Archives for the month of: June, 2015

In a day of reduced student demand, a number of colleges have turned to their athletic programs to help fill a portion of excess capacity.  The idea is that an additional student paying anything is better than no student at all.

At the outset, let me say that this strategy can be helpful within the context of an overall enrollment enhancement plan (EEP).  If ten or twelve percent of a student body is involved in intercollegiate athletics, it seems reasonable to move that number up two or three percentage points in the quest to fill empty classroom seats.  Athletics can be an important part of the college experience and many have gained leadership and lifelong fitness benefits from their participation. My thesis is that moderation is important.

Consider the following two issues as a plan is put in place.

  1. Marginal Revenue Analysis

First is a needed conversation about marginal revenue as it is practiced by many smaller, private institutions.  The idea here is that the new students provide added revenues and therefore benefit the institution that has excess capacity.

Let’s start with the non-Division III (D3) colleges that attract athletes through scholarships.  I recommend identifying the net tuition revenue (NTR) from scholarship recipients (excluding walk-ons) for each sport.  We’ll assume table tennis has an average institutional scholarship (discount) of 75% off tuition and fees of $28,000.  Each player thus contributes $7,000 on average. The math: ($28,000 X .25) = $7,000 NTR per person.  Ten players generate ten times that amount or $70,000.  The identification of NTR generated by individual sports is step 1.

For D3 schools, the entire roster can be used in terms of net tuition generated.  Some carve out the impact players and only use their revenues but that can be somewhat subjective.

For step 2, the budgeted costs of the sport are identified, including coach salaries.  That amount is then subtracted from the NTR sub-total.  In this case, the spending and salary budget for table tennis is $46,000, including salaries, benefits, travel, lodging, meals, uniforms, equipment, game day costs, etc.  Subtracting that amount from the $70,000 of NTR leaves a step 2 subtotal of $24,000.

Step 3 allocates athletic administration costs to each sport.  I typically use headcount for this exercise, ensuring that smaller programs are not abnormally hit.  Presuming $120,000 of athletic administration costs and 120 scholarship athletes, another $10,000 of cost is assessed against table tennis for its ten players (10 X $1,000.)

In the end, the ten players from table tennis generate $14,000 in NTR or $1,400 per person toward the cost of academic programs.

The final step aggregates all sports by net contribution to arrive at a total amount for the 120 scholarship athletes.  For some analyses, this has resulted in a negligible, even a negative number.  The question to be answered is whether enough is generated from these students to justify putting athletes in the classroom?

2.  Atmosphere

Second is a conversation about the qualitative aspects of athletic recruitment.  Put simply, too many institutions have accomplished increased athletic recruitment numbers in the face of an overall enrollment decline.  Why is this so often the case?

There are likely a number of answers to this question and I recommend drilling down to find what is affecting your institution.  Examples include scholarships being shifted toward athletes, leaving materially less for other students when an overall discount rate is targeted.  Aggressive roster requirements can also detract the attention of the admission team to assisting coaches in their recruitment work.  Other possibilities for non-athletic declines include deficient facilities or not offering the up and coming programs.  Institutional bad news or severe competition in the regional area could be factors in drying up the non-athlete pool as well.

I suggest that another factor is worth investigating.  When students visit, do they perceive yours to be a “jock school?”  Walking through the student union or into the dining room, are there a lot of students dressed for athletic practices?  Are athletes sticking together as they eat or walk around on campus?  If you offer a chapel program, are athletes together during that experience?  Do they sit together in classes?  Do they exceed 20% of your student body? The reality is that many great students who would be wonderful additions to your campus are not athletically inclined.  Oh, they may be reasonably good intramural players and enjoy being spectators for certain sports but their high school experience was primarily with non-athletes and they want something akin to that for college.

3. So what do we do?

Let’s replace our sports offerings with well-positioned chess boards and pipe-smoking, blazer clad sophomores debating each other on the sidewalks.  OK, maybe not. Let me suggest adding a few questions to the survey you give to all of your student visitors (you do survey them, don’t you?)  Ask them to rank what they thought your reputation was before arriving and their impression after visiting.  There could be five or more general descriptions of your atmosphere, including “athletic school, academically serious, socially active (party school)” etc.

