SPEAKER_00
Hello and welcome to Office Hours with EAB. Today we explore a subject that is not well understood by almost anyone who works outside an enrollment office. The subject is Financial Aid Optimization or FAO for short.

FAO is one of the strongest levers schools have at their disposal to enroll and retain a mix of students from different backgrounds while ensuring they generate enough tuition revenue from students who have a greater ability to pay. Striking that balance requires sophisticated analysis and modeling capabilities. You'll hear today from two experts in the field who will explain how it works and separate a few myths from reality.

Listen and enjoy.

SPEAKER_02
Hello everyone. Welcome to Office Hours with EAB. My name is Sarah Laduke and I'm joined today by my colleague Brett Schrader.

Hi Brett. Hi there. So today we're going to talk about a subject that Brett and I know quite well and but it is not known quite well from folks outside of those who work in the enrollment office and that is financial aid optimization.

So before we get into the details, I think what we'll start with is just a little bit of intro of the topics that we plan to cover today. So we're going to discuss the approaches that folks take in financial aid optimization work benefits to working with a partner and effective financial aid optimization. And then lastly just going through some advice, some takeaways in terms of using financial aid to diversify your incoming class, boost yield, meet net tuition revenue targets, all those things that are important in terms of the longevity and sustainability of campus environments.

So basically what financial aid optimization is is a tool that folks use to determine net tuition revenue goals and help them to discuss enrollment goals as well as other institutional priorities that are individual to each separate campus. Brett, did you want to take it from here and walk through some of the approaches to financial aid work?

SPEAKER_01
Yeah, sure. I think it's an appropriate kind of topic. I guess it's always an appropriate topic, right, Sarah? You know, how do you how do you do financial aid? But appropriate topic right now because students are busily applying or have already applied and parents and students are applying for financial aid right now.

And so, you know, it's certainly on people's minds. And just paying for college in general is always on people's minds. So we know, you know, we know it's an important topic.

I think what as you stay at the top, what most people don't know is that that in the background, each institution is sort of trying to figure out, you know, what's the best way to to to deploy their financial aid dollars in the most effective way that meets their goals, you know, schools don't have unlimited budgets in this. And so they have to really find ways to figure out what's the best way to do this. And so, so that's, you know, that's it's good context for us to be talking about it.

And and so there's there's a couple of typical approaches that are used. You know, all of this is sort of, you know, in the world we live in today, it's probably not a surprise to hear that a lot of this is data driven, that that we're using some data modeling techniques and some ways to really think about how students are making their decision, how students and families really are making their decision to attend a college. So so we kind of think about it in that way.

And so one of the things we do at EAB and what this world of this thing called financial aid optimization is, is really trying to understand the role that financial aid plays in a student's decision to attend. And we know it is an important part of the decision. It is not the only part of the decision.

There's there's many other things that go into a student's decision to attend a particular institution. But financial aid is certainly a big part of it. And as cost of risen, you know, probably an increasingly important part of it.

So so let me talk about the two kind of general approaches. You know, there's sort of the what we might call like the human guided with sophisticated modeling approach that doesn't really roll off the tongue. But, you know, that approach, that approach is kind of is what we do at EAB.

So we take all of the data that we have and we really try to, again, understand what a student's what what the what their what are reasons that they enroll and what role financial aid plays in that. The reason we call it human guided is because we use a bunch of sophisticated modeling techniques in the background, but you have ongoing consultation with people like Sarah and me and our colleagues who have actually spent time on campuses who understand that this comes around a question about mission and and the way that the college or university wants to what kind of class they want to have. And so it's sort of that guided thing where we say, look, you know, the model might tell us certain things, but we also want to always check those things with the institution and make sure that they're meeting the goals that institution has.

And also we want to always make sure that that there aren't things underneath that are happening that the institution doesn't want, you know, that they see certain enrollments dropping with a certain approach or strategy or they see, you know, their gender balance maybe getting a little bit out of whack or something like that. And so that guided approach is really you need someone sort of on the side who really helps helps the institution understand what's going on with this modeling and this this sophistication.

SPEAKER_02
You want to talk about? Yeah, go ahead, Sarah. I just was thinking that's such a good point, Brett, in terms of the the pieces of the equation, right, that we would notice because we're monitoring it. And I just want to double down on that and how strong our analytics teams are in terms of the experiences they've had and really just pointing out that really it's the best tool that institutions can use, right? They're not only getting the strong data and analytics, but they're also getting the guidance of an observed model as our status station would say, or a human guided model, along with the machine learning.

