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

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

Mark J. Mitchell, VP School Information ServicesMark J. Mitchell, VP School Information ServicesMay, 2006May, 2006

CAIS/NYSAIS Business Affairs ConferenceCAIS/NYSAIS Business Affairs ConferenceMohonk Mountain HouseMohonk Mountain House

Copyright National Association of Independent Schools 2006

The American Middle Class

“There are three social classes in America: upper middle class, middle class, and lower middle class.”

-- Judith Martin, (Miss Manners)


The Barbell Effect Defined…The Barbell Effect Defined…


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”?


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 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



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

+NYSAIS members, 2005-06 medians*Families below this income qualify for FULL financial aid**Families above this income qualify for NO financial aid

$ 0 - $42,015


How Many Families Make That Much?“No Need” PC at $21,625 tuition = $140,000

USA New York City Metro

Westchester County

New York State

$0 - $50K 46.2 48.8 27.8 44.0

$50 - $75K 21.3 16.9 15.2 19.4

$75 - $100K 13.5 11.6 14.9 13.5

$100 - $150K 12.0 12.4 17.3 13.6

$150K+ 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

% distribution by income range, selected locales



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



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

+CAIS members, 2005-06 medians*Families below this income qualify for FULL financial aid**Families above this income qualify for NO financial aid

$0 - $41,370


How Many Families Make That Much?“No Need” PC at $24,693 tuition = $148,430

USA HartfordMetro

Fairfield County

Connecticut

$0 - $50K 46.2 33.6 24.5 31.4

$50 - $75K 21.3 18.5 17.3 19.6

$75 - $100K 13.5 17.6 15.1 16.9

$100 - $150K 12.0 19.7 18.5 18.7

$150K+ 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

% distribution by income range, selected locales


Who Applies for Financial Aid?

USA SSS Filers

$0 - $50K 46.2 36.9

$50 - $75K 21.3 21.9

$75 - $100K 13.5 16.7

$100 - $150K 12.0 16.4

$150K+ 7.2 8.0

Median Income

$53,692 ~ $57,500

Sources: 2004 American Community Survey, www.census.gov,SSS applicant data, 2004-05 processing year, NAIS

% distribution by income range, SSS filers 2004-05


2004

Lowest 5th <$24,780

Second 5th $24,781 - $43,399

Third 5th $43,400 - $65,827

Fourth 5th $65,828 - $99,999

Highest 5th >$100,000

So, What is Middle Income? SSS full need families stop at ~ $53K in day schools—THIS IS 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


Who Attends Independent Schools?

% of Current Families

$0 - $50K 5.9

$50-100K 17.8

$100-150K 21

$150-200K 13.8

$200-250K 11.0

$250-300K 6.1

>$300K 24.4

Sources: 2003 NAIS Parent Survey

% 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)


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

Demystifying the Barbell Step 2:Reality Check


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?

Reality Check (cont’d)


Demystifying the Barbell Step 3:Contextualize the ConversationExplore 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?


Conversation in Context: Three Examples


Example 1: DC Area School

Financial Aid Awards and Family Income (2005 - 2006)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000

Family Income ($)

Fin

an

cia

l A

id A

wa

rds

($

)


Number of Sample’s Financial Aid Grants awarded within each income quintile (2005 – 2006 academic year)

Source: US Census Bureau

National

Quintile

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

Example 1: Where’s The Barbell? What’s the “Real” Issue?


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?


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)

Documents

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