Short-Staffed, Colleges Outsource Financial Aid Offices

At one point during the fall semester, the number of employees working in the financial aid office at Kentucky State University dropped from four to zero. According to state documents, all the full-time staffers either left the institution or went on medical leave.

Last month the historically Black public university contracted with the financial aid consulting service Blue Icon to step in and keep funds flowing to students until new staffers are in place.

While Kentucky State has unique challenges—a scathing state report found that former staff members had failed to adequately document expenses, misused federal grant money and misled administrators and the Board of Regents about university finances—experts say high turnover in the financial aid office has become common in higher education, prompting more institutions to outsource those services to outside companies.

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Outsourcing Financial Aid

Following significant turnover in its small financial aid office, Kentucky State, which enrolls about 1,700 students, is staffing up.

In early November the university hired an interim director of financial aid, and it has since hired two full-time staff members, KSU’s interim chief of staff and vice president for strategic initiatives development, Michael Decourcy, told Inside Higher Ed via email. The institution turned to outsourcing as “a stop gap measure to ensure our students did not receive a disruption in service,” Decourcy said.

The solution is not intended to be permanent. Though Kentucky State did not provide a copy of the contract, as requested, state documents indicate the university will pay Blue Icon $100,000. (Kentucky State officials also did not respond to interview requests from Inside Higher Ed.)

Some institutions, however, are turning to financial aid outsourcing as a permanent solution.

Last month, Bethany College—a small Christian institution in Kansas—announced that it was in the process of outsourcing both the business office and financial aid department. Campus officials said in a news release that a partnership with the outside financial services and consulting firm Clifton Larson Allen will allow the liberal arts college to “streamline financial processes, ensure compliance with changing regulations, and allocate our resources more efficiently.”

(College officials declined an interview. Spokesperson Haley Wesley said by email that it is too soon to discuss how Bethany is “managing this transition,” as it is still in the early stages.)

It is not unusual for colleges to outsource certain financial aid functions. They regularly contract with vendors on call center operations, document processing and verification; some also turned to third parties to distribute emergency funds during the COVID-19 pandemic. But transitioning the entire department to an outside company, whether temporarily or permanently, is less common.

Outsourcing typically aims to reduce staff workloads by using vendors to automate certain processes or provide additional labor—not to replace an entire department, as Kentucky State has done temporarily and Bethany College plans to do on a permanent basis.

But experts note that outsourcing is becoming more common as financial aid offices across the U.S. struggle to hire and retain staff who often work long hours with little remote flexibility, according to various workforce surveys that highlight the concerns of industry professionals.

Financial Aid Turnover Trends

Recent data from the College and University Professional Association for Human Resources find that financial aid employees often feel overworked and underpaid, according to responses to the CUPA-HR 2023 Higher Education Employee Retention Survey released in September.

That study indicated that more than half of financial aid staffers (53.7 percent) work additional hours on a weekly basis, and 56 percent said they were likely to look for another job in the next 12 months. Roughly half of respondents (50.7 percent) believe they aren’t paid fairly, and 47.3 percent believe there are few opportunities for advancement in their job.

The survey also showed that while acceptance of remote work has boomed at many colleges, that often isn’t the case for financial aid staffers, who remain stuck in the office. While 81.9 percent of respondents indicated that most of their duties can be performed out of the office, 67.8 percent said they work completely or mostly on-site.

Turnover in the financial aid office is “one of our top issues as an industry,” Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators, told Inside Higher Ed, adding it’s a concern he hears about from college officials constantly.

“We have a workforce that’s overworked, underpaid and doesn’t have a lot of flexibility in terms of being able to work remotely—not that they couldn’t, they’re just not offered that flexibility,” Draeger said. “All of that is leading schools to look for at least temporary outsourced solutions.”

Compounding the problem is that colleges don’t seem to be able to slow turnover, Draeger said, noting that it often takes time to replace employees after they leave.

While it’s rare for colleges to lose their entire financial aid staff, as Kentucky State did, Draeger said he has heard of some examples from financial aid directors in private meetings.

And when colleges are caught in such scenarios, their options can be limited.

“Some of the solutions might be temporary outsourcing or a mad scramble to reorganize the entire office, where they’re borrowing from other offices and cross-training,” Draeger said. “Forget succession planning or strategic planning; it becomes crisis management at that point. Obviously, you’re more susceptible to this situation if you’re at a small institution in the midst of a financial crisis.”

NASFAA offers a solution for staffing issues through its for-profit subsidiary Blue Icon, the same organization that Kentucky State and other institutions have partnered with to provide temporary financial aid services. While Blue Icon’s website notes it was founded to “provide valuable consulting, leadership support, and compliance services that institutions want and need, and to generate non-dues revenue,” the organization also offers staffing support for financial aid offices.

Launched in 2019, Blue Icon offers compliance reviews and system-optimization strategies as well as other services. And increasingly, colleges have been asking for interim staffing support.

“Just over 40 percent of the requests that we’ve had from institutions this year have been for interim staffing, whether it’s due to staff vacancies or additional staffing assistance that’s needed,” said Tammy Harrison, senior business development manager at Blue Icon.

Harrison added that the company has also helped fill vacant financial aid director posts.

Interim staffing requests are ticking up, Harrison noted, because colleges are either facing retention and hiring issues or seeking additional help due to the delayed launch of the new Free Application for Federal Student Aid, which will shorten the time institutions have to review financial aid applications, check eligibility and package offers for prospective students.

While Blue Icon is poised to serve institutions temporarily, as at Kentucky State, it does not offer permanent outsourced solutions like the one Bethany College sought.

The Kentucky State scenario is far more common than Bethany College’s approach, experts suggest; even amid ongoing staffing challenges, most colleges aren’t seeking to outsource their financial aid offices and would prefer to keep such operations within the university.

“I can’t say that I’ve heard of a lot of schools that are looking for permanent outsourcing,” Draeger said.