Demystifying The Barbell Effect Financial Aid and the

Demystifying “The Barbell Effect”: Financial Aid and the Middle Class Mark J. Mitchell, VP School Information Services May, 2006 CAIS/NYSAIS Business Affairs Conference Mohonk Mountain House

The American Middle Class “There are three social classes in America: upper middle class, and lower middle class. ” -- Judith Martin, (Miss Manners) Copyright National Association of Independent Schools 2006

The Barbell Effect Defined… Copyright National Association of Independent Schools 2006

Demystifying the Barbell Step 1: Defining Middle Class § Who comprises the middle class? – “What is the income of the ‘middle class’? ” § The Census Bureau does not have an official definition of "middle class. " We do, however, derive several measures related to the distribution of income and income inequality. ” – From the Census Bureau website, Frequently Asked Questions on Income – EVERYBODY § Why do affluent people think they’re not affluent? § American phenomenon: “Looking Up” (see 4/3/06 New Yorker article, “Relatively Deprived” by John Cassidy) § The Independent School Middle Class? – Varies by school profile and locale – Starts as low as at $65, 000 and goes as high as $200, 000 – Is this really “the middle”? Copyright National Association of Independent Schools 2006

Can the Middle Class Get Aid? Assumptions: using SSS 2005 -06 methodology Family of four, two parents, two children, parents age 45, both work, no assets - parent or student, NY state/other taxes, Tuition+-Day Schools Full Aid Eligible* No Aid Eligibility** No COLA $19, 931 $21, 050 $133, 620 $ 0 - $52, 785 $137, 620 $21, 625 members, 2005 -06 medians *Families below this income qualify for FULL financial aid **Families above this income qualify for NO financial aid Copyright National Association of Independent Schools 2006 $309, 140 $319, 560 $139, 675 +NYSAIS COLA (NYC) $324, 910

Can the Middle Class Get Aid? Assumptions: using SSS 2005 -06 methodology Family of four, two parents, two children, parents age 45, both work, no assets - parent or student, NY state/other taxes, Tuition+-Bdg Schools Full Aid Eligible* No Aid Eligibility** No COLA $29, 949 COLA (NYC) $165, 115 $387, 460 $172, 480 $405, 260 $ 0 - $42, 015 $31, 908 +NYSAIS members, 2005 -06 medians *Families below this income qualify for FULL financial aid **Families above this income qualify for NO financial aid Copyright National Association of Independent Schools 2006

How Many Families Make That Much? “No Need” PC at $21, 625 tuition = $140, 000 % distribution by income range, selected locales USA New York City Metro Westchester County New York State $0 - $50 K 46. 2 48. 8 27. 8 44. 0 $50 - $75 K 21. 3 16. 9 15. 2 19. 4 $75 - $100 K 13. 5 11. 6 14. 9 13. 5 $100 - $150 K 12. 0 12. 4 17. 3 13. 6 $150 K+ 7. 2 10. 2 24. 8 9. 4 Median Income $53, 692 $51, 150 $89, 249 $56, 556 Source: 2004 American Community Survey, www. census. gov Copyright National Association of Independent Schools 2006

Can the Middle Class Get Aid? Assumptions: using SSS 2005 -06 methodology Family of four, two parents, two children, parents age 45, both work, no assets - parent or student, CT state/other taxes, Tuition+-Day Schools Full Aid Eligible* No Aid Eligibility** No COLA $16, 500 $20, 835 $119, 360 $0 - $51, 572 $134, 592 $24, 693 members, 2005 -06 medians *Families below this income qualify for FULL financial aid **Families above this income qualify for NO financial aid Copyright National Association of Independent Schools 2006 $144, , 008 $163, 250 $148, 430 +CAIS COLA (1. 2) $180, 360

Can the Middle Class Get Aid? Assumptions: using SSS 2005 -06 methodology Family of four, two parents, two children, parents age 45, both work, no assets - parent or student, CT state/other taxes, Tuition+-Bdg Schools Full Aid Eligible* No Aid Eligibility** No COLA $32, 250 COLA (1. 2) $171, 120 $207, 775 $182, 558 $223, 130 $0 - $41, 370 $35, 444 +CAIS members, 2005 -06 medians *Families below this income qualify for FULL financial aid **Families above this income qualify for NO financial aid Copyright National Association of Independent Schools 2006

How Many Families Make That Much? “No Need” PC at $24, 693 tuition = $148, 430 % distribution by income range, selected locales USA Hartford Metro Fairfield County Connecticut $0 - $50 K 46. 2 33. 6 24. 5 31. 4 $50 - $75 K 21. 3 18. 5 17. 3 19. 6 $75 - $100 K 13. 5 17. 6 15. 1 16. 9 $100 - $150 K 12. 0 19. 7 18. 5 18. 7 $150 K+ 7. 2 10. 6 24. 6 13. 4 Median Income $53, 692 $71, 997 $87, 434 $73, 458 Source: 2004 American Community Survey, www. census. gov Copyright National Association of Independent Schools 2006

Who Applies for Financial Aid? % distribution by income range, SSS filers 2004 -05 USA SSS Filers $0 - $50 K 46. 2 36. 9 $50 - $75 K 21. 3 21. 9 $75 - $100 K 13. 5 16. 7 $100 - $150 K 12. 0 16. 4 $150 K+ Median Income 7. 2 $53, 692 8. 0 ~ $57, 500 Sources: 2004 American Community Survey, www. census. gov, SSS applicant data, 2004 -05 processing year, NAIS Copyright National Association of Independent Schools 2006

