Grinnell's Financial Future and Enrollment Management Options

Hello, I’m Joe Bagnoli, Vice President for Enrollment. I am pleased to present a summary
of the budget challenges facing Grinnell and a range of enrollment management options we
are exploring to help address those challenges. A similar version of this presentation has
been given to faculty, staff, students, the Board of Trustees, the Alumni Council and
volunteers. It incorporates questions and comments that we have received from these
constituents.
In the following slides, I will present the basic revenue sources and allocations of Grinnell’s
budget. I will show you the trajectory– the unsustainable trajectory we are on. Finally,
I will present to you options we are exploring as a community for how to maintain our core
values while achieving fiscal sustainability.
This is not an emergency; we have chosen to engage a community-wide discussion of our
budget before we reach a crisis point. In 2010, President Kington initiated a discussion
about the long-term sustainability of the College’s funding model. In 2011, he described
the importance of having a transparent conversation with all Grinnellians about this topic. At
a 2012 retreat of the Board of Trustees in June, Karen Voss, Treasurer of the College,
described the budget challenge and the range of assumptions and levers that influence total
revenue and spending. Then in September and October, Karen and I introduced a range of
enrollment management strategies to faculty, staff, students, Board of Trustees, the Alumni
Council, and Alumni Volunteers. Similar strategies have been used by various institutions across
the country to insure sufficient revenue from student fees.
We are inviting all Grinnellians to learn more about the College’s operating budget,
the role of endowment spending, gifts to the College, and student revenues. Your feedback
on how to resolve the structural imbalance in the budget through a range of enrollment
management options is invited and should be provided no later than November 15. In mid-December,
the Board will hear formal remarks on various options from faculty, the Committee on Admission
and Financial Aid, the Student Government Association, the Staff Council and the Alumni
Executive Council.
President Kington will formally recommend to the Board in mid-January a plan for managing
enrollment toward fiscal sustainability. The Board is expected to take action on President
Kington’s recommendation in February. Looking at the major resource and allocation
levers, under “revenues” the College essentially has three revenue streams.
The first is Net Student Revenues which are influenced by enrollment size, the amount
of our comprehensive fees, and the extent to which our financial aid program serves
to discount tuition.
Our next revenue lever is fundraising, which includes both unrestricted and restricted
giving. “Restricted giving” largely has to do with things like grants and contracts
for a specified purpose, so in this conversation we’ll typically focus our attention on unrestricted
giving which is available to assist with operating costs.
Finally, under revenue sources, we have endowment spending. The allocation to the base budget
is a 4% moving average market value of the prior 12-quarter performance.
On the Expenditures and Transfers side, we look at four things:
Compensation including benefits for faculty and staff
Non-compensation (covering any growth in program related expenditures)
Our debt, which is our repayment and all net interest costs
And then the building maintenance and equipment fund, which we set aside to meet needs like
a new roof on a building, or new IT equipment
Our current 2012-2013 academic year budget is $97.8 million. Our major revenue sources
are:
Endowment spending, which is 53% of the operating budget; net student revenues from tuition,
fees, room, and board less scholarships and grants, accounting for 38%; gifts and grants
related to philanthropic support plus grant funding is 6%, and auxiliaries /other, which
is 3%.
So if we look at our 2013 Budget Expenditures and Transfers, we see that compensation - salaries
and benefits - is 56% of that $97.8 million. We also have 34% going to non-compensation
programs. We have 9% going to debt reduction, and then the last piece of our pie is the
building maintenance and equipment fund – 1% – which covers unanticipated and/or significant,
multi-year needs and expenditures for facilities and technology.
To understand the magnitude of the College’s spending on financial aid, if we put institutional
grants into that pie and show it as an expenditure, 35% of institutional spending would be on
institutional grant aid; 46% would be compensation, and 19% would be all other expenditures.
The budget priorities we had when we set this current academic year budget were to:
Remain committed to our financial aid policies
Continue to invest in human resources – that’s our salaries and excellent benefits
Plan for and maintain the College’s facilities
Focus on building revenue-generating infrastructures through fundraising and enrollment management,
and
Foster a culture of innovation
Those were the priorities that framed this Board-approved budget.
To model a future budget, we have made some assumptions:
We left the enrollment flat at 1625.
We assumed a comprehensive fee increase of 3%.
We looked at the financial need profile for the first year class only to project net student
revenues.
The fundraising lever was related to unrestricted giving only.
We assumed an increase in salary pools and non-compensation related expenditures at a
rate of 3.5% and 3.0%, respectively.