SPEAKER_01
Yeah, that's a great point, I think. And that actually is a good segue to this sort of other approach to this, which is what you might call almost like a complete machine learning approach where, you know, to to to use the oft used quote, the set it and forget it model. And it's not really that.

But but really that that just the the model tells us to do X. And so we will do X without really spending a lot of time thinking about what that impact is, or just maybe not even an understanding that it's going to have an impact. And so that's not an approach that that we we really use here at EAB.

We use we use some of the techniques. But again, that human guided, Sarah, you said it said it really well, just doubling down on that. And so so, you know, the more we've gotten sophisticated with modeling, there's been maybe more of a tendency to to move to that.

Like, well, we get just a little bit better if we do this, you know, this machine learning only approach. And and that can have some some consequences that we don't, you know, we end up looking out at the end and going this this didn't really work in the way we intended it to. And so that's kind of why we really use those modeling techniques, but use that guidance along the way as well.

So so those are the two the two big things, Sarah, what what do you think? I mean, in terms of like, why does a school hire us? What's what's the what's the reason behind that?

SPEAKER_02
Yeah, I mean, it can be a multitude of reasons, right? When when we first begin a relationship with with a college or university, usually what they tell us is they're trying to grow enrollment or they're trying to improve their net tuition revenue. So have a financial aid strategy that's more efficient. So typically, those are the goals from the outset.

But then as you learn more about each other and they learn more about what we can provide and we learn more about what what their challenges are, either institutionally or with their data sets, we begin to understand more and be able to refine our relationships with those partners in a way that can create additional outcomes. But essentially what we're looking for is a way to help them to be efficient with the financial aid dollars that they have. And then in addition to that, find ways where they can kind of maximize the amount that they're able to spend in order to drive optimal enrollment outcomes.

And remember, financial aid optimization or FAO is one of the strongest levers that schools have at their disposal to to really attract a mix of students from different backgrounds while also ensuring they get enough students who are able to cover at least close to the full amount of the cost or or all of the cost.

SPEAKER_01
Yeah, that's a good I think that's an excellent point, Sarah, just really underscoring the fact that, you know, the starting point for these institutions, they definitely have to have enrollment and revenue to operate. That's absolutely true. But but colleges and universities have a set of students that they serve and I think the general question and the general conversation we all almost always have on campuses is, you know, we how can we be better at supporting the students that we have? And so so, you know, we're often really thinking I think thinking about that.

And and, you know, it's interesting. Sometimes I think it kind of addresses some misconceptions. So, you know, I know one misconception I've seen is, you know, campuses will say, well, you know, it costs a lot of money to support our high need students.

And oftentimes we work with them. And I know you've had some examples of this where we really look dig into their data and we realize, look, you're already supporting them well. And you could probably support them better even if you if you expanded your aid and you could support your net tuition revenue and enrollment goals too.

So it's sort of everybody wins scenario. And I know, Sarah, you've been involved in helping some schools move to these promise programs where where the school, along with federal government and other support is is able to help, you know, help students cover the entire cost of tuition. Do you have any any sort of comments or thoughts?

SPEAKER_02
Yeah, so Brett, as you know, I used I spent the majority of my career working in financial aid office. So so really the biggest challenge for students sometimes is just understanding how much it's actually going to cost them. So at public institutions in particular that have a higher tuition or have a lower tuition rate and, you know, possibly have a high number of Pell Grant recipients or they have a really strong state grant program, like the state that I live in Minnesota has a really strong or the state you live in, Brett, California, both really good state grant programs.

So oftentimes, it actually ends up being free or close to free for Pell eligible students when you couple together a merit scholarship, a Pell Grant, a state grant, and usually it doesn't take a huge incentive or a huge expense from the institution to help cover a free tuition type program. And even if an institution maybe doesn't fight on it initially, or needs another year or so to be able to go through with the policy, it has the benefit of having a marketing splash, right, because you can say free tuition, which nothing's clearer than that, right? It doesn't cost anything. And then it also provides if it does have an expense associated with it, it provides the enrollment team with a really great presentation to bring to the board or the cabinet of their institution to be able to say, listen, it's actually not going to cost us that much more because we're already pretty close to doing that anyway when it's all in for all types of aid.

So that's been a really exciting benefit for me because I certainly believe in equity and providing opportunities to diverse groups of students in communicating in a way that we haven't been so strong at in the past. And then I was wondering from you, Brett, if you've ever, when you're working with our statistical model, if you've ever been in a situation where the model says, you know what, you're actually giving these students too much money, is the optimum amount of money that we should actually be giving these students is less than what we're giving them right now.

