Every year, I hear stories about the financial frustration families experienced when the actual decision time arrives for picking their child’s college. Finding a college that includes the right environment, academics and is affordable can be stressful and maybe even painful. Many parents describe their admission decision process and how they were surprised with the final financial award. They are hoping to see the financial rewards for their child’s many years of hard work that included AP and honor classes, extracurricular activities and standardized test prep. The reality of the situation may result in a difficult discussion, where the student cannot attend the dream school they were accepted to.
This summer and over the next several months, high school families will visit colleges trying to find the campus environment that fits their goals and personality. During many of the college visits, the student and parents will hear from the various college administrators that you need to apply with the emphasis that there is plenty of financial aid. Some schools will even announce their dollar amount of financial aid, which will sound enormous. This will increase the family’s hope of admission and financial support needed to allow their child to attend the college of their dreams. It is important to remember not all dreams come true.
In a recent Philadelphia Sunday Inquirer article, I read a story titled “Mom’s Lesson from the College Search”, written by Elizabeth Eisenstadt Evans. The article focused on the author’s college journey with her son. The journey begins with the careful selection of high school classes and continues though the admission process. Her article describes the stress of the admission process and the frustration that her son’s dream school did not provide enough financial help to make it affordable. This is a very common story. Many families overlook or do not fully understand the business aspect of the college admission and financial award packaging process.
Listed below are some of the things junior parents need to be aware of before they start their search. In addition, these concepts may help the senior parents better understand why their child did not get into a specific college or receive the amount of money they needed to attend.
Law of Large Numbers
The business aspect of the college admission process is a widely overlooked area for most students and parents. Many college admission offices use the theory of large numbers. The theory of large numbers is based on the colleges end goal of reaching the correct mix of students that they can select from on a demographic basis. At the same time, that larger mix of students allows them to offer various financial packages to the students they want and improving the college’s revenue on a per student basis. Yes, the colleges look at your ability to pay as part of your combined admission and financial aid package.
It also helps the colleges with the various ranking systems that we all read. The higher number of applicants with the same number of open seats increases the schools selectivity ranking. The student or parent reads about how a specific college is ranked or even the college promotes that ranking, and now that becomes part of a family’s college list. It is simple supply and demand.
This increase in applications can sometimes happen by accident. For example, if a college achieves some very favorable press such as a national sports championship, the number of applications can go up significantly which increases their selectivity and demand.
Average Net Revenue per Student
The average net revenue per student is rarely disclosed to the student or parents. The colleges keep it simple for families but in reality, the college’s decision process is extremely complex. College is a business and they need students to be able to pay tuition to stay in business. Many schools use an enrollment management matrix to track and decide on the accepted students. This affects the financial award that each student will receive. Many times this is also driven on a supply and demand basis.
As with any business, there is a revenue target for the college. Many colleges use average revenue per student models. This is also called their yield. This part of financial packaging creates many of the problems and frustrations that families encounter in the college decision process. Referring back to the recent article above the author expressed her experience with this exact situation. Her family faced the dismay and confusion when they realized that their son’s dream school would not be affordable.
While the college is working the numbers for their business to thrive, the consumer is simultaneously generalizing and comparing prior scholarships and offers with their own situation. It is vital for families to not lose sight that a college is a business that is dynamic.
Annually, the college award policy can change based on one or multiple demographic items. These award policy changes create some of the public perceptions of inconsistencies and frustration. It is no different from a department store putting different items on sale each year.
Most students are familiar with a college’s academic reach. Colleges also have a financial reach. Similar to the academic reach, all colleges have an average financial aid package. It is not often reviewed by families but can be a great estimate for the financial award that a student will receive. If you are an average student academically for a specific school, having an expectation of a more generous financial award could be misleading. A student must understand the academic and financial position at each school. It is sometime hard to quantify the subjective traits, a specific student will bring to a college but many times these specific traits only help on the admission side of the packaging.
Colleges plot both the academic and financial position of each student. Refer to the chart below as an example. This chart determines the probability of student being admitted and the award package they may receive. In the chart below, the average financial package is $16,000. If your need is greater than that number you have a financial reach. If you are an average, academic student for that college and your need is significantly greater than the $16,000 then you have a financial reach. (Note: This charting is part of the EFC PLUS College Cost Analyzer software)
By having this information, you can save money by limiting your list of colleges where financial reach is present. This will save you money on application fees and the financial frustration of not getting the money you need to attend that specific college. We are not telling the student not to apply to any college but are only trying to help you manage your expectations.
It could appear that this would be described as discriminatory, but this is the daily struggle of the current world. We do not pay the same amount of money to the star actor in a movie or the star athlete on a specific team. Colleges are no different. They are trying to attract a certain mix of demographics for their school or entering class. This will change each year depending on the strategic goals of a college.
Part of the problem is how the schools market themselves to us and our perception of education equality. Colleges need good students and will often discount prices to students who do not need financial aid. Many times these discounts or scholarships are offered to maintain a certain academic level of the school. These financial awards are given to students who may not need financial help. That higher academic level is part of the attractiveness to certain schools. This becomes a vicious circle for both the colleges and consumer.
Over the past few months, I have seen an increase in the number of articles identifying the issue of unmet financial need. The amount of discounting has been increasing over the past few years according to the National Association of College and University Business Officers (NACUBO.org). Although I do not have a solution or answer to the problem, I am hoping this information will help you better understand the process and minimize your frustration.
Taking a Positive Approach
Too often, the emotional part of the college decision process outweighs the practicality of the outcome. The college admission process is similar to a company selecting employees or a team drafting their players. To survive, they cannot have all the same type employees or players. Their goals and objectives change each year.
The colleges are in the same situation. They are trying to find the proper mix of students to create a certain student body and generate the revenue they need to stay in business with their competitors.
By taking a positive approach and understanding the process, many families can minimize this emotional rollercoaster. If the focus becomes the outcome of the education and not admissions then it converts the decision process. College admission is just one stepping-stone to becoming a productive adult. There will be many twist and turns in the journey, do not let one decision become a roadblock.