The art and science of financial aid

Bill Schilling, director of Student Financial Aid  Photo credit: Peter Tobia

For 40 years, Bill Schilling has had a significant impact on the lives of Penn students. As the director of Student Financial Aid, Schilling oversees the program directly responsible for ensuring that talented, bright students have increased access to a Penn education.

It’s both an art and a science, he says—a job that is at once objective and subjective. Over the years, Schilling says the University has refined its guidelines and approach to awarding aid. Two years ago, Penn altered its financial aid program in a big way, replacing loans with grants for undergraduate students. Already in place was the University’s “need blind” admission policy, which admits students regardless of their ability to pay.

“[Affordability is] clearly a priority,” says Schilling. “It really became a priority for the administration and the Trustees about 12 or 13 years ago, and of course, under President Gutmann, who is a real proponent of affordability, there’s been tremendous movement and support for the program.”

Penn works hard to meet the needs of its students, committing more than $130 million in 2010-2011 to grant aid for undergraduate students. According to figures from the Student Financial Aid office, approximately 80 percent of the freshmen who applied for financial aid for the 2010-11 academic year received an award.

Schilling says the University not only wants to bring students to Penn, but enable them to stay until they get their degree. “Basically, what we’re trying to do is come up with the right net price for each student and each family,” he explains. “That price is the one that will enable them to say, ‘Yes, I can come to Penn’ and secondly, that enables them to continue to graduation.”

Q. What are the parameters of Penn’s financial aid program?
The financial aid program really is designed to enable Penn to enroll the best possible class it can and to ensure they can thrive through to graduation. It’s really about recruitment and retention of the class we want to have. To do that, we’ve had a number of policies in place for a long time, and then some recent policies that have been adopted in the last year or two. We’ve been need-blind for a long time. The exception to that is international students. We do aid probably 50 international students, but that’s really an admissions policy—it means Admissions is going to admit students whether they’re aid applicants or not.
Our grant assistance from Penn is need-based. We don’t have athletic scholarships—there’s an Ivy agreement that prohibits them—and we have no merit awards, so we’re looking at the capacity of the students and the student’s family to pay for education.
Then a third policy is that we’re going to meet the full needs. Once we determine what we think is the appropriate contribution for the student and the student’s family, we compare that to what it costs to go here for a year and the difference is the student’s need. We will meet the difference. We will meet that full need. So that between the aid package and what we think is a reasonable expectation from the student and family, the cost of education is covered.
Traditionally, the package that we would put together would include some combination of work-study and student loans and grants. Starting last year, we are essentially no-loan for undergraduates. Once we determine the need, we’ll meet it with a work-study offer and grants. The grant may include outside grants, like federal Pell Grants or Pennsylvania State Grants and we build those in first and then we use Penn money as the last dollar in, but the biggest piece of the pie.

Q. What’s the average financial aid award that students get?
For the students that we aid, the average award is about $35,000 [per year]. The freshman number [for the Class of 2013] is $35,600. The Class of 2014 should be somewhat higher but there’s still stuff going on that will affect the amount of aid.

Q. What does ‘demonstrated need’ mean?
What we’re trying to do is come up with a comprehensive assessment of the family’s financial strength and capacity, so we look at a lot of things—obviously their income, and we look at where their income is coming from. A dollar of wages and a dollar of interest don’t necessarily suggest the same strength. We look at the assets, we look at whether they have unusual expenses that are non-discretionary and that most families don’t have. Do they have high medical expenses? Do they have high schooling expenses for younger siblings? We look at whether there are any other siblings going to college at the same time. We take as comprehensive a look as we can at the family and try to get a feeling for what they can contribute. Obviously, there’s an objective piece of this and there’s a subjective piece of this. The objective piece we have refined over time, often in collaboration with colleagues at other schools, through the College Board and through the President’s Section 568 Group.

Q. Do you reevaluate need every year?
Not only do we review each year, but we will review during the middle of the year if there’s a change in circumstances and this has definitely been the case the last two years. ... Obviously, the recession, particularly its impact on parent employment, has had a dramatic impact on the needs of our students and consequently on our aid budget.

Q. Have you seen a rise in financial aid applications because of the recession?
It’s sometimes hard to tell for sure what the numbers represent, but over the last two years—not counting the year coming up—our number of grant recipients has increased by 500. That’s not all due to the recession—it may be due in part to our recruitment and Admissions—but I would guess that probably 400 or more of those were due to the recession.

