Financial health relies on student paying bills. Here are better ways to do it

Too often there is a veil of secrecy around collecting money. Why student paying their bills is the new frontier in financial health
Aaron Basko
Aaron Basko

During the second half of the 20th Century, institutions employed a formula for growing enrollment and incrementally increasing tuition each year to maintain revenue and offset rising costs. This worked for decades. When this formula began to falter around the turn of the millennium, most colleges adjusted their approach by adding the y-axis of retention and completion. Schools fixated on attracting—and keeping—students, launching a boom in retention products and practices and capturing the imagination of state governments nationwide.

As the retention wave slowed, and returns on that investment diminished, colleges turned to a series of other solutions to balance the budget. Schools began recruiting full-pay international students, especially from China. Then, they raced to add more majors and specialty programs at both the graduate and undergraduate level. The latest wave has taken education online.

All these solutions have been effective. Institutions who employed them successfully received a financial boost, but they often assumed significant financial burdens to launch them. If colleges mistimed the market or employed solutions unsuccessfully, they missed the wave altogether.

But what if there were a financial solution that didn’t rely on market trends or anticipating the next wave? What if we could get a payoff from an improved process in our core business?

What is this goose that could lay the golden egg? Students paying their bills.

I know, I know. Improving the student accounts process sounds about as sexy as a root canal, which is part of why so many institutions have avoided reviewing and upgrading their processes to best practices that could earn them thousands or even millions of lost revenue dollars.

What causes financial processes that leak dollars like a sieve?

  1. Reluctance to ask for money: Too often there is a veil of secrecy around collecting money. While it is not a fun process, we must remember that collecting money does not make us the “bad guy.” It is, however, cruel and unusual punishment when you make families jump through unnecessary hoops to do so.
  2. Lack of experience: It is increasingly difficult to find employees with experience in both accounts receivable and higher education, especially at lower levels. Once we get them, we don’t effectively train our staff, and seldom require them to do professional development to keep up with industry changes.
  3. Failure to look at the system holistically: Business offices are complex machines, with lots of moving parts. Add on top the integration with financial aid and their regulatory demands and you create a recipe for silos, gatekeeping, and the right hand not knowing what the left hand is doing.
  4. Technology: So often it feels like our data systems are working against us, not for us. Often, low commitment to training exacerbates the limitations of systems that are already not very user friendly for either end users or students.
  5. Customer education: As a whole, the higher ed industry fails to educate students and parents on how to read a bill, options to pay, and consequences of not paying.
  6. Timing and communication: Our billing cycle often does not make sense to families, nor does it give them the time to get organized for one of their largest purchases. Once we do send bills, we often do not ask again or ask directly and persistently enough to get results.

Changing the accounting culture

How can we turn around our processes and plug the holes in a leaky boat? To do so, we must build a culture of stewardship in which staff see themselves not as people completing a task on an assembly line, but as owners of the process and of the health of the institution.

Here are a few tips:

Get your people talking: The first place to look for leaks is always in the joints of plumbing. The same is true organizationally. The most common place to find problems is at the intersection between departments or divisions. When two departments run into a conflict or a gray area, they often choose not to work through it, but to create a workaround. This might solve the immediate problem of accomplishing a task, but it often creates a significant inefficiency that grows over time.

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The best way to avoid creating these problems at the joints, and to untangle the ones you already have, is to improve communication among your key offices. Critical areas like financial aid, the business office, and the registrar’s office must meet regularly to talk through processes. They need to set up a shared set of documentation that they build together to help each other understand their processes.

Identify benchmarks: One of the most common traps we fall into is assuming that a challenge is unique to us. We try to solve problems in our own institutional vacuum, assuming no one else has encountered this, rather than looking for benchmarks or best practices.

There are rich sources of data out there. Consider just one such source—the annual Student Financial Services report published by the National Association of College and University Business Officers. Using this report, institutions can see how their accounts receivable and write-off balances stack up with other institutions of their type.

