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What Heads and Trustees
Need to Know About
Affordability
Mark J. Mitchell
Vice President
SSS by NAIS
AISNE Governance Conference
October 25, 2013
Affordability:
The Key Strategic Question
Disconnect?
Source: Heads and Boards Working In Partnership: 2012-13 NAIS Governance Study Report
SSS PROFESSIONAL DEVELOPMENT
sss.nais.org
Why “Affordability?” Why Now?
•
•
•
•
•
Balancing mission versus market imperatives
Tuition pricing strategy and external shifts
Net Tuition Revenue approach to aid investment
Effectiveness of using merit aid
Fundraising for need-based grants, scholarships
sss.nais.org
The Affordability Conversation
• Engage the right strategic questions to maximize board leadership
• Dive into the right data to check assumptions, identify successes,
expose gaps
• Convene the right people for focused study and recommendations
for addressing the most critical needs
• Stick with the right problem to solve for the most effective and most
productive outcomes
sss.nais.org
Leadership Questions
• What are the philosophy and primary purpose driving our financial
aid investment?
• Does the allocation of our aid dollars align with the stated purpose of
the investment?
• How do we define and measure ‘affordability?’ How much does a
family have to earn to afford our tuition for one child?
• As tuition moves, how much must income move to keep pace? How
much must the aid investment move?
• How much aid investment would truly represent full commitment?
What is our capacity for fundraising to make it self-sustaining?
sss.nais.org
Financial Aid Purpose
• Which is most important?
– Hitting revenue targets
(being flush)
– Hitting enrollment targets
(being full)
– Hitting known gaps
(being flexible)
Revenue
Capacity
Gaps
sss.nais.org
The Affordability Landscape
• Two Ways to Check Your Affordability Posture
• What’s your Affordability Range?
• Given your tuition, what income is needed
to pay it?
• What’s your Affordability Differential?
• As your tuition grows over time, is family
income growth keeping pace sufficiently?
sss.nais.org
• What’s your Affordability Range?
• Tuitions reflect median average 2012-2013 tuitions
Median Tuition
Full-Pay Income
% US Households
$20,612
$148,067
~11%*
$46,800
$241,465
<5.5%**
(All Grades)
(day)
(7-day bdg)
Assumptions: Family of four, two parents, two children, one in a tuition-charging school,
parents age 45, both work, one earns $50K, Connecticut residents, COLA = 1.000
Source: SSS By NAIS methodology for the 2012-2013 academic year; Income estimates from NAIS Demographics Center
*10.98% of US households earned $150K+
**5.5% of US households earn over $200K+
sss.nais.org
Median
Tuition
Median
Family
Income
5.70%
1.16%
Avg annual change, 1992 – 2012
Tuition data: NAIS StatsOnline
Income data: US Census Bureau
sss.nais.org
• What’s your Affordability Differential?
Affordability Differential
Day
Bdg
Inc Quint Tuit Chg/Inc Chg
Tuit Chg/Inc Chg
Lowest
10.27
9.35
Second
5.11
4.65
Third
4.36
3.97
Fourth
3.71
3.38
4.05
3.68
Fifth
Top 5%
5.77
5.25
Affordability Differential (2002-2012)
Compares rate of median tuition change with rate of
average income change over the same period of time
sss.nais.org
Shift Happens
Shifting Demand for Financial Aid
25
02-03
09-10
11-12
21.2
20
11
9.8
11.8
13.1
11.8
60-80K
80-100K
100-120K
120-150K
6.4
18.8
40-60K
6.5
10.7
12.5
12.4
20-40K
8.1
9.9
17.2
14
0-20K
20.3
14.8
10.2
6.6
5
18.7
12.8
7.7
10
0
13.6
15
150K+
Range of Total Family Income
Source: SSS By NAIS PFS Filer Pool. Reflects total income from all sources, before taxes or allowances, as reported by
families on the PFS submitted.