In essence, find out how you are being perceived so that recruitment and messaging strategies can be adjusted accordingly.  Do this before embarking on a wholesale addition of sports in the quest for the next fifty students.  If forty students are lost who contribute more NTR, the strategy may backfire.  In too many cases, sixty or more are being lost.

Oh, and in connection with the NTR analyses I introduced (#1 above) it makes sense to work with the athletic programs to target a greater net contribution overall, to be accomplished over a period of years.  While athletic participation can be an important part of the college experience, these programs should bot consume all the resources generated.

A word about room and board.  Some argue that the contribution from auxiliary enterprises should be factored into these kinds of analyses.  My take on room and board is that it is used to support Student Life programs at the college.  This includes counseling, residential life, student activities, discipline etc.  When you match the net contribution from auxiliaries with overall costs of the student life program, there is rarely much remaining.  If anything is left over, investments in capital projects for dorms and dining are not a bad idea.  It isn’t good practice to direct those dollars toward the academic programs of the college.  That is why we charge tuition and fees.

I wish you well in this environment.  Keep trying new things but maintain perspective (and moderation.)  We want a balanced, healthy institution.  Let’s work together to ensure that.

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For those of us who came of age in the 1960s and 70s, the ‘Cuda, Cutlass and Cougar were legendary.  Some were heavy sellers while others had incredible style and performance.  Today, the mere two ‘Cuda convertibles that were outfitted with the 426 hemi fetch more than $1 million.  Evidently, I wasn’t alone in my passion for those cars.

Between 2000 and 2010, the three brands that made those cars (Plymouth, Oldsmobile and Mercury) disappeared, joining Hummer, Pontiac, Saab and Saturn.  Not since the great depression had so many car manufacturers ceased to exist in the span of a decade.  In their respective lest years of production, these companies combined to make over 1 million cars.  Many predicted GM, ford and Chrysler would be hamstrung by the loss of loyal owners and the dealers that sold them.  Today, more than half a decade after the last Mercury was produced, those predictions proved to be ungrounded.  So, why did the loss of such storied brands not matter?

Well, by the time they all passed on, not a one of them was making anything close to the historic models listed above.  Naming protocols had morphed into letters and numbers, GTOs were imported from Australia, sister company offerings were renamed (badge engineering) or each make merely made stuff that nobody wanted.  And so, we lost Oldsmobile and Pontiac but only after decades had passed from when the 4-4-2 and tri-powers ruled the streets.  Enthusiasts mustered an audible yawn when each “job last” rolled off the line.  There were a few writers who lamented and eulogized but the actual deaths were years in the making.

Today, GM is just about where it was pre-recession, as is Ford – and Chrysler is growing rapidly.  Customers may have migrated here and there but current lineups are pretty strong.  Buyers of the retired marques are snapping better stuff up in record numbers.  In fact, today’s sixteen year old was four when the last Olds was built.  He was ten when GM lost four of its other brands and likely has little idea what was lost when they went away.  Maybe it is because very little did.

So, what does this have to do with private higher education? Well, I think plenty.

A host of institutions were considered beacons of excellence forty years ago.  They attracted students who weren’t guaranteed acceptance, offered exemplary teaching in the liberal arts and sciences, and equipped graduates to labor and lead in a changing world.  Graduates parlayed that fine education into top tier grad schools, successful careers and positions as pillars of their communities.  Much of their accomplishments were owed to their alma mater.

Why was it then that their kids hardly gave dear old alma mater a glance?  My sense is that the greatness of yesteryear had given way to higher ed’s version of “badge engineering.”  Unique programs disappeared when exceptional faculty retired, the marketing budget was cut or the institutional vision got rid of former trappings.  Tuition discounts multiplied, providing funds to offset skyrocketing prices but only if you tended to get A’s or could kick a soccer ball through a brick wall. The desire for more students led to declining admission standards and an overall academic profile that encouraged the more serious alumni kids to look elsewhere.  Simply put, they lost distinctive while dumbing down the student body in the name of chasing marginal revenues.