SPEAKER_01
Sarah, yeah, that's a great question. What if the models tell you maybe you're giving too much money? And, you know, the models tell us a lot of things. That's why the humans are there to sort of help the institution understand what the model is telling them.

But, you know, often when we see this, it's, it's sometimes because the university is given too much money, maybe the students who aren't don't need it, they're there maybe a little more affluent. And so we might suggest lowering those merit awards in service of giving more money to high need students sort of the previous example we were just talking about. I think the reason you do this modeling process is it's not always a one to one correspondence.

So just taking a dollar away from a student's merit award doesn't mean you automatically have that dollar to spend on another student. So what we're always helping the institution understand is if you're going to take away dollars, how much does that free up for other students? And where is the point at which, you know, where is the point at which that doesn't that doesn't end up working? It actually hurts on all fronts. You can't serve high need students as well.

You can't serve middle income students as well. You can't serve high income students as well. And there's always a balancing act there.

And that's really part of our job is to help them understand the balancing act. But, but I would tell you, also, you know, like you said, we both spent lots of time on campuses, you know, we all do this work really to understand how we serve students. And I would say that's, you know, always a almost always the most common question is, how is this impacting our students? How are they doing better? Or are they or are they not doing better and then decide and then thinking about what does that mean for our ultimate strategy? And that's actually a question that for maybe for you, Sarah, is, you know, sometimes folks will say, well, this is just really to get students in the door.

But, but, you know, it doesn't really think about, you know, how do students retain and graduate? So, so how do how do you sort of approach that

SPEAKER_02
question? Yeah, that's a great question. And when we are getting asked more frequently, which is a good thing, right? And I think it ties to what you were talking about previously, because sometimes a cabinet or a board at an institution might say we need to bring the discount right down. But, but what does that actually mean? So that's sometimes what we're talking with or what we're arming our vice presidents of enrollment with, right? Like, if you do that, if the ultimate goal is actually to drive discount rate down, how does that impact students? So I think, again, thinking about not only enrollment, but retention, bringing all the data that the institution has together, we do retention analysis with schools as well, which is always really helpful, really informative to say, okay, you grew your enrollment this year, but then to fight some of those kind of the gossip, maybe that's happening on campus is like, we brought in a large class, but guess what, none of them retained.

Meanwhile, it could be that you actually, you know, did retain fewer students, but maybe as a percentage, it's larger, or just having that data backdrop to fight some of kind of the things that that folks are seeing on campus. And oftentimes, what we find too, is that there is a pretty strong correlation between the amount of aid that a student is awarded and the the likelihood to retain. Ultimately, those two are pretty closely tied together.

And when we do are able to improve the financial aid awards, especially for students who are less likely to retain from other variables that are associated with those students, you know, ultimately, you're, you're decreasing the percentage of chance that aid is the reason why that student doesn't retain. That doesn't mean that you're wiping it out or it will never happen. But at least you're limiting the impact of cost being the reason why they can't continue enrollment.

SPEAKER_01
Yeah, I think that's a great, that's an excellent point. The retention is such an important piece for us. And it's, and you know, there, that's, I think, one of the things I've seen when we've, when we've worked with schools and really thinking about what does this look like over four years or five years as students retain and graduate is, you know, the conversation can be, you know, you have strategy A and strategy B strategy A and strategy B look pretty similar when the students walk in the door, but over four years, maybe strategy A looks a little bit better.

And so, so we'll, we'll go toward that one. And that's a good, that's a that's a good, as you said, Sarah, data backed solution for institutions to say, here's why we're going with this strategy, because not only does it do what we needed to do, to bring in the students that we want and that fit our mission and that hit our net tuition revenue goals and hit our enrollment goals, but it also is, is the better strategy going over four years. So, so those, you know, those are, those are always good questions that we, we want to want to ask.

And we, we, our partners push us on that and we push our partners on that too. Again, sort of that, that, that way of understanding, like, what is this strategy actually do? What is it? Who is it impacting? And what does it look like over time? So, so, so Sarah, what I mean, so at the end of all this, I mean, what's, what's kind of your, your perspective on, you know, like, where are schools going with this? Like, and what, what's, what's, what's sort of ahead and why are schools really at the end of the day, kind of involved in this financial aid world, financial aid optimization

SPEAKER_02
world? Yeah, it's a good question. I mean, they have a variety of enrollment goals, right? And the data that we are looking at is in helping to inform the strategic decisions that they're looking to make on campus. So it's, it's certainly it's about financial aid optimization.

