The New Financial Aid Family
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The New Financial Aid Family
- 2. THE NEW FINANCIAL AID FAMILY KRISTEN C. POWER NATIONAL DIRECTOR, BUSINESS DEVELOPMENT JULY 9TH, 2015
- 3. During this session, we will: #BBK12UC • Explore the dynamics and implications that the evolving applicant pool is bringing to school financial aid offices • Discover how to reshape policies and budgets to meet what the new aid families bring to the table • Examine ways to communicate and align expectations to increase timely and open participation in the process
- 4. Dynamics of the Evolving Applicant Pool Who’s seeking financial aid? #BBK12UC 10.2 18.7 20.3 17.2 12.5 8.1 6.5 6.4 6.6 12.8 14.8 14 12.4 9.9 10.7 18.8 6.4 10.9 12.6 12.4 11.8 10.1 11.8 23.9 0 5 10 15 20 25 0-20K 20-40K 40-60K 60-80K 80-100K 100-120K 120-150K 150K+ 02-03 09-10 14-15 Range of Total Family Income Source: SSS By NAIS PFS Filer Pool. Reflects total income from all sources, before taxes or allowances, as reported by families on the PFS submitted.
- 5. Dynamics of The Evolving Applicant Pool #BBK12UC • Who’s seeking financial aid? Quintile US Families SSS Filers Lowest $0 - $27,794 10.1% Second $27,795 - $49,788 13.2% Third $49,789 - $76,538 17.0% Fourth $76,539 - $119,001 23.6% Highest $119,002 and greater 36.2% Top 5% $210,000 and above 10.5%
- 6. Dynamics of the Evolving Applicant Pool -Why the dramatic demand shift? Income growth fell dramatically #BBK12UC 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% Lowest Fifth Second Fifth Third Fifth Fourth Fifth Highest Fifth Top 5 Percent 1960s 1970s 1980s 1990s 2000s
- 7. #BBK12UC Family Income Quintiles, 2013 (US Census Bureau) Sample Academy % of Financial Aid Applicants Sample Academy % of Financial Aid Recipients Sample Academy Avg Grant $0 - $27,794 10.6% 2.6% $26,150 $27,795 - $49788 14.3% 8.6% $23,242 $49,789 - $76,538 14.3% 12.9% $24,030 $76,539 - $119,001 14.7% 23.2% $16,794 Over $119,001 46.1% 52.9% $14,159 Dynamics of the Evolving Applicant Pool -Why the dramatic demand shift? Income growth fell dramatically
- 8. Dynamics of The Evolving Applicant Pool What are these new applicants like? • Characteristics of the “New Financial Aid Family” – Higher income, higher net worth – More assertive, less of a sense of “shame” – More entrepreneurial, savvy investors – Access to better choices or alternatives – More accustomed to having influence over decisions #BBK12UC
- 9. Dynamics of The Evolving Applicant Pool • How do they feel about the aid process? #BBK12UC
- 10. Dynamics of The Evolving Applicant Pool • How do they manage to pay tuition? #BBK12UC
- 11. Dynamics of The Evolving Applicant Pool • What’s the role of borrowing? – Only 13% of parents reporting borrowing from some source to help pay school costs (other than home equity loans) – Of those who reported borrowing, the sources were: #BBK12UC
- 12. Implications for The Aid Office • Goals and Outcomes – Is your aid investment serving who you think it should serve? – Does the distribution of aid match the financial aid mission? – Are the lower and “true” middle-income families succumbing to sticker shock to greater degrees? – Is the commitment to high- or moderate-need applicants shifting to low-need applicants? – Are returning students receiving more aid than anticipated or planned for? • Time and Relationship Management – More applications, more complexity, more follow-up – Increase staff knowledge and training to utilize available tools – Ability to tap into networks, experts, and others – Managing pushback, appeals and ‘negotiating’ #BBK12UC
- 13. Reshaping Policies and Procedures • Self-employment and net worth issues – Business expenses, write-offs – Depreciation treatment, negative income and cash flow – Investment transactions, home and other real estate equity • Debt and lifestyle issues – Allowable vs nonallowable indebtedness – Discretionary debt vs “emergency” or necessary debt – Choice vs obligation • Be careful of biased subjectivity…stay objective #BBK12UC
- 14. Reshaping Budgets and Resource Needs • Key Challenge: MONEY – Typical school meets, on average, 69% of demonstrated financial need • 11% of schools reported meeting 100% of need • Gapping is more easily overcome by high-income, low-need families – Only 8% of reviewed applicants did not qualify for some help – 86% of schools report that the #1 stressor is balancing limited dollars with expanding demand • “Old News” a lesser strain on aid budgets as recession effects wane slowly – Returning families new to aid – Not typically anticipated in budget-setting – Proactively account for that new need #BBK12UC
- 15. Reshaping Budgets and Resource Needs • Key Challenge: TIME – Typical aid professional spends 24% of his/her time managing the aid responsibilities and tasks – Only 30% feel that the amount of time they spend on making a financial aid award decision is just right – 50% report that there are too few weeks allotted for managing the overall awarding process – 100% of full-time aid directors reported that the time spent making individual decisions AND the timespan of the overall process were just right • Tended to receive fewer financial aid applications • Tended to process more applications (in numbers and percentage that needed review) • Tended to get a higher yield among the financial aid applicants #BBK12UC
