WESTERN CAROLINA UNIVERSITYMBA 625-80: Applied Business Economics, Fall 2014

Rev: December 1, 2014

ELIZABETH W. GLASSHAWN D. HAMILTONDAVID L. VOLRATH

Student Account Receivables: Incentivizing Students to Pay

Brevard College is driven largely by the revenue it creates through student accounts receiveable. Due to the small nature of the College, it is imperative that the College continues to grow in size, by both attracting new students and retaining current students. It is equally important that the largest subsidiary of accounts receivable, student accounts, are paid in a timely manner to ensure that the College can continue to operate on a day-to-day basis. The lack of sufficient incentives and follow-through by administrators encourages students to procure large balances without commitment to pay, which creates a large risk for Brevard College. After completing market research, we suggest that Brevard College more closely match the standards of its peer institutions by instituting a reasonable late fee in addition to procedures already in place, and, above all, actively following through with the student account policies it chooses to implement. Ideally, students will be more incentivized to pay bills on time without being burdened by additional mounting costs of a private, liberal arts education.

Introduction

Like most small private institutions Brevard College is driven by the revenue it

generates from tuition and fees from year to year. The need to maintain consistent growth

in enrollment numbers is paramount to the future success of small private institutions. This

growth is facilitated via the recruitment of new students in combination with the retention

of the current student population. The larger these two segments are the better, but these

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numbers only make a difference in the viability of the institutions if the students are

bringing in revenue.

A main problem that has arisen at Brevard College, and other small private

institutions, is the lack of payments being made on time. Under the current structure there

are not many incentives, either positive or negative, for a student to resolve their bill

immediately at the beginning of the semester. This lackadaisical approach costs the school

time and money. Most smaller institutions only have 1 or 2 people that are assigned to

manage student accounts, and it can put a great deal of strain on personnel time if they are

charged with tracking down payments several times after the semester has already begun.

Costs are also accumulated as more bills are mailed for the outstanding balance which

drives up the use of stationary and postage. Not only is the institution missing the

hundreds of thousands of dollars that it needs to operate, it is in turn spending even more

of it resources in the pursuit of collections.

With the understanding that people are rationally self-interested and will always act

according to their own set of stimuli, we have sought out to review the current processes of

Brevard College in comparison to other similar institutions to create an incentive structure

that will ensure prompt payments.

Brevard College’s Current Billing Policies and Procedures

At Brevard College, bills are produced on a semester basis and are mailed two

months in advance for the fall semester and one and a half months in advance for the

spring semester. Included with the paper bills are inserts outlining check-in and

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confirmation procedures, financial aid FAQs, billing FAQs and policies, and payment

options. All bills are due upon receipt and include a “priority deadline” – August 1st or

December 15th. If bills are paid in full by, or satisfactory payment arrangements are made

prior to, the priority deadline, students are guaranteed to have an expedited check-in

process that includes no waits, no wrist-slaps, and no barrier to obtaining dorm keys.

Students and their families may choose one or more of the following payment

options offered:

Pay semester balance out-of-pocket in full prior to due date/priority deadline,

and/or

Sign up for monthly payment plan: Pay the balance due over the course of a

monthly payment plan serviced through Tuition Management Systems, and/or

Pursue a Parent PLUS or alternative loan for balance due.

Families may mix and match any of the above options to pay the student’s balance. On

occasion, a special circumstance may arise and, at the discretion of the Student Accounts

Manager, a student may be allowed to pay his or her balance on a different payment

schedule directly to the College.

As mentioned above, students who pay in full or make a satisfactory payment

arrangement (payment plan or loans) prior to the priority deadline will be rewarded with

expedited check-in. All other students must meet with a representative of the Business

Office to make satisfactory payment arrangements and/or to sign an internal payment

agreement. Additionally, students failing to make satisfactory payment arrangements by

the first day of class each semester may be subject to having their schedule dropped. The

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Brevard College Catalog also states that students that register late, due to having a dropped

schedule, will also be responsible for an additional “Late Registration Fee” of $200.

