1. Mark J. Mitchell Vice President, School Information Services Solomon Schechter Day Schools Association December 11, 2006 Thinking Strategically About Affordability

2. Copyright National Association of Independent Schools, 2006 Defining Affordability Depends on who you ask!!  Consumer-oriented: “Believed to be within one’s financial reach”– dictionary.com  Organization-oriented: “Quality service at the best possible price” – automobile service provider  Mission-oriented: “A variety of innovative, financial assistance programs … designed to provide the most help to those most in need” – utility services company For private schools, it’s ALL of the above!!

3. Copyright National Association of Independent Schools, 2006 Defining Affordability  Why is it important to be (or be perceived as being) affordable?  Consider the intersection between the ability AND willingness of a family to pay for service –It is almost always in the eye of the beholder –Strategically managing perceptions, information, and options is critical  Six Key Questions to Ask –Do we know how much income a family needs to earn in order to pay one full tuition at our school? –Do we know how many families in our vicinity earn that much money? –Do we know if those families value the education that we provide to students? –Do we know the 5- and 10-year trend on tuition growth and what drives it? –Do we establish targets that help us move to an affordable model that is sustainable? –Do we have a sufficient and well-managed financial aid budget to achieve dual goals: affordability for mission and for market?

4. Copyright National Association of Independent Schools, 2006 First Key Question Do we know how much income a family needs to earn in order to pay one full tuition at our school?

5. Copyright National Association of Independent Schools, 2006 Affordability Ranges (using SSS 2005-06 methodology) Assumptions: Family of four, two parents, two children (one enrolled), parents age 45, both work (one earns $25K), no student assets, PA residency for state/other taxes, *Manhattan COLA=2.116 Day School No Net Worth $100K Net Worth Tuition No COLA COLA*No COLA COLA* $5,000$70,000$154,100$66,782$150,245 $10,000 $85,155$190,140$81,255$186,280 $15,000$102,495$227,205$98,440$222,750

6. Copyright National Association of Independent Schools, 2006 Second Key Question Do we know how many families in our vicinity earn that much money?

7. Copyright National Association of Independent Schools, 2006 The “Fifteen Percent” Rule of Thumb  Measure your affordability by considering your tuition in context of family income  If 15% or more of the families in your area can pay one tuition, your tuition has not crossed the affordability threshhold –There are enough families who can afford your tuition –Based on general data suggesting approximately 15% of families have children in private schools  Juxtapose against other factors: –Competition for alternatives –Perceptions of value –Cultural norms and expectations

8. Copyright National Association of Independent Schools, 2006 The “Fifteen Percent” Rule of Thumb  Find out what income is needed to pay your tuition –Don’t guess or rely on “what the customer wants to pay” –SSS subscribers can use the SSS Comp*Assist software to determine this, based on SSS methodology  Use demographic data on your city, zip code, or other locale(s) to find income distribution of local families –www.census.gov –www.easidemographics.com –www.demographicsnow.com –NAIS Demographics Center (members only)  See samples  Currently being beta tested

9. Copyright National Association of Independent Schools, 2006 All Demographics Are Local USAMiami Metro New York Metro Chicago Metro San Francisco Metro $0 - $50K46.258.948.836.229.5 $50 - $75K21.317.316.920.816.7 $75 - $100K13.59.511.616.113.8 $100 - $150K12.08.112.416.417.9 $150K+7.26.210.210.522.0 Median Income $53,692$40,927$51,150$66,302$82,242 Source: 2004 American Community Survey, www.census.gov % distribution by income range, selected locales

10. Copyright National Association of Independent Schools, 2006 Third Key Question Do we know if those families value the education that we provide to students?

11. Copyright National Association of Independent Schools, 2006 P-A-V-S Matrix Perception of Qualities Perception of Viability Strategy? Category 1 High Prestige High Affordability High Value High Sacrifice Diversify; make price and fin aid info apparent; guard against sticker shock Category 2 Low Prestige High Affordability Low Value Medium Sacrifice Benchmark your price; incentive-based merit aid; improve program to attract high-achieving full payers Category 3 High Prestige Low Affordability Medium Value Medium Sacrifice Increase financial aid to broaden s-e diversity; enhance value proposition for increased giving, other support; keep tuition increases low Category 4 Low Prestige Low Affordability Low Value Low Sacrifice Combat enrollment challenges; invest in program and in mktg/comm campaigns; net tuition revenue approach a short- term fix Source: Marketing Independent Schools in the 21 st Century, NAIS, 2001, p. 57 - 58

12. Copyright National Association of Independent Schools, 2006 Probing Attitudes and Perspectives  Target a variety of audiences –Parent constituent surveys –Prospective and current families –Alumni surveys –Community/public opinion polls  Outcomes and service: “What is important to you? How well do we do at delivering that?”  Value and sacrifice: “How much do you pay and how do you finance? How much more would you pay before feeling that it’s not worth it?”  Survey design and reporting: In-house vs outsourced?

