Reassessing our Financial Aid Policies due to COVID

Many institutions are reassessing their financial aid policies in light of the COVID recession. What do college finances look like right now because of COVID and how tricky are financial calculations going to get?  

Dr. Phillip Levine, professor of economics at Wellesley College and founder of MyinTuition, joined the Enrollment Growth University podcast to talk about where our institutions are at financially right now, and why we need to reassess our aid policies and packages heading into next year in order to ensure we still have an access story for our lower- and middle-income students and families.

COVID’s Impact on Higher Ed’s Financial Landscape

We don’t yet know the extent of the damage from the COVID recession, but it’s pretty clear that it is going to be substantial. Consequently, institutions will need to reassess their overall financial aid policies heading into next year.

Right now, colleges are in a difficult position. While revenue is down, they’re also operating in a larger environment of significant economic weakness and anxiety that affects current prospective students. 

Affordability is going to be a huge issue starting next year and then going into the future, and unfortunately, the realities of higher education’s pricing are not going to help. Here’s why:

  1. Very few students actually pay the sticker price.
  2. Despite the fact that most people don’t pay the sticker price, it’s the number people know and believe they will have to pay.
  3. Even after adjusting for financial aid, prices can often be too high for lower income students 

We need to address these issues if we’re going to assuage students’ concerns regarding affordability.

The families of lower and moderate income students always bear the brunt of an economic crisis, and this one is no different. It’s going to be quite some time before the labor market improves to the point where these families’ finances will recover. We have to find ways to better communicate actual pricing, not the sticker price. And we have to find ways to at least hold the line on what these families really need to pay to attend college.

What We Know About Increasing Financial Accessibility

A lot of factors stand in the way of lower income students’ access to college. It’s not a simple process, and students can face many hurdles along the way. 

Well-designed research studies have shown that lack of information about financial aid is part of the problem. One recent study involved participants who were Michigan high school students with annual family incomes below $60,000. 

Those in the treatment group were told that they could attend the University of Michigan tuition free on something called the Hail Scholarship. And just for point of reference, the Hail name comes from the Michigan Fight Song. The thing is, these students could have attended Michigan tuition free anytime, not just because of this experiment. 

Let’s say that Michigan’s sticker price stood at $30,000. Half of that is tuition and half is room and board. Tuition-free attendance just covers the tuition part of $15,000. Students would still owe $15,000 for room and board to attend the University of Michigan. In fact, Michigan’s regular financial aid policy is actually more generous than that. Most low-income students would pay less than $15,000.

The price didn’t get cut for these students, but the experiment wasn’t about lowering the price. The experiment was just doing a better job of communicating affordability. And the results are impressive. The students who received this offer were considerably more likely to apply and enroll to the University of Michigan. 

Takeaway from this experiment? Information matters.

How Institutions Should Think About Financial Aid Policies

Let’s face it: there are no more full-pay students out there. And we’re not going to fill the gap with international students, not in the current political environment. That just isn’t a solution right now. Besides, for colleges to solve their financial problems by crowding out lower-income students with full-pay students violates principles of access. 

The real answer to this question depends on the type of institution we’re talking about. 

Public institutions will suffer unless and until states get funding from the federal government. Even then, public institutions are likely to increase sticker prices, meaning full-pay students will have to pay more. The trick here is to reduce the harm done to students who can’t afford to pay the sticker price by increasing financial aid and making its availability more transparent. 

For elite private institutions, there’s a little more slack in the system. They can use endowment funds, or they can borrow. Some of these schools also hold cash reserves. For them, the future is all about tightening their belts. 

Where we really see problems is at tuition-dependent private institutions. If our current situation extends another year or two, these schools are going to run into a real problem. 

There are just no easy solutions out there.

 

This post is based on a podcast interview with Dr. Phillip Levine from Wellesley College. To hear this episode, and many more like it, you can subscribe to Enrollment Growth University.

If you don’t use iTunes, you can listen to every episode here.