- 16. Establishing and Communicating Expectations • Generation X = born 1965 – 1981; Roughly 30 – 50 year olds 1. Hold the highest education level of any age group 2. Active, balanced, family-oriented, more heterogeneous, more accepting of social diversity than previous generations 3. Less likely to idolize leaders and hold casual disdain for authority; more likely to work towards systematic change through economic, media, and consumer action than direct rebellion or ouster of leaders 4. Experience several career changes due to lower sense of loyalty to institutions, and chaotic nature of the job market; “work to live” not “live to work” 5. Income growth for men has slowed; growth in family incomes driven by women entering the workforce 6. Independent, tech-savvy, resourceful, hands-on, entrepreneurial, start-up/small-business minded, willing to take risks, customer-focused #BBK12UC
- 17. Establishing and Communicating Expectations • Educate, educate, educate • The more you share, the better-aligned their expectations will be • Be clear about the pressures on your aid budget and the distribution of your applicant pool • Help them put their own situation in a context outside of themselves (or their neighbors) • Be ready to teach a family to understand all the factors driving your decision #BBK12UC
- 19. Today We Covered… • The dynamics and implications that the evolving applicant pool is bringing to school financial aid offices • Reshaping policies and budgets to meet what the new aid families bring to the table • Ways to communicate and align expectations to increase timely and open participation in the process #BBK12UC
- 20. Presenter Information Kristen Power National Director, Business Development SSS by NAIS power@nais.org Phone: 603-770-0145 #BBK12UC
Notes de l'éditeur
- Evaluating over 150,000 applicants who filed a PFS for the last two academic years, we can see a picture of the typical family who applies for financial aid at SSS subscriber schools. This snapshot confirms that the commonly held stereotypes of the financial aid recipient as a poor family no longer hold. This family is earning on the low upper income side of the economic scale, though with fairly modest net worth. Income rich, but asset poor, they struggle to find a way to be able to have a couple of children in private schools and perhaps college.
- Incomes don’t grow like they used to, at all levels. But tuition growth has been pretty steady, creating a long-term pressure that peaked in the 2008 recession. This chart shows the average annual change in average income for each decade, for each income quintile. In the 1960’s, the dark blue column, average income for each quintile group typically grew about 8% per year. In the 2000’s, however, the light blue column shows that only the top 20 percent saw an average income growth over 2% per year. These slowdowns, in conjunction with steady tuition growth rates of 5 to 6%, until recently, have helped to create greater demand for aid. Families can’t keep up with tuition change like they used to, so more will seek help with it. So far, these data suggest a new financial aid applicant. It’s important to know whether there’s a noticeable shift in who’s actually receiving financial aid.
- The best analysis of who receives aid starts with the school. SSS has a lot of data on who applies and NAIS has a lot of data on what is spent on aid, but we don’t have much data on the families who end up getting aid at your schools since that is your final decision. This exercise, though, can help illustrate who is receiving financial aid at your school. This is especially useful if your purpose with aid is to help create economic diversity. Using US Census Bureau quintiles as a starting point, determine the percentage of families in your aid recipient pool that fall into each band. Also, include the average award that those families received. This chart is actual data from a day school that revealed a counterintuitive reality about their “financial aid family.” The higher your income, the more likely you are to receive aid. What if you saw something like this with your own data? What questions or observations would you raise? This is unlikely to be an outlier example. The income pressures on families, and the retention/revenue pressures on schools, is creating this kind of shift to a new type of financial aid family all across the country. So, with higher-earning families in the applicant pool and in the recipient pool, it’s important to explore what families think about the aid process, how they choose to pay their share of tuition, and what implications there are for schools to handle the shifting dynamics.
- So, as the applicant and recipient pool shifts to a new kind of financial aid family, the characteristics of the typical aid applicant are important to understand. Are you seeing these kinds of characteristics more and more?
