Net Tuition Revenue Modeling: Harness the Capacity of Financial Aid for Financial Sustainability

DaRel Christiansen

Enrollment management is an essential tool for aligning mission, enrollment priorities and student composition. However, student numbers, even student body demographics, are just one part of the equation. Student enrollment generates up to 80% of the revenue in many schools—money that goes to paying salaries and benefits, supporting programming and maintaining facilities. One way to manage this important financial lever is to set goals for net tuition revenue.

Many admission offices focus solely on enrolling a targeted number of students, utilizing a fixed financial aid budget. A focus on net tuition revenue requires a significant mindset shift: Financial aid becomes a tool to generate revenue for the school and is no longer considered an expense. Yes, financial aid students do generate revenue. If your school has empty seats, and particularly if you have students in a financial aid wait pool, this mindset shift is critical to your school’s financial sustainability. However, it takes a strong, well-informed leader to guide a skeptical board of trustees or business office to an understanding of how the strategic use of financial aid and scholarships can set a school on a path to enrollment growth and financial sustainability. Armed with the proper data and information, you can guide your school to see revenue from financial aid and scholarships as revenue gained and not income lost.

Simply put, net tuition revenue is full tuition billed minus financial aid awarded. Instead of beginning the recruitment and enrollment season with a set financial aid budget, the school sets a net tuition revenue goal. Keeping in mind the number of seats you have to fill, you can utilize financial aid to work toward your set tuition revenue goal. You don’t stop when you’ve awarded a fixed amount of aid. You stop when you’ve filled your seats and met or hopefully even exceeded your net tuition goal.

Establish how much average tuition per student you need to arrive at your net tuition goal, and track your progress regularly. This will give your financial aid committee the discipline to keep aid awards in sustainable ranges. In my office, we do these calculations weekly, looking at tuition revenue generated from full pay, aided and tuition remission students separately. It is important to have a clear picture of how many families are “full pay” and paying all of tuition, “aided” and paying some of tuition, and “tuition remission” and receive a tuition grant as an employee discount. You may also wish to consider tracking “high pay” families as a separate subset of “full pay” so they do not skew your data. We define “high pay” as families who pay 90-100% of tuition. We also look at net tuition per grade and by day, boarding and international student populations. For us, it is important to maintain balance by grade level and within our day, boarding and international boarding populations. Weekly monitoring of each of these groups allows us to make changes where needed, watching for groups that may become too heavily populated with families receiving financial aid.

Some may be alarmed by this prospect. What happened to traditional need-based financial aid administration? Are we walking away from SSS, FAST and FACTS? Absolutely not. The net tuition revenue model is not a financial aid policy. In order to successfully employ this strategy, you must have solid guidelines and policies in place for the administration of need based financial aid and/or scholarships. But regardless of what tool(s) you utilize to determine need-based aid for families, it’s important to be able to utilize professional discretion when considering what percentage of stated need you can meet for each family. It’s equally important to see the revenue generated from financial aid families as just that, revenue.

How do you convince your school leaders to adopt a net tuition revenue model? Let’s start with some sobering numbers. According to the Enrollment Management Association (EMA), more than 50% of families with incomes over $200,000 express concern about affordability when considering independent school for their child (The Ride to Independent Schools). The National Association of Independent Schools (NAIS) found that for a family making $150,000 a year, the mean average day tuition represented 16% of that family’s household income. For families making $75,000 a year, it doubled to 33%. Due to increased demand, NAIS member schools are also giving aid to more families. In 2010, NAIS member schools were giving financial aid to about 30% of families with incomes in excess of $150,000. Five years later that number has increased to 43% (NAIS Trends Book, 2015-2016). The bottom line is, most families can’t afford our schools without help. Equally concerning, many of the families who can afford to pay a healthy percentage but not all of our tuition often don’t see themselves as candidates for financial aid. These are sobering statistics for enrollment managers. Lead with this when talking with your board or business office.

Data is key. Gather three to five years of enrollment and tuition revenue data. Look at your enrollment history and consider enrollment trends you see. Be sure you understand the true capacity of your school without increasing fixed costs, and establish the marginal cost of educating one additional student at your school. (You can work with your academic and business offices to get these numbers.) These data points will give you enrollment caps for your school and, ideally, each grade level. If it turns out that you have seats to fill, this model may work for your school. Knowing the cost of educating a student gives you a number you should not go below except in exceptional cases.

Consider breaking down net revenue by grade. This should show you where your highest and lowest revenue groups are. You should be concerned if you are about to graduate a high revenue group and don’t have students behind them to replace the enrollment numbers and revenue. Also, review your family incomes vs. tuition paid and aid awarded. The patterns should help you make general assertions about typical aid awards for certain incomes and family sizes. This is helpful to compare to award recommendations issued by the traditional tools like SSS, FAST and FACTS.

Impute enrollment numbers and tuition revenue to represent families you could have enrolled had you offered them financial aid. You’ll have to do some guessing here. This data should not only help you make informed decisions about how you utilize financial aid and scholarships, but also to see the potential impact of taking families out of the financial aid wait pool or offering aid to families who decline enrollment due to price. Chances are, your business office will see value in aiding qualifying families to fill empty seats.

Finally, be prepared to answer “why” beyond generating additional revenue. Are you simply trying to fill empty seats? Maybe your goal is to access a new market. Does your school wish to achieve greater socio-economic balance? Is there an opportunity to offer a partnership scholarship with a local like-minded institution? For example, schools sometimes find it beneficial to offer scholarships to employees of local universities or families attending a specific feeder school. These “partnership” scholarships help solidify ties between your school and an institution you wish to align yourself with. Standing on the platform of an important initiative or institutional goal will give you additional leverage when trying to convince your colleagues of the merits of a net tuition revenue model.

Should you adopt the net tuition revenue model, the most critical step is to maintain your data. Be sure to generate weekly reports of net tuition revenue for enrolled students. It is also critical to project ahead to see how financial aid commitments impact the school’s commitment to individual families as well as the school community as a whole. Set annual net tuition revenue goals with the aid of admission office that understands enrollment trends, past year’s net tuition revenue data, and the business office who focuses on budgetary needs.

Net tuition revenue modeling can be utilized to generate revenue and fill empty seats for your school. It gives the admission and financial aid offices greater flexibility and professional discretion in managing enrollment. It can also assist schools in creating socioeconomic diversity and targeting new markets. Whatever your goals are, a net tuition revenue model is simple when revenue from financial aid families is viewed as income and not an expense to the school. Changing your institution’s mindset in this way can support enrollment goals and set your school on the path to long-term financial sustainability.

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HaYidion Catalyzing Resources Fall 2018
Catalyzing Resources
Fall 2018