Q. How has Penn been able to still give these financial awards to students in these bad economic times?
I would refer you to Bonnie Gibson [Vice President, Office of Budget and Management Analysis] on that. We go back and forth with the budget office all the time. We’re tweaking our projection and the budget office is maneuvering like heck to come up with the dollars. We have had remarkable growth in the past 12 or 13 years in the endowment for undergraduate aid. [There’s] a chart that compares the Ivies and how much of their aid program is funded from their endowments and how much is out of general operation funds. We’ve always been number eight in terms of the percentage funded from endowment, which has obviously made it a bigger challenge for us. In 1997, less than 5 percent of our undergraduate grants were funded from endowments earmarked for undergraduate aid. But, this coming year we’re going to be up to close to 23 percent. It’s still the lowest percentage in the Ivies, but it’s been a huge increase. Had we not had that dramatic support from the President and from the Trustees and from other interested alumni, we could never have the program that we have today. But even with that, in this economic climate, it’s a stretch.
We do try to maintain some reserves because the needs of our students fluctuate … Obviously, reserves are there to be used in tough times and these are the times when we’re drawing on them. Hopefully at some point the economy is going to get better and we can start to build them up again.

Q. Despite the generosity of financial aid packages, do some families or students still end up having to take out some loans to cover costs?
When we look at our yield for freshmen, the yield for aid applicants is virtually identical to the yield for non-aid applicants, so that suggests to me—although you’d have to do a regression analysis to come up with a good description of what’s going on—that the aid program is largely blunting price as a key factor in those discussions, otherwise we’d be seeing a significantly lower yield on the aid applicants.
In terms of student borrowing, there’s a federal program, it used to be the Federal Stafford Loan program, now it’s the Federal Direct Loan program, that everybody is in. Students generally can borrow those loans, whether or not we expect them to borrow them to meet their need. They’re there, they’re available on top of the aid package and students will often do it because it relieves some of the pressure on the family contributions. ... If a student borrows the maximum amount of Stafford loans each year, it would come to about $27,000. Most of them don’t do that. The average borrowing for graduating students who borrow—just spread across those who borrow—is around $17,000.
Since we don’t use it anymore to meet the need, it’s an additional resource that students and families can tap into.

Q. As Penn has seen a rise in applicants, have you also seen more students applying for, and educating themselves about financial aid?
Clearly when Penn costs $55,000 a year, when you talk about financial need, you’re not just talking about low-income families. Family incomes in our aided population range from under $10,000 to more than $200,000. Again, it depends on a lot of other factors, not just income. I would say the large majority of families who apply with income under $150,000 are eligible for some level of financial aid, some need-based discount on the price.

Q. Over the years, have there been anysignificant changes in the things that financial aid covers?
Going back, the financial aid costs-of-attendance budget has always included tuition, room and board, allowances for books and supplies and personal expenses. Our tuition and mandatory fees this year is somewhere right around $40,500. Our standard cost-of-attendance budget that we use to determine aid eligibility is $55,250. Certainly, I can remember times when we were under huge budgetary pressures and had to make sure that our grant expenditures weren’t increasing faster than the rate of tuition—this goes back quite a few years. That meant often building larger and larger loan components in the aid packages. Sometimes, it meant actually bumping up the expected parent contributions by a percentage. ... I’m proud of the fact that during that time, we were able to stay in the game with our more affluent peers. We certainly didn’t have as generous packages across the board, but we were still in the ball game.

Q. What are your goals looking forward?
Certainly in terms of the aid program, we’re always looking to enhance it where we can. Obviously, it’ll be easier to look at once we get through this economic downturn.
I think we are always looking at ways we can improve the interaction on the customer service side between students and our office. We’re working on the askBEN tool that is a work-in-progress, where a huge database of answers to questions can provide information to students. That gives the staff more time to really focus on the situations that are very complex and require a human being to intervene—and we have a lot of those complex situations. Not only is the whole issue of determining eligibility complex, but because we’re dealing with so many funding rules and so many federal and state rules, the whole process is sometimes daunting to families. For somebody who’s just dealing with all of this for the first time, it can be very difficult.

Originally published on September 16, 2010