Carlson Thought Leadership in Finance & Technology

How Colleges Can Maximize Revenue from Room, Board, and Financial Aid

August 31, 2018 / by John McGrath

John's Blog Post - Image 1In my previous blog feature, I addressed how higher education institutions can develop clear strategies for enrollment management. Once an enrollment method is determined, the next step is to determine how to maximize room and board revenue, as well as financial aid.

Want to learn how colleges can model enrollment and financial aid to ensure sound financial management and planning?

Register for our Enrollment and Financial Aid Modeling Webinar 

Room and Board

From my experience consulting for higher education institutions, the best method for building a room model is to first develop a list of building and room types. These include dormitories or residential buildings; room types, such as single, double, triple, staff, apartments, and apartments with baths; beds per room type; and build-out by semester. The build-out can change as new dormitories come online, renovations happen mid-semester, and room-types change to meet demand.

You can then determine the demand for housing, vacant rooms, and the need for additional housing.

There is a direct correlation between board revenue and room numbers, with a slight adjustment made for off-campus students and staff. While many board models have different plans, students can select a board plan that uses a three-year historical average to forecast revenue. Typically, food vendors have different contract expense rates by enrollment levels for the board plan. This is easily modeled using maximum and minimum limits to predict margins on the overall board plan.

Financial Aid

Financial aid is the final, and most important, aspect of enrollment management. The discount on tuition revenue is crucial to attracting prospective students, increasing the prestige and ranking of the university, and fulfilling the students’ needs for academic recognition.

Financial aid can be a very difficult metric to forecast. There may be instances where your enrollment cohort is more financially stable than historical averages and the institution experiences a windfall. The pendulum can easily swing the other way and you could be sitting in a $1 million hole when beginning the year. This requires the financial aid model to be a bit more robust in its forecasting methodologies.

One of the most favorable methods I have come across uses a multi-step process for modeling:

Scholarships and grants

Determine the number of scholarships and grants that will be awarded. There are typically two types: academic or athletic. These scholarships are either a dollar amount each year; a percentage of tuition, room, and board; or full boat tuition, room, and board. This is a simple price x quantity model that can fluctuate with tuition, room, and board rate increases.

The Need-Based Model

The need-based model can be a bit more challenging, as this is dependent upon your institution’s policy for financial aid qualification.

An easy need-based model will require that you set a discount rate for your incoming cohort (need-based only). That dollar amount awarded to students will not change from year to year. This will allow you to use a retention-based model that uses a historical three-year trend to model out how the financial aid dollars carry from year to year, rather than following the financial aid dollars by student. This model becomes more difficult if financial aid changes as student need changes.

When you have built these two models, you can test your total discount rate and set a limit of financial aid dollars. This will help you develop your enrollment strategy.

Tuition, Room, and Board Rates


John's Blog Post - Image 2

What’s the final strategy you can implement? Adjust the tuition, room, and board rate increases from year to year. Because students and parents have become quite price-conscious, colleges must carefully navigate tuition increases. Some colleges have implemented a strategy of keeping tuition the same from the first day to the student’s graduation day. However, this specific strategy is not recommended. If the college were to ever encounter a financial crisis, the only way it could increase revenue would be to increase enrollment and/or significantly increase the tuition rate for the incoming cohort.

Most small liberal arts colleges have had to make large rate increases due to small enrollment classes. Meanwhile, larger institutions have tried to limit the tuition rate growth by using a quantity strategy to increasing enrollment. 

Technology Considerations: Employing a Business Planning Cloud Solution

Want to implement the above financial planning models? Adaptive Insights, the all-in-one performance management software I mentioned here, can make that planning happen. With this dynamic cloud solution, you have the benefit of version control and easy reporting that multiple constituents at the college can access. This collaborative workflow can help you be more proactive, rather than reactive, when managing the college’s operations.

Planning for Enrollment Success

There are several different strategies colleges can implement to reduce the ever-increasing operational costs that come with delighting students. However, it’s a very delicate process that requires careful deliberation and significant input from many departments. There must be effective communication throughout all stages of planning.

It’s back-to-school season! On September 20th at 2pm, learn how to create enrollment strategies that lead to better financial outcomes by tuning into our upcoming webinar: Enrollment and Financial Aid Modeling Strategies for Higher Education. John McGrath, Senior Associate, will reveal how you can manage all aspects of student enrollment with a business planning cloud solution.

 

Register Today! 

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