Like the processes that other enrollment service offices participate in, the student account staff should identify annual goals and objectives that align with the enrollment management and university strategic plan. Goals should be measurable and consider key performance indicators, like:

  • Headcount and receivable goals for incoming students and the total student body at benchmark dates:
    • One week prior to term start
    • Term start date and at census
    • One month after census
  • Previous balance collection goals by quarter
  • Bad debt write-off amount
  • Percentage of accounts receivable vs. invoiced amounts during the fiscal year
  • Amount of student accounts placed in collections per year vs. total unduplicated student enrollment.
  • The cumulative number of students with unpaid balances at the end of a fiscal year divided by the unduplicated student headcount for the academic year

All these data points help us to understand where we are missing opportunities to serve both students and the institution better. We just need to know how to read them. What is your default rate compared to your peers? What percentage of your students use different types of payment—online, in-person, payment plan, wire transfer, credit card, cash—and what does that say about your technology? Areas of opportunity become evident when we can see where we are out of line with benchmarks.

Follow the student trail: Chances are that your students already know where your processes are failing, and they have found loopholes around your broken process to their benefit. That’s not to say they are trying to take advantage of you, but people typically act in their own interest in situations involving money. If you leave the fridge open, people will help themselves.

Examine student bills and financial aid packages for examples that seem illogical. Do some students receive a surprising amount of support? Are some working significantly more hours than you would expect? Have they found ways to call different offices and get different answers?

Employees often make de facto policy decisions that make sense from one perspective but that create loopholes students eventually find. Sometimes they want to assist students so much that they unknowingly make decisions that hurt the institution and the students. Looking at individual student cases and bringing up “outliers” for consideration by representatives of your business process groups will often uncover cracks in the system that need to be patched.

Get some help: Sometimes, you need fresh eyes to discover the root of the problem. It is difficult to accurately see your own issues, especially if the same people have been in the same role for a long time. If your institutional efforts at improving efficiency and recouping lost revenue often seem to end up in finger pointing, turf wars, or circular conversations, it is time to call in reinforcements.

Jen McMahon, vice president and senior consultant for Ruffalo Noel-Levitz, is a specialist in helping universities examine their business processes to help them create a healthier bottom line. Jen says this is often an area of low hanging fruit for campuses.

“It’s amazing how much money we are losing by not shoring up our processes. It is not unusual for us to find an extra $1 million in missing revenue that institutions are giving away without even knowing it,” she says. “The most common areas where I find issues are lack of key performance indicators, vision and mission of the student accounts office, and communications from the accounts receivable office sent to students having a very different tone than the recruitment office (especially the look and feel of the bill itself).

“Add on top of that campuses’ inability to follow through with consequences to students, no collection efforts, and timing on the bills to students, and you have created a gaping hole in the institution’s ability to manage its revenue.”

Here’s the proof

Like I said, this is not a sexy strategy, but it is highly effective. Jen and I have worked together at my institution, the University of Lynchburg to put it into practice. With some help from our financial aid staff, in the last six months, we have identified over $600,000 in potential savings that the University can make without a single dollar of additional investment. This is all from policy changes and process improvement.

Besides the immediate monetary value, this work brings additional benefits. I have seen the morale of my staff improve as we eliminate bad processes and replace them with effective ones. One of our financial aid staff members has become our “super sleuth” in finding ways to save the University money.

Process improvement in your financial areas also leads to a better student experience. At the University of Lynchburg, we are beginning a quest to look at all of our processes to help provide our students with more “frictionless” navigation of our processes. This is important to our retention efforts, certainly, but it is also an essential part of our mission. Our identity is one focused on a history of service. We tell students that our goal is to help them not just become better students, but better people, who have the skills and experience to make an impact on their world. We need to model those values in our own service to our students.

Too often, we are attracted by the “new, shiny object” that will solve all our institutional financial problems. We build new programs, open new markets, and launch new initiatives. But sometimes the elegantly simple solution is the true silver bullet. The next frontier in improved revenue may be right under our noses.

By examining our processes and realigning our business practices in student financial services, we can improve the bottom line, strengthen the institution’s financial picture, and provide better service. Unlike other revenue initiatives, this approach comes with almost no risk of mistiming the market or stepping out of our expertise. It is simply doing business better.

Aaron Basko has 25 years of experience serving as an enrollment growth specialist and student success strategist for multiple institutions. He is currently the associate vice president for enrollment services at the University of Lynchburg in Virginia.

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