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Demystifying “The Barbell Effect”: Financial Aid and the Middle Class

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

  2. The American Middle Class “There are three social classes in America: upper middle class, middle class, and lower middle class.” -- Judith Martin, (Miss Manners)

  3. The Barbell Effect Defined…

  4. 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”?

  5. Can the Middle Class Get Aid? Assumptions:using SSS 2005-06 methodologyFamily 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 COLA (NYC) $19,931 $133,620 $309,140 $21,050 $ 0 - $52,785 $137,620 $319,560 $21,625 $139,675 $324,910 +NYSAIS members, 2005-06 medians *Families below this income qualify for FULL financial aid **Families above this income qualify for NO financial aid

  6. Can the Middle Class Get Aid? Assumptions:using SSS 2005-06 methodologyFamily 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 COLA (NYC) $29,949 $165,115 $387,460 $31,908 $172,480 $405,260 $ 0 - $42,015 +NYSAIS members, 2005-06 medians *Families below this income qualify for FULL financial aid **Families above this income qualify for NO financial aid

  7. How Many Families Make That Much?“No Need” PC at $21,625 tuition = $140,000 % distribution by income range, selected locales Source: 2004 American Community Survey, www.census.gov

  8. Can the Middle Class Get Aid? Assumptions:using SSS 2005-06 methodologyFamily 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 COLA (1.2) $16,500 $119,360 $144,,008 $20,835 $0 - $51,572 $134,592 $163,250 $24,693 $148,430 $180,360 +CAIS members, 2005-06 medians *Families below this income qualify for FULL financial aid **Families above this income qualify for NO financial aid

  9. Can the Middle Class Get Aid? Assumptions:using SSS 2005-06 methodologyFamily 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 COLA (1.2) $32,250 $171,120 $207,775 $35,444 $182,558 $223,130 $0 - $41,370 +CAIS members, 2005-06 medians *Families below this income qualify for FULL financial aid **Families above this income qualify for NO financial aid

  10. How Many Families Make That Much?“No Need” PC at $24,693 tuition = $148,430 % distribution by income range, selected locales Source: 2004 American Community Survey, www.census.gov

  11. Who Applies for Financial Aid? % distribution by income range, SSS filers 2004-05 Sources: 2004 American Community Survey, www.census.gov, SSS applicant data, 2004-05 processing year, NAIS

  12. So, What is Middle Income? • SSS full need families stop at ~ $53K in day schools—THISIS the middle income family; and they can benefit well with fin aid • Top 5% of family income begins around $173K • 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://pubdb3.census.gov/macro/032005/faminc/new06_000.htm

  13. Who Attends Independent Schools? % distribution by income range • 44.7% of current families earn less than $150K • 18.9% earn over $350K • “Emotional” middle class is well represented • “Statistical” middle class is underrepresented • Financial model requires preponderance of high-income families (i.e., tuition- and giving-dependent income streams) Sources: 2003 NAIS Parent Survey

  14. Demystifying the Barbell Step 2:Reality Check • At NY and CT independent schools, families stop qualifying for financial aid once income reaches around $140K-$180K • Middle income squeeze implicated ($95K-$180K) 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 ($43K-$65K) 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

  15. Reality Check (cont’d) • Income and need-based aid realities • About 91% of families in NY and about 87% in CT earn less than $150K and would qualify for some financial aid at a $25K 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?

  16. 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?

  17. Conversation in Context: Three Examples

  18. Example 1: DC Area School

  19. 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

  20. 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?

  21. NAIS Resources • School and Student Service for Financial Aid (SSS) • Need analysis, training workshops and consultation on policymaking, Comp*Assist software • StatsOnline, 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)