We assumed the building maintenance and equipment allocation was held flat.
That the endowment return, net of spending, was zero. So that would assume that we earn
a 4% return, less 4% for spending.
In this modeling, the operating budget was balanced with allocations from the endowment.
Before looking at the future, let’s look at a metric called the “tuition discount
rate” and the recent history of student revenues.
The tuition discount rate is a common metric used by colleges, universities and the National
Association of College and University Business Officers.
It is calculated by dividing institutional scholarships and grants by tuition and fees.
Also referred to simply as the “Discount Rate” it helps with comparisons amongst
institutions and to project revenues at Grinnell.
After projecting comprehensive fees and class size, projections of the tuition discount
rate help to illustrate how much revenue may be associated with each entering class of
students.
As a result of Grinnell’s commitment to meet 100% of demonstrated financial need for
every student, the overall discount rate is influenced by the level of financial need
represented in an entering class. The greater the financial need of each class, the higher
the discount rate, and the lower the net tuition revenue.
At most institutions, in order to insure that each entering class contributes a sufficient
sum of revenue toward operational costs, a discount rate goal is established to yield
an appropriate level of revenue from student fees.
In the context of a need-blind admission process, managing enrollment toward a lower discount
rate requires that a higher percentage of admitted students from families capable of
making a substantial financial contribution toward comprehensive fees choose to accept
our offer of admission. Later in this presentation, additional strategies will be identified that
could increase revenues from students.
The important points to make now are that the size of the entering class, the comprehensive
fee, and the financial need profile of the class determine revenue from student fees
and that a discount rate can be used to model projected revenue from students.
In this slide, we show the discount rate since 2001 and also net tuition revenues in each
of those years.
In 2008, we increased tuition and fees by 18.5% for first year students only; other
classes were grandfathered in.
We had a huge bump in net tuition revenues and a modest decrease in the discount rate.
But in 2009, changes were made to our financial aid policies for all four classes – things
like implementing the loan cap, indexing of merit aid, and replacing one summer’s contribution
with gift aid, terms that can be found in the glossary on the choosing Grinnell’s
future website. Essentially, all of the increased revenues from tuition in 2008 were required
to pay for the changes in financial aid policies implemented in 2009.
So, net tuition revenue went down while the discount rate went up.
So if we model our current revenue trends, changing no policies or operational practices
AND the market continues as projected by financial analysts to be sluggish in the next several
years, we will continue to see less contribution from student revenues to the budget and more
imposition on the endowment.
This is not yet an emergency; we have a couple of years before feeling the effects of this.
But if we continue to have a 2% increase in our discount rate and fundraising remains
flat, even more pressure will be put on the endowment to balance our budget.
With these assumptions, we project that in 2016, we would be $2.5 million in the red
and begin to eat away at endowment principal, essentially compromising our capacity to provide
the exceptional educational experience we pride ourselves on providing.
Net student revenues are decreasing as a consequence of the financial need profile of new Grinnell
students.
Philanthropic gifts to Grinnell are insufficient to make up the loss of net student revenues.
Many believe the days of double-digit returns on endowments are gone. Financial analysts
at the best schools nationally are projecting 0 to 5% market growth which translates to
slow endowment growth– especially if no additional gifts are made to grow an endowment.
Simply maintaining the status quo assumes a 3% growth in expenses to keep up with inflation.
Without sufficient revenue, it will be impossible to invest in the future of the College. Our
academic program is the heart of what we do and requires support.
When the global fiscal crisis began, staff and faculty worked together to find new ways
to economize, streamline, and reduce costs. Those efforts continue, and we invite your
suggestions atgrinnellsfuture@grinnell.edu.
But no matter how frugal we are, providing a high-quality educational experience will
be expensive. The core elements of Grinnell's distinctive education, including a highly
individualized curriculum and mentored learning experiences, require the intensive commitment
of highly-trained and dedicated faculty and staff. So do programs in experiential and
service learning, career development and other areas that Grinnell students and their families
count as essential.
As at any college, a majority of our costs are in labor.
It is also important to recognize that, while leanness is important, a one-time fixed cut
of any amount cannot protect us against a shortfall that will grow every year in pace
with inflation and the cost of living—not to mention the emergence of new needs and
opportunities.
As President Kington has noted, we want to trim the fat, but never so far that we cut
into the "muscle and bone," harming our ability to provide the very experience we treasure.
The endowment has had to compensate for deteriorating net student revenues.