So, What is Middle Income? § SSS full need families stop at ~ $53 K in day schools—THIS IS the middle income family; and they can benefit well with fin aid § Top 5% of family income begins around $173 K – Many of these would qualify for aid at high-cost schools with more than one child enrolled, especially if COLA factors are used § Should a need-based aid program do more? Should it consider “relative” poorness? Source: US Census Bureau, 2005 Current Population Survey, http: //pubdb 3. census. gov/macro/032005/faminc/new 06_000. htm Copyright National Association of Independent Schools 2006

Who Attends Independent Schools? % distribution by income range % of Current Families $0 - $50 K 5. 9 $50 -100 K 17. 8 $100 -150 K 21 $150 -200 K 13. 8 $200 -250 K 11. 0 $250 -300 K 6. 1 >$300 K 24. 4 § 44. 7% of current families earn less than $150 K § 18. 9% earn over $350 K § “Emotional” middle class is well represented § “Statistical” middle class is underrepresented § Financial model requires preponderance of high-income families (i. e. , tuition- and givingdependent income streams) Sources: 2003 NAIS Parent Survey Copyright National Association of Independent Schools 2006

Demystifying the Barbell Step 2: Reality Check § At NY and CT independent schools, families stop qualifying for financial aid once income reaches around $140 K-$180 K § Middle income squeeze implicated ($95 K-$180 K) and many are led to believe that these people aren’t enrolling – Do you know for sure that this is “middle class”? – Do you know for sure that they aren’t enrolling? § Families in the true middle-income band ($43 K-$65 K) are served well through need-based financial aid guidelines – But they represent a declining proportion of aid applicants – This is NOT the middle-income group that schools are expressing concern about, even though underrepresented and underfunded Copyright National Association of Independent Schools 2006

Reality Check (cont’d) § Income and need-based aid realities – About 91% of families in NY and about 87% in CT earn less than $150 K and would qualify for some financial aid at a $25 K school – NYSAIS schools provide financial aid to 18. 4% of enrolled students – CAIS schools provide financial aid to 20. 8% § How can a barbell exist if only one-fifth receive aid? § What proportion of the full-pay families at the school fits the “middle income” range that you think is squeezed out? § Do you need to extend more aid for greater economic diversity? To which families? – Shift concern to serving the “real” middle class for truer socioeconomic diversity – Or is serving the ‘emotional’ middle class a budget-building agenda matter? Other motivation? Copyright National Association of Independent Schools 2006

Demystifying the Barbell Step 3: Contextualize the Conversation Explore the psychology of socioeconomics in the school and its impact on experience and learning § Challenge the perceptions – “The only people who can easily pay tuition are those with high financial aid or high income. ” – “No one in the middle is enrolling. ” – “The middle class can’t afford our school. ” § Put data in context: Typical NY or CT school has 80 -85% full-pay students – Too many full-pays to presume equal weights on both ends of the bar – Not all full-paying students are millionaires – Not all aid recipients have high need/low income – Disabuse the notion that high-need families are doing it easily § Study and define the problem very specifically…not a ‘one size fits all’ solution for schools – Do you really have a middle-income problem? Is it statistical or emotional? – If so, find solutions that do not siphon limited resources from those who show greatest need? Copyright National Association of Independent Schools 2006

Conversation in Context: Three Examples Copyright National Association of Independent Schools 2006

Example 1: DC Area School Copyright National Association of Independent Schools 2006

Example 1: Where’s The Barbell? What’s the “Real” Issue? Number of Sample’s Financial Aid Grants awarded within each income quintile (2005 – 2006 academic year) Source: US Census Bureau National Family Income Range ($) Number of Grants Awarded Average Grant ($) Lowest 0 - 24, 780 5 22, 898 Second 24, 781 – 43, 399 5 21, 125 Third 43, 400 – 65, 827 21 16, 817 Fourth 65, 828 – 99, 999 31 16, 829 Fifth > 100, 000 41 11, 899 Quintile Copyright National Association of Independent Schools 2006

Addressing Middle Income Issues: Two Paths § Albuquerque Academy (New Mexico) – Board challenge to increase middle income enrollment through financial aid and tuition discounts – Used survey to examine if there was a “barbell effect” and found there was none – No need to change policy or commitment of aid dollars to wealthier families § St. Mark’s School (Texas) – Donor approached school to provide grants to middle income families – School research yielding a defined “middle-income” target for its population – Implemented policy of reducing SSS results of contributions for families in the target range and offered aid from the donor-supported fund to meet the increased financial need § Study and define the problem very specifically…not a ‘one size fits all’ solution for schools – Do you really have a middle income problem? Can you solve it without siphoning already limited resources from those who show greatest need? Copyright National Association of Independent Schools 2006

NAIS Resources § School and Student Service for Financial Aid (SSS) – Need analysis, training workshops and consultation on policymaking, Comp*Assist software § Stats. Online, other statistical resources – National, local/regional association – Trend analyses and environmental scanning § Financing Schools Institute – July 6 – 9, Bolger Center (Potomac, MD) § Financing Sustainable Schools book – Available at www. nais. org ($25 members, $38 nonmembers) Copyright National Association of Independent Schools 2006