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 For titles and subtitles each word capitalized except articles and prepositions and conjunctions for four or fewer letters. Title and subtitle text appears black on clear/white backgrounds.

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…

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

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 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

% distribution by income range, selected locales 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 - $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 $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

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 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

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 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

% distribution by income range, selected locales 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 - $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 18.7 $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

Who Applies for Financial Aid? % distribution by income range, SSS filers 2004-05 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

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? % distribution by income range % 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 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

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

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?

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?

Conversation in Context: Three Examples

Example 1: DC Area School

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 Quintile Family Income Range ($) Number of Grants Awarded Average Grant ($) Lowest 0 - 24,780 5 22,898 Second 24,781 – 43,399 21,125 Third 43,400 – 65,827 21 16,817 Fourth 65,828 – 99,999 31 16,829 Fifth > 100,000 41 11,899

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)

Have We Gone Full Circle?? “Initially diversity meant economic and social-class diversity. Economic diversity did not threaten the homogeneity the schools wished to preserve, since a large middle-class population shared the schools’ values and would attend if they could afford to.” -- A. Powell, Lessons from Privilege: The American Prep School Tradition

The Real Challenges Facing Schools Converting perception into reality…get real data behind the perceived “middle income” problem Define the range, survey the entire school population, examine patterns of aid recipients by income level Compare against external income distribution realities…are you talking about the wrong “middle class” to help? How to get the affluent to recognize their privileged position? Talk about the psychology of socioeconomics in the school Finding a need-based solution to giving high-income families more help ONLY if this is the problem to solve Apply local cost-of-living factors, assess a percentage of the SSS PC for families in the target range Using funding sources that don’t detract from the ability to meet the needs of more needy families Work with board, development to cultivate donors or allocate more to financial aid budget