What are "Scholarship Swaps" and Why Are More Universities Doing It Than Ever?
In a previous post, we talked about how scholarships are playing an increasingly important role in the budgets of universities. In short, the convergence of a) declining levels of federal student aid, b) increasing concern around student debt levels, and c) schools struggling to meet enrollment targets, means offering transparent and competitive pricing to prospective students (often via scholarships) is more important than ever. Scholarship swaps are one practice that allows universities to expand their financial aid assistance packages to students by leveraging other sources of funds - such as donors or external organizations.
Let's take a quick example. Say Awarded University charges $20,000 per student per year in tuition. Awarded University's Board has approved $1,000,000 in operating funds for "Dean's scholarships" it can give out to students to promote accessibility and recruit high school students that would be the best fit for their programs. That means it could give 50 students full-tuition scholarships per year. Great - that's 50 kids that get a wonderful aid package to attend a top-tier university.
But things are never that simple in the higher ed world. In reality, the admissions office has 100 students that they want to make sure have the financial support to afford Awarded. And on average, the families of all 100 students can pay on average $5,000 each between their own savings, federal grants and some loans they've taken out. Excellent - so now there's $1,500,000 in funds available, but $500,000 remaining to make sure all 100 students can enroll. Here's where scholarship swaps come into play.
Schools can find ways to capture that remaining $500,000 in funding through two kinds of scholarship swaps: donor-funded swaps and external swaps.
1) Donor funded swaps refer to the practice of institutional funds getting replaced with funds raised by the University's Advancement office, typically from various alumni and other donors, oftentimes with various restrictions (i.e., Sally the donor gives Awarded University $500,000 to give out scholarships to medical students with 3.5+ GPAs from Pennsylvania). In this case, if Awarded University can raise $500,000 for in-year scholarships for students from donors, it can increase its own scholarship pool from $1,000,000 to $1,500,000, and ensure all 100 students can afford tuition (after adding their own savings, federal grants and applicable loans). The "swap" here taking place means that of the $1,500,000 in "Dean's scholarships" that are being given out, $500,000 are being swapped, or funded, by institutional donors (the remaining $1M coming directly from the university's own operating budget).
2) External swaps come into play when a student receives an external scholarship not related to the University - for example, a Coca Cola Scholarship. Oftentimes when a student receives one of these scholarships, the University will offset that students' financial aid offer by the same amount of the external scholarship. For the student, this is often disappointing and surprising, because the award may not change the amount of money they need to pay for college out of pocket ("Expected Family Contribution"), although it often does reduce the amount of loans a student may need to take out. On the other hand, external scholarships allow universities to leverage their limited financial aid budget to ensure as many students can afford their tuition as possible. Many universities will say that the external scholarship represents an increase in their financial resources, and correspondingly will require less financial assistance, causing those funds to get re-rerouted to another student with need. In the example above, if 50 of the students are able to each receive a $10,000 external scholarship from various websites like FastWeb, ScholarshipAmerica or Awarded, then the university can also make sure all students can fully afford its tuition.
Note: the implications of external swaps on students' financial aid is dependent on a number of factors, including the college(s) they are applying to and the states in which they reside.
So why should schools care about scholarship swaps? In summary, it allows universities to attract and retain more students, playing a vital role in enrollment strategy - while also finding new sources of funds for financial aid, making it easier to balance the budget.
How Can You Make Sure Scholarship Swaps Are Done Right?
Step 1: Quantify the Opportunity
Of institutions surveyed, Awarded estimates the average 4-year institution can save $75k - $350k in annual budget savings through higher scholarship utilization.
Verify with your finance team: how many donor funds do we have available for scholarships, and how much of that was not spent last year?
Step 2: Ensure You Have the Right Tools & People in Place
Tooling and people are critical. Scholarship swaps require up-to-date, accurate information across departments. Admissions/Enrollment Management often will oversee the committed aid - i.e. "Dean's Scholarships" and other blanket scholarships. Advancement and Finance will oversee the donor funded aid available. Financial Aid is usually tasked with linking these together, along with student data that helps match up which students meet the restrictions of each donor funded scholarship. Having integrated data, ideally linked via software that defines roles and responsibilities, is key.
Step 3: Communicate Effectively
Communications are important. Donors and students can often be surprised and sometimes frustrated if not aware of the scholarship swap policies. Clear communications regarding a school's swapping policies, with clear examples, need to be readily available for students to help them plan their financial picture.
Step 4: Ensure Swaps are Tracked and Accurate
Awarding funds accurately are no longer sufficient in the world of scholarship swaps. Without good record keeping, schools are not able to track how much savings opportunity remains, and as a result, will find it difficult to achieve an unknown target. To make matters worse, institutions will often have changing student data (i.e., student drops out or switches major, triggering changes to eligibility and therefore award matches). When these changes occur, some scholarship swaps can get affected, which is easy to miss out on and can result in underspent funds and missed savings targets at the end of the year.
Step 5: Create Accountability
The institutions that manage scholarship swaps the best create accountability that is reinforced top down. CFOs and VPs need to be aware of the opportunity with scholarship swaps and discussing progress and KPIs during regularly scheduled meetings to ensure proper expectations and budgetary savings targets are met.
Step 6: Review & Iterate
Schools need to continuously evaluate what is working, where there are gaps, where new tools, technologies and processes can be instituted to create more efficiency and improve outcomes.
If you find that steps 1-6 cannot be done quickly or reliably with the resources you have available at your institution, strongly consider enlisting a vendor partner that is highly specialized in these endeavors. You can learn more about how Awarded can help you grow your enrollment while expanding your operating budget here.
In summary, scholarships are an important driver of the university budget. At many institutions, it's a multi-million dollar line item in the budget that should be treated as such, ensuring all efforts are made to grow the rate of funded aid, which typically requires high utilization of donor funds. If you'd like to read more about the challenges and solutions to donor fund utilization, you can read more here.