Although threatened, one or both rarely happens, resulting in many students procuring a

large bill without committing to pay at no disadvantage to the student.

All students with a debit balance on their account will receive a monthly statement.

Families utilizing the third-party payment plan may use the statement for reconciliation

and record-keeping. It is intended that the remaining students pay off the bill by the stated

due date (roughly 30 days out), but the bill reflects no penalties for late payment. A “hold”

is placed on accounts which have not made satisfactory payment arrangements, resulting

in the student’s inability to obtain a transcript and/or diploma (if applicable). Additionally,

Brevard College does not allow students to carry forward a balance greater than $200.

Thus, in mid-October, students with a debit balance greater than $200 will be prevented

from registering for the subsequent semester. This normally creates a small influx in bill

pay, as students are punished for failing to pay on time, and students feel pressured to

register early in order to obtain the course schedule they desire.

However, current policies at procedures at Brevard College do not properly

incentivize students to pay their bills by stated deadlines. Thus, students are able to delay

payment with little to no penalties, and it is obvious that students take advantage of the

lack of policy and follow-through. With an enrollment of 701 students for Fall 2014,

roughly 11% of students had failed to make payment in full or satisfactory payment

arrangements (i.e. the monthly payment plan) by opening day of Spring 2015 pre-

registration (October 27, 2014). Although this number dropped to roughly 4% (~30

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students), Brevard College was still lacking over $100,000 in past due bills by mid-

November.

Researching Other Schools’ Policies & Procedures

In the past, the administration at Brevard College has been approached about

creating new policies to better incentivize students to pay bills on time. Such efforts have

been abandoned, however, largely due to fears surrounding the expense of a small, private,

liberal arts college before late fees and finance charges and student retention. In an effort

to better understand how bill-pay and incentives are utilized in our industry, the research

team sought to interview student accounts colleagues from schools that closely match

Brevard College’s enrollment, endowment, and general location. Not surprisingly, every

school does it differently and is currently looking for ways to improve.

We used US News and World Report to identify nine schools, spanning over seven

states, located primarily in the southeastern region of the United States that were similar in

both enrollment and endowment. We targeted schools with less than 2,300 students and

an endowment that did not exceed 50 million dollars. Setting these parameters was

important, as it allowed us to get the most accurate picture of what other schools, similar in

size and financial resources, do to incentivize their student body to make prompt

payments.

During our research we found that these schools all had some slight nuances to their

incentive structures. In Table 1, very important data points that include both positive and

negative incentives for students and families when it comes to resolving the balance of the

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student’s account are seen. The “Holds” section refers to an actual hold being placed on

the student’s account. Depending on the type of hold, this can prevent a student from

registering for classes, getting transcripts or even taking exams as the end of the semester.

We found some form of hold to be common practice although most of these still do not take

effect until at least midway or late into the semester because students do not register for

the following semester until then.

Unlike Brevard College, we found that about half of our sample population charges

late fees as incentive to pay on time, and others will tack on finance charges as well (see

Table 1). The stigma that has surrounded this approach is the perceived negative effect on

retention. However, the retention rates of those schools that do charge these fees suggests

there may actually be no correlation between decreased retention percentage and the

application of late fees and finance charges. Based on the data we collected, the retention

rates of the schools with fees is in line with those that do not have fees, indicating that this

will not have a negative effect on retention. Instead, it could have a positive effect on timely

payments from families acting in their own rational self-interest, as they do not want to pay

the extra fees – the fee is high enough to avoid if possible, but low enough that it does not

discourage leaving the school. One student accounts associate that we interviewed agreed

saying, “The students deeply affected financially by the added strain of a moderate late fee

or finance charge are the students you are not going to retain anyway.” Additionally, all

student accounts associates working for schools that do implement late fees, finance

charges, and/or other significant disadvantage (dropped schedule, ineligible for exam pass,

etc.) admitted that they liked the procedures in place, felt like the policies worked, and

anticipate that they will be used again in future semesters.

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Table 1. School Research Results

School LocationAvg.

