutions.

While these factors are cause for concern, there are other funding uncertainties that could create even more financial obstacles and negatively impact enrollment. Will the PELL grant be reduced? What will happen to SEOG allocations? Will states reduce or eliminate state grant programs? There is little doubt that these forces will alter the ways private institutions assist students with financial need; institutions will have to develop creative and strategic plans for meeting enrollment and budgetary goals or risk putting themselves in financial peril.

So how can planful leaders at private colleges prepare for the new environment? The following are a few suggestions based on the data.

Five strategies for monitoring and meeting enrollment and financial goals

1. Make sure merit aid is doing its job. A year and a half ago, in fall 2009, new student enrollment for institutions in the Noel-Levitz client group sample increased among students with above-average academic performance but declined among average-to-below-average students. In fall 2010, however, enrollment grew fairly evenly across academic ability levels. How has the academic profile of your institution changed over the past few years? Is your merit scholarship program taking into account the academic level changes which might have occurred on your campus? With careful analysis of data from your admitted and enrolled students, you should be able to pinpoint whether your yield breakpoints have changed in the last two years and whether your merit dollars are producing their desired results.
2. Provide early and accurate award estimates of need- and merit-based aid. The “ability to pay” of your student population may also have changed dramatically over the last two years. If you award a large portion of your institutional aid solely on the basis of financial need, you may be missing out on an opportunity to demonstrate affordability early in the recruitment cycle by offering students an estimate of need-based aid. Starting in October of 2011, each campus will be required to maintain a net price calculator on their Web site. Your solution to this requirement should be a quick and simple calculator which informs students and families on your real cost of attendance based on their individual circumstances. Noel-Levitz has responded to this by developing a turnkey solution we call the TrueCost Calculator.
3. Regularly update your awarding and discounting plan to respond to the changing environment. Over the past 20 years, college tuition has risen at twice the rate of family income and overall inflation (Delta Cost Project). Holding discount rates flat while raising tuition at a higher rate than inflation will simply require families to pay a larger share of their family incomes.  While having a low discount rate may be a badge of honor on your campus, it may not be the most effective way to address the shifts in your student population and ultimately your enrollment and net revenue goals. The current economic climate requires active adjustments to your financial aid strategies annually and throughout the recruitment year.
4. Help students find alternative funding sources to cover unmet need. Tighter credit markets and increased regulations have slowed the flow of resources available to students from alternative loans over the past few years. The increase in federal loan eligibility to $5,500 for first-year students in 2008 helped to mask the loss of this source of funding. Developing or enhancing an institutional loan program might be one way to address this issue. At the very least, institutions should include an option for a 12-month payment plan. Financial aid communications, including the award letter and financial counseling, should include information that clearly addresses payment options for the portion of the bill which is not covered by financial aid. In these economic times, providing options and dialogue on how families can address their portion of the bill may make the difference between a student being able to enroll and persist or not.
5. Don’t forget to focus on increasing student retention and completion rates. In February of 2010, FAFSA filers began seeing retention and graduation rates for schools receiving their FAFSA data. This information is now playing a larger role in students’ decisions to enroll. Coupled with the loss of revenue associated with student attrition, it is now even more important to be diligent in addressing student persistence on your campus. Campuses that manage retention effectively have detailed early-alert plans to understand, monitor, and intervene to assist with students’ financial, academic, and social needs.

It isn’t getting any easier to manage enrollment and net revenue, is it?  Serving an ever-needier population that is tapped out on credit options, getting less assistance from federal and state sources, and seeing their real income drop, private colleges will be challenged to be able to maintain net revenue levels while at the same time meeting enrollment goals. Given the shifts in the student marketplace, it is imperative that private colleges re-assess their student financial aid plan on a yearly basis to ensure that institutional funds are being used as effectively and efficiently as possible.

Questions? Want to discuss these points further? If you are interested in exploring ways to respond to these pricing pressures, I invite you to contact me by e-mail or by calling 1-800-876-1117.