In the new market economy, projections of slow growth make dependence upon the endowment
riskier.
We don’t want to overspend the endowment today at the expense of compromise to the
future of the College.
The College began this year with two reserves – the College Operating Reserve and the
Building Maintenance and Equipment Fund.
The College Operating Reserve provides flexibility to meet unanticipated budget demands. For
example, bringing in a class with greater financial need than we expected – or having
a rough winter with utilities higher than projected.
We started the year with a $4 million buffer in that Reserve.
The Building Maintenance and Equipment Fund begins the year with a $2.2 million balance
to cover unanticipated needs as well as helping to manage the impact of periodic, multi-year,
significant expenditures for facilities and technology.
And the Strategic Fund, started with $17.8 million this year, to help facilitate strategic
initiatives and encourage innovation. We need to invest in our future, in our faculty, in
our programs to make sure that the education we provide is extraordinary for our future
students. We cannot afford to lose the most important asset of Grinnell, the quality of
teaching and learning– the amazing educational experience that we exist to provide. For this
reason, President Kington exhorts us to be bold while we fix the structural imbalance
in our budget.  
What do we learn when we put this all together? Here are the takeaways:
The status quo is not financially sustainable.
Grinnell has a structural problem that was referenced in a recent report from Standard
and Poor’s. They affirmed our triple A rating, but their report included a notable comment
that “failure to identify effective funding model will lead to an uncertain future.”
The financial cushion that we had in 2008 to weather the economic storm is gone; a repeat
could significantly compromise our College operations.
Increases in institutional scholarships and grants have outweighed increases in comprehensive
fees, and
Net student revenues are the one variable the College can most reliably influence in
the near term. The College is looking at multiple ways to
address the budget challenge. We continue to consider prudent cost savings strategies
and diversification of revenue streams and we are working closely with our alumni leadership
groups on ways to increase philanthropic support , all of which could have a meaningful impact.
But as you will see, enrollment management strategies and the financial aid we award
have the potential to make a significant difference in the near term.
Since some of our admission and financial aid policies take us close to the core values
of the College, we wanted to share this information and host an open, transparent discussion about
them with all of you.
The characteristics of the student body reflect our mission. The Office of Admission has intentionally
identified students with demonstrated academic potential who are engaged citizens, represent
robust diversity and reflect our commitment to access and equity.
Until now, there has been less urgency to understand the relationship of student revenues
to the College’s operating budget. President Kington has asked that our recruitment and
admission processes reflect an expectation that each new class of entering students will
continue to represent the core values of the College and help us achieve fiscal sustainability.
Recognizing the dynamic tensions in these characteristics, one value is not to be pursued
to the exclusion of others. Nevertheless, without a fiscally sustainable budget, our
long-term capacity to maintain all of our commitments will be challenged; academic excellence,
diversity, and the exercise of social responsibility require a significant financial investment.
That is why the Grinnell community has started a conversation about the various options for
increasing the contribution student revenues make to the operating budget.
The characteristics of the student body reflect our mission. The Office of Admission has intentionally
identified students with demonstrated academic potential who are engaged citizens, represent
robust diversity and reflect our commitment to access and equity.
Until now, there has been less urgency to understand the relationship of student revenues
to the College’s operating budget. President Kington has asked that our recruitment and
admission processes reflect an expectation that each new class of entering students will
continue to represent the core values of the College and help us achieve fiscal sustainability.
Recognizing the dynamic tensions in these characteristics, one value is not to be pursued
to the exclusion of others. Nevertheless, without a fiscally sustainable budget, our
long-term capacity to maintain all of our commitments will be challenged; academic excellence,
diversity, and the exercise of social responsibility require a significant financial investment.
That is why the Grinnell community has started a conversation about the various options for
increasing the contribution student revenues make to the operating budget.
The amount of revenue generated through student fees is closely related to the financial need
profile of enrolled students. In a three-year time period, from 2008-09 to 2010-11, the
percentage of Grinnell students with high financial need increased by approximately
10%. Given our commitment to meet 100% of demonstrated financial need, a growing share
of institutional resources has been required to keep Grinnell affordable for its student
body. Pell Grants are available only for low income
students, and the percent of Pell eligible students can be used to compare low income
student enrollment at Grinnell and elsewhere.