sss.nais.org
Aid Distribution Dynamics
Family Income
Quintiles
% of SSS
Filing Pool
Forum Academy Forum Academy
% of Financial
Avg Grant
Aid Recipients
$0 - $26,934
9.60%
5.13%
$15,137
$26,935 - $47,914
13.80%
6.41%
$15,300
$47,915 - $73,338
18.00%
5.13%
$15,338
$73,339 - $112,540
23.50%
34.62%
$11,831
Over $112,540
35.10%
48.72%
$9,342
Source: SSS By NAIS 2011 Leadership Forum; actual data from one school in attendance; school’s
tuition was approximately $16,500
sss.nais.org
Average Need-Based Grant
24%
% of Students Receiving Aid
18.70%
17.80%
21%
18.70%
17.30%
$10,817
$10,824
$11,914
$12,882
$12,801
$12,292
2005–06
2006–07
2007-08
2008–09
2009–10
2010–11
Source: NAIS StatsOnline. Data represented here is not based on a statistical core sample. Each year’s data
may reflect a different set of schools providing that data.
sss.nais.org
$1,400,000
$1,200,000
$1,000,000
$1,239,496
All NAIS Financial Aid expenses
138% increase in
10 years
$800,000
$600,000
$400,000
$520,236
$200,000
$0
Source: NAIS StatsOnline. Data represented here is not based on a statistical core sample. Each year’s data may reflect a
different set of schools providing that data.
sss.nais.org
Downward Discounting
More Revenue from Financial Aid Recipients
60.0%
59.9%
Financial Aid Grant as % of Tuition
59.0%
58.0%
Trend Line
57.0%
56.5%
56.0%
55.0%
Day Schools (n=282)
Source: NAIS Trendbook, 2013-2014, NAIS Core Sample Statistics, Financial Aid and Tuition, 2003-2013
sss.nais.org
% of Financial Aid as portion of Tuition and Fees
16%
14%
15%
12%
10%
11%
8%
6%
4%
2%
0%
All NAIS Schools Tuition Discount Rate
Source: NAIS StatsOnline. Data represented here is not based on a statistical core sample. Each year’s data may reflect a
different set of schools providing that data.
sss.nais.org
sss.nais.org
Financial Aid and Enrollment Management
• Systematic set of activities designed to enable educational institutions to
exert more influence over their student enrollments
• Aims of enrollment management
– Improving yield at inquiry, application, and enrollment stages
– Increasing demographic diversity
– Improving retention rates
– Increasing applicant pools
– Increasing net revenue, usually by improving the proportion of
entering students capable of paying most or all of tuition
Source: https://en.wikipedia.org/wiki/Enrollment_management
sss.nais.org
Financial Aid Tools and Tactics
• Net Tuition Revenue = the tuition remaining after the
marginal cost of educating that student (receiving aid) is
subtracted from tuition paid.
• Tuition = $20,000 but family only pays school $10,000 and the
additional marginal cost to educate that child is $2,000. Net
tuition revenue is $8,000.
• So, this student could be viewed as a $10,000 loss (traditional
F/A accounting) or an $8,000 gain (net tuition revenue
accounting).
Source: Christopher Tompkins, headmaster, Perkiomen School (PA)
sss.nais.org
• Unless a school is turning away qualified full-paying students in
order to make a space for a student receiving financial aid,
there is no revenue lost by admitting students who receive aid.
• In fact, financial aid recipients are a valuable source of revenue!
• Financial Aid is potential revenue lost.
• Some schools will count as “Contra-Revenue” and thus, it will
not show as “expense.”
sss.nais.org
Challenges of NTR Accounting
• Accurate accounting of both tuition revenue and financial aid.
• Realistic two or three year enrollment and financial aid
projections.
• Reconciling different demand curves for different grades
or divisions
• Establishing the school’s true capacity, without increasing the
fixed costs.