13. Copyright National Association of Independent Schools, 2006 Fourth Key Question Do we know the 5- and 10-year trends on tuition growth and what drives them? How do they compare to income and inflation trends?

14. Copyright National Association of Independent Schools, 2006 Making Data-Driven Decisions  “In God we trust. All others, bring data.” –Margaret Spellings, Secretary, Dept. of Education  Make decisions that are less “opinion-rich” and more “data- rich.”  What are the five- and 10-year trends of your school in terms of the key financial factors that impact affordability and perception of value?  What do your school's trends suggest about the future?  Use school-based data, NAIS StatsOnline tools (for NAIS members), PEJE Yardstick, other data

15. Copyright National Association of Independent Schools, 2006 NAIS Data: 10-Year Trends  Tuitions Up Dramatically: Median NAIS tuition  Up 30% in real dollars = CPI +3  Inelasticity of pricing? Are you seeing a price break point in the near future?  Giving up Significantly (22%): Averaging about $1000 gift from parents (67%), $5000 from trustees (93%), $300 from alumni (20%), $500 from Grandparents (20%).  Enrollment Stable or Up (on average but not everywhere): For schools that are full, enrollment growth not an option to fund budget growth. But Katrina made us wonder, “What is ‘full’”?

16. Copyright National Association of Independent Schools, 2006 NAIS Data: 10-Year Trends  Faculty Salaries Up Modestly –11.1% adjusted for inflation  Financial Aid Picture Mixed –Avg grants keeping pace with tuition change –Percent receiving aid is fairly flat –Application growth driven mostly by high-income familieshigh-income –Schools grappling with “middle income” issues  What’s Driving Increased Tuitions? –Overall staff up 31.8%. –Student:Faculty Ratio = 8.6:1 Day and 7.1:1 Boarding. Class size conundrums. –Schools becoming less efficient in program and staffing models in efforts to expand program and support for students

17. Copyright National Association of Independent Schools, 2006 Fifth Key Question Do we establish targets that help us move to an affordable model that is sustainable?

18. Copyright National Association of Independent Schools, 2006 Ten Markers of Success (based on the top performing schools in each category) 1. Market demand (number of applications per opening) and yield (% of admits enrolling) measure the market’s perception of the school’s success (high ratio a proxy for reputational value): NAIS ideal benchmark = > 2.5:1 ratio and >75% yield. 2. Low annual attrition (for faculty and students) measures stability of staff and satisfaction of parents (low percent a proxy for high satisfaction): NAIS ideal benchmark = < 5% day and < 9 % boarding annually.

19. Copyright National Association of Independent Schools, 2006 Financing Sustainable Schools: Ten Markers of Success 3. Generous giving measures constituent loyalty. Success = >10% of budget income from annual giving (generosity as a proxy for high support and attributed effectiveness): NAIS ideal benchmarks of % & avg $:  parents = 65% / $1000  alumni = 20% /$300  trustees = 95% / $5000 4. Competitive Faculty Salaries measures a school’s capacity to attract, keep, and reward high quality faculty (salaries a proxy for competitiveness in recruitment and high quality teachers): NAIS ideal benchmarks (1/3 higher for high COL urban centers):  >$35K starting  >$50 K median  >$75K top

20. Copyright National Association of Independent Schools, 2006 Financing Sustainable Schools: Ten Markers of Success 5. Relatively low tuition and moderate annual tuition increases measure value in the value proposition (a proxy for comparative “affordability” and moderated inflationary pricing): NAIS ideal benchmarks = Between 25 - 50 %ile of tuitions for comparable schools in similar circumstances or markets; annual tuition increases at CPI + 2 or less. 6. A stable, sustainable proportion of students receiving financial aid measures a school’s commitment to diversity (financial aid a proxy for socio-economic diversity) balanced by financial prudence. NAIS ideal benchmark = 20-25% (33% at boarding schools) of students receiving financial aid (including tuition remission and merit aid) and average awards = 50% of tuition.

21. Copyright National Association of Independent Schools, 2006 Financing Sustainable Schools: Ten Markers of Success 7. Comparatively high student:faculty and student:total staff ratios measure workload productivity (a proxy for institutional efficiency): NAIS ideal benchmarks: >10:1 students:faculty (boarding = > 9:1) > 6:1 students: total staff (boarding = > 5:1). 8. Significant budget for professional development and technology measures commitment to human resources and innovation (a proxy for investment in supporting a high-quality learning environment). NAIS ideal benchmark = > 1% budget for professional development and >2% for technology (non-salary, non- capital replacements for technology; ongoing tech operating expenses).