Compared to the average of 45% of full pay students enrolled at other need-blind institutions
that meet 100% of demonstrated financial need, Grinnell enrolls a class of which only about
10% pay the full comprehensive fee. While Grinnell admits a high number of students
who could contribute the entire comprehensive fee, we have not been successful in convincing
those students to attend. If our goal is to increase student revenue, Grinnell will need
to enroll fewer high need students, more low need students, or some combination of the
two. Grinnell has loyal alumni. However, that loyalty
is not as often expressed through gifts to Grinnell as it is by alumni to those institutions
that also observe a need blind admission policy and meet 100% of demonstrated financial need.
Those institutions closest to us in net student revenue also enjoy considerably greater philanthropic
support than we do. Other institutions have been able to afford a need blind admission
policy while meeting 100% of financial need because they either have high net student
revenue or high levels of giving per enrolled student. Grinnell has neither.
It is noteworthy that many alumni have recently expressed their support for Grinnell’s commitment
to the social cause of need blind admission. Some have made first-time gifts, and others
have increased their gifts to help Grinnell students. We are enormously grateful. But
right now, alumni giving at Grinnell is still considerably lower than that of alumni of
other need blind institutions.
We believe that can change, and that increased giving could significantly improve the College’s
financial outlook while preserving our core values. But with an uncertain market economy
and a current alumni giving pattern so much lower than our peers, Grinnell has to examine
ways to manage enrollment that preserve as much of a commitment as possible to the institutional
values we hold dear.
Grinnell has no intention of admitting students with financial need and offering less financial
aid than required for them to enroll. That is a common practice across the US, but we
believe it is unfair to admit someone without regard for their need, offer them this great
opportunity, and then leave them to figure out how to pay for it without our help. That’s
a path that can lead to unacceptable levels of educational debt, or the unfortunate choice
of a promising student having to pass up a college education that was within their grasp
academically but out of reach financially.
Nor are we seeking revenue at any expense. We have modeled a number of possible enrollment
management initiatives and with diligence have considered their potential impact on
our student body.
However, we are not actively considering those choices that would have a pronounced negative
effect on our academic profile, the representation of domestic students of color, or the enrollment
of first generation students.
We are considering the impact of possible initiatives on the total number of students
across the socio-economic spectrum of our student body but I want to be perfectly clear
with the Grinnell community that if we are to address the structural imbalance in the
budget through enrollment management strategies, a reduction in the financial need profile
of each entering class must occur.
Finally, we have considered the impact of each strategy on annual net tuition revenue
for the first year of implementation and the annual impact on revenue following four years
of implementation for each entering class. This leaves us with several possible strategies
to examine.
The average Grinnellian graduated last year with about $15,000 of indebtedness. One possibility
is that we require new students to assume a larger portion of financial responsibility
by raising our loan cap.
We find that our merit aid program increases yield on offers of admission, especially among
those who can contribute substantially to our comprehensive fee.
Therefore, we might expand that program.
Admitted students from Iowa typically have a lower tuition discount than those from
out of state so we could increase their enrollment.
We could discontinue the unusual practice of increasing merit aid to offset inflation
in comprehensive fees. Currently, we increase a student’s merit award by the percent increase
in our comprehensive fee. We have been able to identify only one other institution in
the nation that shares this practice, and eliminating it is one strategy available to us.
We could increase the percentage of the class that is admitted at Early Decision. That would
most likely increase the percentage of students enrolled who can make a stronger financial
contribution.
We could observe less leniency in missed financial aid application deadlines or employ a more
common financial aid methodology that results in a calculation of less demonstrated financial
need for admitted students.
Presently, we admit international students through a need-aware decision process. We
could increase the number of international students who can contribute more toward comprehensive
fees or decrease the discount rate associated with their enrollment.
Or we could introduce an Early Action program and promote more commitments to attend Grinnell
by students with access to greater financial resources.
We have explored introduction of a Spring Admission program that could help generate
additional revenue through increased enrollment.
We could also consider eliminating the exemption we offer to many Grinnellians who participate
in special learning opportunities during the summer in lieu of working.
Finally, we could become need aware in the final stages of the application reading process,
and enroll a higher percentage of students who can contribute more toward our comprehensive
fee.
This concludes a summary of the context and the financial aid strategies under consideration.
You’ll find much more information, including answers to frequently-asked questions and
opportunities to share your opinions or make a gift, at www.grinnell.edu/grinnellsfuture.
We look forward to your feedback as this process unfolds in the coming weeks. Please remember
that President Kington will be discussing recommendations with the Board in January,
so your responses must be received by November 15 to have their greatest impact.
Thank you again for listening, and for your commitment to helping us choose a great future
for Grinnell.