What Does It Mean To Be Affordable?

Because ‘“affordability” can be a moving target — meaning different things to different people at different times — maybe the question schools should continually ask is not whether or not they’re affordable, but “How does our price affect our ability to enroll the class we want?”  Not long ago, a director of admission at an NAIS member school told me that to understand his goals and success measures for the upcoming admissions season, he asked the school head:  “Do you want me to enroll the students we want or the money we need?”  Of course, the answer was “Yes/both!”

 

A look at NAIS’s data (and others’ research) reveals that, historically, no statistical correlation has existed between year-to-year tuition growth and enrollment change.  As school heads and admissions directors met every $5,000 tuition milestone with trepidation that families would stop paying, enrollment continued to grow all the same.  In other words, if you charge it, they will pay -- as long as the quality and value propositions are clearly spelled out, are known to parents, and are genuine.

 

This look back has led many to believe that tuitions can increase without a clear, predictable link to enrollment.  Some reasons people point to about why enrollment grew amid tuition growth:

Nonetheless, a prevailing notion is that if schools stay focused on building the quality that attracts families, at the price point the quality requires, enrollment and price relationships would remain independent. 

 

This look back, however, might benefit from another angle of vision to help understand how price change might affect enrollment:  income change among the families able to afford our schools.  In other words, when schools consider affordability when setting tuition, to what degree should they examine whether it’s not just price point that matters, but price growth relative to income change?

 

The chart below illustrates that from 1981 until about 2007, the growth of day-school tuition (dark blue line) rose at the same basic rate as the growth of the average income for families in the top 5 percent of income (the orange line).  In the early 1990s, income growth was slightly under tuition growth, and in the late ’90s to early 2000s, family incomes grew at a faster rate than tuitions did. 

 

In the 2008 recession time frame, it wasn’t just that the economy bottomed out, but that incomes for the top 20 percent and the top 5 percent flattened out as well, which didn’t happen to the same degree as in earlier recessions.  This, coupled with steady increases in tuition (until recently), has created more affordability pressure for families, especially higher-income families, to seek more aid support.  Since about 2005, it can be argued that the affordability pressure is not just a result of the price point itself, but the way it’s been growing, relative to the slowdown in income change.  

 

For decades, enrollments held steady through schools’ price increase at least in part because the preponderance of full-paying families were more able to remain full-paying from year to year.  The tuition increases were generally in step with their income increases.  Of course, other factors needed to be in play to make sure those families were continually willing to pay tuition. These factors include the number of and dissatisfaction with alternatives, the perceptions of quality of independent schools, and satisfaction with their outcomes.

 

In the five-year period between 2006 to 2010, however, the slowdown in income change for the higher-income earners has driven many to seek and receive financial aid in greater numbers as incomes flattened amidst still-rising tuition.  Judging by the change in families who are applying for financial aid through SSS, this affordability pressure is not merely theoretical; it is real.  In 2002-03, families earning more than $150,000 per year made up 6.4 percent of all financial aid applicants.  In 2009-10, the figure jumped to 18.8 percent and stood at 23.9 percent by 2014-15.

 

Since 2011, average income for this group has been rising again, while tuition growth has slowed slightly. This trend should ease pressure on a school’s financial aid budget and alleviate recent enrollment stagnation.

 

So perhaps tuition growth wasn’t linked to enrollment change for a long time, because the price growth was not outpacing the income growth needed to pay for it year-over-year, until recently.  Much of the recent affordability pressure is manifest by the simple reality that income doesn’t change like it used to but tuition does.

 

Today, it seems that a large part of the affordability question relates to what a particular community can sustain over time.  Has the community of families with school-age children changed?  Are the income demographics stable, growing, or slowing?  What are the implications for your school’s tuition-setting strategy and/or its mission-based imperatives for socioeconomic diversity?

 

An independent school in California noticed that its community demographics were changing, partly because of the school’s proximity to Silicon Valley. Families value that the school’s neighborhood allows them to live in the city while granting them easy access to the technology corridor. Meanwhile, the head of school and other school community members began questioning whether the changing demographics could impact the school culture. Founded in 1966, the school has always attracted a diverse range of families, and socioeconomic diversity has always been core to its mission. The school allocates a significant percentage of tuition revenue to its indexed tuition program (the school’s name for its financial aid program). However, as the cost of living in the city has dramatically increased, the school noticed a rise in the need for indexed tuition from families previously paying full tuition – more of the financial aid applicants were from higher-income families with an average family income of $160,000.

 

At the same time as the surrounding neighborhoods were becoming wealthier, so too was the school’s applicant pool – with more new families able to pay the school’s full tuition. The school faced a pivotal affordability question as low- and middle-income families, the precise demographic the school sought to keep in its community, were being priced out. While the neighborhood changed around it, the school had to ask itself, “Should we change, too?” 

 

Determined to stay true to its core values, the school embarked on a thorough assessment of the Indexed Tuition philosophy and the mission of the school. The head of school, the administrative team, and the Board reaffirmed the founding principle of who the school is trying to serve. Over a period of one year, the school took key steps including: convening facilitator-led Board retreats to explore the concept of affordability, analyzing key income and demographic trends in the area, reviewing the school’s own data as to the even and equitable distribution of indexed tuition, and creating a Leadership Committee (composed of the head, CFO, a trustee, a parent, and a teacher) to make recommendations to the Board. The committee drafted an indexed tuition philosophy statement that serves as the guidepost for making individual tuition decisions. The philosophy centers on investing in staying affordable to and represented by families across the broad economic spectrum of the metro area and across the entire PK-8 community. The school is still analyzing the results of this effort, but the leadership team believes it is headed in the right direction. In this case, the school leadership affirmed that the school’s enrollment, pricing, and financial aid investment goals should be centered on “the students we want.” 

 

By engaging in a mission-centered process that explores the confluence of tuition, community realities (such as income, demographics, and demand), and enrollment goals that are both quantitative (how many students do we need to make budget?) and qualitative (what type of students do we want to stay true to mission?), you can find the answers to your key affordability questions, too.