This Week's Herman Trend Alert

Leadership in Normal 2.0

  The Herman Trend Alert

November 19, 2003

College Financial Aid in Transition

Funding for college educations is in trouble. Implications could be far- reaching. Colleges and universities traditionally supplement student resources with financial aid so young people can afford steep costs of tuition, fees, room, and board. Relatively few families pay the full cost; financial support is a key factor for most students.

While government programs provide some support, much of the funds used to supplement what students and their families pay, comes from the school's endowment portfolio. If the yield from that portfolio is insufficient, some students simply will not be able to go to that school. They will either choose a less expensive institution (read: lesser quality) or [temporarily] forgo the college opportunity.

A strong financial aid program is a competitive advantage for schools eager to attract top students. Balancing allocation of federal Pell grants, scholarships, grants, loans, and various work programs, colleges manage an intricate system of support that influences student-parent decisions about educational alternatives.

Fund-raising is a vital component of the higher education community. Most schools have a well-tuned process to attract donations from alumni, businesses, foundations, and any other legitimate source they can find. They strive to engage in creative academic work that produces well-prepared graduates. Research is a strong motivator for corporate support. These outside funds are essential to collegiate success, since tuition alone could not possibly cover the costs of operating an institution of higher learning today.

Here's the problem: With the economic downturn over the past few years, sources for outside funding have constricted significantly. The troubled stock market has reduced the value---and the yield---of investments and there has been a serious reduction in the level of corporate and personal giving. With many parents unemployed or underemployed, family resources have shriveled.

The unfortunate consequence is that fewer students will be able to attend colleges and universities…at a time when we need more quality graduates to assume professional and leadership positions in a growing economy.

While this situation will eventually repair itself, current conditions portend a shortage of university-educated workers. Corporate talent managers may face some interesting demographic issues in developing balanced workforces.

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