Freshman Retention*

Enrollment* Endowment* Holds?Late Fees

Finance Charges

Other Policies/Procedures

Brevard College

Brevard, NC57.8%

701 $19M

Yes; prevents registration

if >$200 owed

No No

Priority deadline guarantees no delay

during check-in; external payment plan

Aquinas College Nashville, TN 75% 508 $8M

Yes; prevents transcript &

grade viewing

No No

“Unofficial” in classes unless paid in full (may

only attend 1); very strict with confirmation;

external payment plan

Averett University Danville, VA 58.8% 886 $22M

Yes; prevents registration

$25 per month

NoInternal payment plan for

$100/semester with no late fees

Barton College

Wilson, NC 67.5% 1057 $25M

Yes; prevents registration

if >$100 owed

$25 per month

18% annually

May occasionally write-off fees if student agrees to pay; internal payment plan for $40/semester

Blue Mountain

College

Blue Mountain,

MS76.8% 520 $12M Yes

$200 late reg. fee

No

Internal payment plan for $100/semester; no third party collections for old

accounts

Catawba College

Salisbury, NC 69% 1298 $48M

Yes, no balance may

be carried over

No NoNo move-in allowed if not cleared; schedules subject

to dropping

Covenant College

Lookout Mountain, GA

83% 1104 $26M

Yes, no balance may

be carried over

No14%

annuallyCharge e-check and credit card fees back to student

Mars Hill University

Mars Hill, NC 56.8% 1426 $37M

Yes, no registration

if over “critical balance”

level

No NoMonthly statements mailed to student’s permanent address

North Greenville University

Tigerville, SC 71% 2263 $16M

No; may register, but

may not check-in if

balance >$0

$25 per month,

no graceNo

Internal payment plan for free (5-month) or $50 (4-month) + $100 charge if

not ACH; all online billing; if balance not paid in full,

student may not take exams (exam pass from

business office required)

West Virginia

Wesleyan College

Buckhannon, WV

66.5% 1367 $37M

Yes, no registration

if >$500 owed

$100 once per semester

No

Internal payment plan for $100/year, no late fees;

no “threatening” or dropping schedules; will

escort student out of class to make arrangements, if no arrangements made, will ask to leave school (and follow-through)

*Numbers courtesy of US News & World Report, as reported in Fall 2014

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Proposal & Conclusion

As previously noted, the need to maintain consistent growth in enrollment numbers

is paramount to the future success of small private institutions. This growth is facilitated

through the recruitment of new students in combination with the retention of the current

student population. Previously, the opportunity cost of deterring well-qualified future

students and retaining current students by imposing harsh penalties for late payment of

tuition has created a hesitation to impose additional fees on students by the administration

of Brevard College. However, the data we collected suggests that a reasonable late fee or

finance charge structure has not shown to have any significant impact on retention of

student body or recruitment efforts.

Therefore, in addition to the current procedures, we suggest the implementation of

a one-time $100.00 late fee assessed to all tuition bills over seven days past the priority

deadline of the upcoming semester (August 1st or December 15th). Students who make no

commitment to pay prior to the first day of class will be subject to having their course

schedule dropped until payment in full is made up to the last day to add a course (seven

calendar days into the semester). Furthermore, we recommend a more structured

notification system to serve as a warning system to students who are at risk of accruing

late fees or having a schedule dropped. Finally, and most importantly, it is imperative that

Brevard College follows through on the policies and procedures it chooses to adopt and

publish in the Brevard College Catalog.

We strongly believe that imposing this new system will increase the percentage of

on-time payments while increasing revenue to Brevard College with the slight, albeit

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additional, income from the small number of accounts that will be assessed the late fees.

Moving forward with the proposed policy will also help prevent additional costs of time,

supplies, and postage, as student accounts associates will be able to focus less on collecting

tuition payments and more on customer service, federal regulations compliance, and

additional job responsibilities, making the entire process more efficient. Updating bill-pay

policies and procedures for Brevard College is a necessary step in order for the College to

continue to develop students and to grow as an institution.

We appreciate your sincere evaluation and consideration of this proposal and look

forward to a bright future for Brevard College as we work to improve an already successful

student accounts department.

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