But what they are optimizing, I think differs from institution and institution and certainly changed over time. I think when we began this work, right, there was a lot of work in terms of net tuition revenue optimization, right? And what does that mean? And where are we missing out? And where are opportunities? And I think it's evolved a little bit to be a bit more nuanced than that than it used to be or kind of historically was in a way that says, you know, our local market is a Hispanic population that is a high need commuter population. We really want to grow our work with our community and be more tied to our community.

How can we do that? Right? So that's not necessarily traditional financial aid optimization. But it is an enrollment goal that that we love to help with, right? I mean, that's the nuanced goals, the ways to get creative about the award, institutional budgets that you have. And then just finding ways to again, helping the the enrollment team communicate what's going on nationally, and how it impacts the the modeling and all of the outcomes that that we project.

SPEAKER_01
Yeah, I think that's a great, great point. I was kind of thinking, you know, one of the things that I think has changed a little bit over time is, you know, financial aid, because it's a big number on law campuses, it's, I think increasingly, folks are thinking of as it's an investment. So it's an investment in our students.

And what's the best way to get the most out of that investment? And if you look at it that way, I think it serves, I think it serves everybody pretty well, don't you think?

SPEAKER_02
Yeah, I think that's a that's a great way to think of it. That's how that's how you and I probably think about about it, too. I wonder, just kind of moving on to our last section here, too, what are what are the best pieces of advice for schools? If they're if they're considering like, Hey, maybe we should look at financial aid optimization.

We've always done it in house before, or we used a different vendor a few years ago, but it didn't work out that well. What what would be the best kind of advice or or helpful tips in terms of that?

SPEAKER_01
Yeah, that's a great question. I think, yeah, you know, certainly, you know, this the world of data analysis and crunching data crunching numbers, it's become such an important piece of all of everyone's strategy. It's it's it's in higher ed, it's in corporate America, it's everywhere.

You know, we can sometimes get the question, should we do this in house or can we do this in house? And I think, you know, at EAB, we're lucky in that not only do we have a financial aid optimization division with data scientists and data analysts and folks like Sarah and I that that have spent a lot of time on campuses. We also have a huge research arm that that helps we bring some of those learnings to bear. So how does financial aid help retention in small pockets and those kinds of things.

And so and other other questions that we get asked. So I think I think one of the things that that we really want schools to understand is, if you go it alone, you know, you need to build an infrastructure that is pretty significant to do it well. And so that's often why schools come to us, because we're a little bit more of an economical option, and an option that probably gives them more than they could get going it alone.

So it has to be sort of a year round endeavor, you have to it's always helpful to get help crunching the data. And then really just that investment strategy, you know, the folks that these some of these colleges that have, you know, not every college has a big endowment, but schools with even moderate endowments get help to invest their endowment dollars. This is sort of similar to that you're getting help to invest your financial aid dollars.

And, and while you might know a lot about it, it's always good to have some outside advice. And so, so I think, you know, as we wrap it up, I think, you know, the important point, I think we sort of made it is to make sure that we're, that schools are spending their dollars in the most effective way possible to meet their goals. And so, you know, that that can mean that making sure that they're not giving too much money to say higher income students in service of giving more money to high need students, figuring out that balancing point.

And really at the end of the day, schools are not, you know, schools, most schools in the country admit most of their students, most schools in the country don't have big endowments. And so they need tuition revenue to keep going. And I think my feeling on this, and I felt like this in 27 years of being in higher ed, this country is a better place for having institutions that serve the students that they do.

We have this awesomely diverse set of colleges and universities around the country. We are a better place for having that diverse set of colleges and universities. And so getting a help with financial aid optimization means that those universities and colleges can continue to support the students that they serve.

And I think that's why we're in this. And that's why we do this. And that's what's important to me.

So I'll leave it there, Sarah, you can end and some last comments before we wrap up.

SPEAKER_02
Well, I can't think of any better way to end it than that. So thanks for joining us at office hours with the AB. My name is Sarah Leduc, joined by Brett Schirator today.

So thanks so much.

SPEAKER_00
Thank you for listening. Please join us next week when we look at student activism on college campuses and share tips on ways for university leaders to engage in more constructive ways with students who are calling for change. We'll also discuss how to approach difficult conversations with major donors.

When they disagree with a cause or actions students are demanding from your school. Until then, thank you for your time.