Today, too many institutions with storied pasts are playing price limbo with financial aid.  The loss of Clearwater Christian College was shocking enough.  More disturbing was the bottom dwellers who offered amazing amounts of financial aid to grab the students who had lost their college.  Those other schools can’t afford to do this and are likely to cause existing students to want the same deal.  And so, the loss of one school begets the loss of another, and so on.

What can be done to avoid the kind of degradation that leads to closure?  First of all, some kind of real estate has to be claimed.  You should be the very college that any student who knows anything will attend for program X.  Your byline should reflect your most unique characteristic. Stop merely touting your overall brand and market individual programs to students who have registered an interest in the discipline and who possess an aptitude for success.  Stop stacking aid and avoid chasing after the student who is unprepared both academically and financially to attend your institution.

In other words, bring back your version of the Hemi ‘Cuda and tell people about it. Remember, if you are just like everybody else only better, you’d better be the cheapest or located in the middle of Disney World. Not thinking either of those are valid options.

As a cost accountant in a former life, I have always found it interesting the way that tuition remission is handled. Basically, the full cost of the benefit is apportioned to fringe benefits under “operating costs” and the entire amount of tuition is recognized as revenue, with no offsetting tuition discount. Let me identify a couple of problems I see with this treatment.

First, none of the employees who qualify for remission would have paid the full sticker price for tuition – pretty much ever – had they not received an employee dependent benefit. So, to recognize the entire amount of billed tuition as revenue is illusory. In fact, most of these students are bright, being dependents of employees who themselves did quite well in their educational pursuits. A few might actually qualify for the highest academic awards, making remission to be not all that different from what they would have received in aid off the street. Charging the entire difference of full tuition and the net amount paid by employees to employee benefits is just plain inaccurate.

In recognition of this, I recommend initially packaging (assigning institutional financial aid to) remission students as if they were not employee dependents. From their EFC (expected family contribution) off the FAFSA, they will receive need based aid according to standard institutional formulas. They will also be considered for academic awards, based on the same criteria applied to others. For those institutions that offer athletic awards, make the student’s participation in a sport contingent on the coach offering a scholarship. After applying all of these awards; the ones the student would have received if they weren’t a dependent, the actual benefit cost winds up being the amount needed to bring a net tuition bill from the normal discounted level to the agreed upon benefit level – potentially no tuition cost at all.

As an example, presume that tuition is $20,000 and employee dependents pay 5% of that price or $1,000. Suzy, a dependent of a College employee, has an ACT of 28 and qualifies for an $8,000 annual grant as a result.   Because of her family’s EFC, she also qualifies for a need based grant of $4,000. The College’s employee Dependent Tuition Assistance Grant (EDTAG) winds up being $7,000, leaving a bill of $1,000 in tuition for the student. This better reflects the amounts apportioned to tuition discounts and employee benefits.

The second problem I have with this involves students who visit from other campuses under reciprocal employee dependent agreements. In one sense, the cost of a remission program should be borne by the sending institution. Since that may be too cumbersome to manage, I suggest a net charge of tuition to the visiting student for the actual amount of tuition owed after the benefit. Again, a 95% of tuition benefit would mean that the visiting student is charged $1,000 for tuition (gross = net) with no discounts applied. It would be inappropriate to charge a tuition benefit received by a visiting student to employee benefits. You can’t be assured that you have an equal number of students going elsewhere as you have attending your institution. The net charge approach is thus a better way to reflect true benefit costs for remission.

I know this is somewhat technical and may not be of interest to most readers of this blog. I do interact with institutions that are looking for ways to trim expenses, however, and some are considering changing their remission policy. By using the approaches identified above, the lure of taking this benefit away may be less interesting. And your employees who are typically not paid all that well will thank you.