22. Copyright National Association of Independent Schools, 2006 Financing Sustainable Schools: Ten Markers of Success 9. Growing endowment measures commitment to financial security (a proxy for inter-generational equity and long-term stability). NAIS ideal benchmark = > $25,000 endowment/student (day) and >$250,000 endowment/student (boarding). 10. Student outcomes measure overall success of mission (persistence and graduation rates a proxy for effective preparation academically and constitutionally to succeed in future competitive academic environments): NAIS ideal benchmark - elementary = > 95% graduate from secondary school and matriculate to college; NAIS benchmark - secondary = > 95 % graduate from college within six years.

23. Copyright National Association of Independent Schools, 2006 Set Your Markers and Reach  Who can do this? –No NAIS member meets more than 7 of the markers listed –About 60 schools meet 5 – 7 of the markers –Nearly 970 schools meet 1 – 4 of the markers  Not all of the NAIS benchmarks are appropriate targets for all schools –Set targets that are a stretch but reachable –Determine which markers have greater impact or priority if achieved –Set timeboxes for goal attainment  Define what being successful means and identify what data points can serve as measures of progress

24. Copyright National Association of Independent Schools, 2006 Becoming Affordable: Income and Expenses  Lower operating expenses and/or become more efficient –Can you expand enrollment without growing staff? –Is class size a “sacred cow?” Limited by other factors? –Are consortia-based purchasing and insurance plans options? –Outsourcing or collaboration on certain high-cost services, functions? –See Financing Sustainable Schools for additional ideas  Raising non-tuition income sources—Can you: –Capitalize on intellectual property? –Maximize the use of physical assets for revenue potential? –Achieve maximum potential with fundraising efforts for operations? –Target growing endowment for diversification of income and long-term resource pool –See Financing Sustainable Schools for examples, NAIS Non-Tuition Revenue report (members only)

25. Copyright National Association of Independent Schools, 2006 Becoming Affordable: Price and Subsidy It's not enough to create magic. You have to create a price for magic, too. You have to create rules. –Eric A. Burns, Gossamer Commons, 06-15-05  Tie tuition setting to a pricing strategy –Hold tuition increases to inflation or lower  Difficult to do without achieving some measure of the above –Set price at cost to educate –Set price relative to local private school market  High price, high subsidy?  Low price = perception of low quality?  Carefully, strategically manage subsidies for financial aid –Make fin aid mgmt a profession, not a task –X+ Theory of financial aid budgeting –Control your purse strings  Outsource the tasks (data/forms collection, assessment)  Keep decision-making in house  Don’t “leave money on the table”

26. Copyright National Association of Independent Schools, 2006 Sixth Key Question Do we have a sufficient and well-managed financial aid budget to achieve dual goals: Affordability for mission and for market?

27. Copyright National Association of Independent Schools, 2006 NAIS Principles in Financial Aid Management  Science of financial aid –SSS methodology –Determination of need –Calculating family contributions –Budget projections –Statistics and trends  Art of financial aid –Mission-driven –Professional judgment –Confidentiality –Flexibility –Communication –Adaptation

28. Copyright National Association of Independent Schools, 2006 Additional Resources  Resources at www.nais.org –NAIS Principles of Good Practice –Professional development: NAIS Annual Conference, Financing Sustainable Schools Institute –Marketing Independent Schools in the 21 st Century –Financing Sustainable Schools –Member listservs for school leaders  NAIS Resources for Financial Aid Management –School and Student Service for Financial Aid –Financial Aid Administration for Schools, 2 nd Edition –“Put It In Writing” guide to developing policy manuals –Fall training workshops, spring leadership seminar, summer institute –Financial aid management monographs, presentations, articles –Listings of K-12 tuition payment plan, loan, and scholarship providers –Member listservs for feedback, idea sharing

29. Copyright National Association of Independent Schools, 2006 Middle Class Squeeze?  The statistical middle income family ($44K - $66K) qualifies for significant financial aid using SSS methodology –A shrinking proportion of fin aid applicants –Not viewed as the independent school middle income  In the typical NAIS upper school, families stop qualifying for financial aid once income reaches $90K - $100K –Middle income squeeze implicated –Fastest growing segment of fin aid applicants  Barbell Effect? Sledgehammer Effect! –83% of American families earn less than $100K and would qualify for some financial aid (at a school with $15K costs) –NAIS schools provide financial aid to 16% of enrolled students –How many of the 84% full-pay families fit in the independent school “middle class” band?

30. Copyright National Association of Independent Schools, 2006 Who Applies for Aid? % of Filers Source: School and Student Service for Financial Aid (SSS) processing system data Families HH earning over $100K in general pop: 20%