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A Brief History of Financial Aid Part III

A Brief History of Financial Aid Part III

(Be sure to read Part I and Part II of “A Brief History of Financial Aid.”)

By the time President Clinton came into office, financial aid — and by extension, higher education in America — had taken a beating. Families were left footing huge bills, and students were increasingly graduating in deep debt. Empty seats in college classrooms were multiplying.

One fix that colleges utilized was “discount rate.” In order to get the financial aid money a student provided, they wrote off the difference between the net revenue and the gross price the college actually charged. That is, they had a real price and a sticker price.

In effect, they printed money without having the gold to back it up. They created need-based grant dollars that weren’t really cash and gave it to a student. Colleges charged the same “sticker price” they’ve always charged, but they adjusted these un-endowed dollars to make the bill balance, stabilizing the balance sheet and filling seats. This may seem sensible but, ironically, we can only spend the cash we actually collect on things like faculty and facilities, not to mention providing an educational experience for students.

Now colleges compete for students based on what and how much they can offer in the way of financial aid.

Consider a typical Ivy League college. Massive endowments for a school like Yale allow them to pay the entire tuition for needy students. A family that could afford to pay for such a school might find themselves locked out, but then they could as easily find savings and value at a big state university, the University of Michigan for example.

Where does that leave the smaller, four-year, liberal arts college? They can’t compete with an endowed free ride, nor can they match the brand recognition of a big state university. For these schools, it is imperative to identify the right students and invest in the ones who best fit their demographic.

By making use of big data, these smaller colleges can assign scholarship money based on targeting. A student who fits the school is worth the financial aid — and they won’t drop out after freshman year, leaving the college to make up the revenue shortfall.

In the end, financial aid need not be a detriment to small colleges in a complex market. It is only a matter of strategic thinking. This is what Capture Higher Ed does.

By Sean Hill, Senior Content Writer, Capture Higher Ed