• Establishing the marginal cost of educating one additional
student at your school.
sss.nais.org
What About Merit Aid?
Top 50 Merit Spenders vs NAIS Overall
• Charge lower tuitions
• Spend twice as much needbased aid
• Much larger enrollments
• Much lower attrition rate
• Lower proportion of aid
applicants who are aid-eligible
• Offer need-based aid to a
smaller percentage of eligible
students
• Much larger endowments
• Much greater ratio of
endowment dollar per fin aid
dollar spent
• Slightly more NTR per student,
but much greater surplus per
student
• Less favorable admission
activity
– Higher acceptance rates
– Lower yield on accepts
– Lower demand (apps per
enrollee)
Source: NAIS StatsOnline, data from 2010-11 school year
sss.nais.org
What About Merit Aid?
Pros
• Builds demand, broadens
scope of prospects?
• Recognizes talent, increases
quality of applicant pool
• Increases value proposition
for high-achieving, highincome families with choices
• Generates net revenue from
top prospects who might go
elsewhere
• Can free up need-based
dollars when awarded to
needy students
Cons
• Has limited direct fiscal
value…few students, small
awards (on avg)
• Potentially works against
socio-economic diversity
• Does not have a direct
impact on “access”
• Tends to disproportionately
go to higher-income students
• Can become bargaining chips,
tuition-discounting crutches
sss.nais.org
A Discussion Framework
“If I had an hour to solve a problem I'd spend 55 minutes thinking about
the problem and 5 minutes thinking about solutions.” Albert Einstein
sss.nais.org
Ask the admission/financial aid director to identify a single pressing issue or
challenge he/she needs the board to help address (guidance, funding, policy, etc).
Apply a “4C” approach to unpacking it and setting up a path to solution with the
board
•
•
•
•
Criteria = What should be?
Condition = What “is”?
Cause = Why is that?
Change = What needs to happen?
Issue: Full-pay families are becoming aid-eligible at increasing rates. We need
more funding for them that doesn’t jeopardize aid availability for others.
sss.nais.org
•
Criteria = What does “perfect” look like?
Once full-pay, a family should be able to stay full-pay, barring dire situations,
and not need need-based aid. When aid is given to former full-pays, there
should be no impact on the ability to aid other families who show need.
•
Condition = How do we explain the current situation we’re in and why it needs
to change? What’s the gap between our criteria and the condition we’re in?
•
•
•
•
How many full-pays applied for aid? What % of all full-pay families?
How many were aid-eligible? What is the average need/grant?
How has this changed over the recent past? Pre/post-recession?
How many new students “lost” aid that the full-pays received?
sss.nais.org
•
Cause = How did we end up here? What caused our situation?
• What is the local economy picture? Job growth, income change patterns?
• Is the rate of tuition change a factor? Limited budgeting foresight?
•
Change = What do we do differently to get closer to the criteria?
• Suggest a funding policy that takes a “normal” budget determination and
include an X% add’l for new “full-pay” need
• Propose a dollar amount increase in fin aid budget based on the average
total “new need”
• Propose slower tuition increases while economy remains sluggish
• Identify and reconcile trade-offs, if any
sss.nais.org
The Affordability Conversation
• Zero in on what it means to invest in affordability
– Aspirational: Establishing and affirming the primary purpose
and goals of the aid investment
– Financial: Diversifying sources of financial aid funding
– Professional: Ensuring staff training for tactical and leadership
skills development
– Societal: Articulating the community-wide benefits of the
investment; accounting for external trends and realities
• Set benchmarks to evaluate and measure progress
• Plan for five years from now today
• Leverage the admission and financial aid voice ‘at the table’
• Encourage school-wide ownership and accountability
sss.nais.org
Questions? Reactions?
sss.nais.org
Contact Information
Mark J. Mitchell
Vice President
SSS by NAIS
[email protected]
202.973.9766
sss.nais.org
Thank You!

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