- SSS and NAIS worked together to produce a study of how parents finance private school education, by surveying over 6000 parents who completed a PFS in 2012-13. More than 1200 parents responded to the survey and we learned that applicant families are reporting higher measures of feeling fairly treated in the aid process, compared to 2006. This is good news for setting a positive tone about speaking with and educating families about the process and options. The more schools can do to shine a light on policies, procedures, confidentiality, and do so openly, the greater the comfort level among families becomes. Trust and fairness are vital, and increasingly more so, to best engage families in being truthful and cooperative in the process.
- That survey also suggests that it’s pretty clear that parents really only rely on three things to help fund the tuition and expenses they incur: financial aid from the school, their income and their savings. While the use of gifts from grandparents and the use of credit cards to help pay tuition are up from 2006 levels, they are still only used by fewer than one-fifth of financial aid applicants. Even second mortgages or home equity loans are not typically seen as a viable option, with only 8% of parents reporting that as a resource to help fund tuition (down from 15% who did so in the 2006 survey year).
- Overall, only 13% of parents reported using a loan of any other kind (down from 16% in 2006), which tended to be bank loans mostly (60%) with fewer than a third borrowing from relatives (27%). It’s interesting to note that the post-recession reality is showing some shifts away from using banks as a lending source towards using family. Unlike higher education, parents applying for aid are highly reticent to borrow to make it work. Tightened credit markets, post-recession, are probably not helping more of them believe it’s a viable choice.
- If you observe patterns that suggest a tip in the scales of who’s applying for and receiving aid, ask yourself some key questions about what those patterns mean. If, for example, almost half your aid is going to the highest-income earning families, is that an expected or intended outcome?
- The chance that the new financial aid applicant owns a business, shares in a business, or business rental property, is increasing. This makes for more complex financial situations to sift through and understand. While the average application from a low or middle income family might take 5-10 minutes to review, a high income family situation could take five or ten times as long. Seems wise to estimate 20 -25% of your applications might need more time to do well. Connect with colleagues, attend webinars, workshops, and conferences for “how to’s” on reviewing tax forms. Use the SSS Annotated Tax return packet, webinars, and other resources to get more learning and training. Understanding how to ferret out cashflow from forms like the Schedule C, Schedule E, and Schedule D and taking advantage of data capture features within CAO will increase your ability to hone in on a good family contribution. Tighten up your policies for situations you’re more likely to see with the new financial aid families. Let’s discuss a few of them (Open up for group discussion): Do you know how to manage self-employed business owners with write-offs for things like depreciation? Add it back to nontaxable income. How do you evaluate capital gains and sales of stocks? Zero out losses and treat the proceeds of the transaction as income? What about multiple properties? Do you treat business or rental property the same or differently from vacation or second home properties? What would you do with high debt incurred to maintain lifestyles or to seed a business? Tighter policies and skillful analysis help you to check your own biases and stay objective in the process…as we’ve seen, some high income families can certainly be aid eligible…don’t make decisions based on what kind of car people drive or what kind of home they live in…gather the information, put it through the process, and make a sound decision. Their income may be high enough to drive a newish Mercedes, live in an expensive home, and take nice trips AND low enough to not be able to pay your full tuition. Finding the right balance is tricky but doable if you know your stuff.
- One obvious resource deficit that schools struggle with is money. Recent SSS surveys clearly show that the realities of limited funding cause difficulties for families to enroll (especially low and middle income families) and increase stress for financial aid professionals in trying to meet their goals. One budgetmaking tactic that should be incorporated in financial aid projections is to anticipate some percentage of returning full-pay families that will be new to aid. How? Look at your data. In the past 5 or 10 years, what is the year-to-year average number of new applications you receive from returning families? What is the average grant amount or family contribution level that enables them to re-enroll? Use those as markers in your budget assumptions moving forward, in addition to what you expect it would take to re-enroll current aid recipients and the right/best balance of new students who need aid. Don’t forget to look into how many returning applicants tend NOT to qualify for aid in the next year as well. Recycle those funds into the budget for other families.
- One clear budget and resource deficit that schools would be wise to address is the time deficit. Applicant demand and complexity have grown while aid offices have not, for the typical school. Highlights of two recent SSS studies suggest benefits of giving financial aid directors more opportunity to focus on the job. While those schools with a full-time director receive fewer applications than the overall group, they are able to work more of them and achieve a greater degree of yield on how many ultimately enroll. The higher yield results could indicate the improved ability to get a better, more well-informed decision out the door or the improved opportunity to coach and explain decisions and their factors for parents understanding. Receiving fewer applications could be a reflection a greater capacity for full-time directors to educate families and/or work with the admissions process in ways that reduce incorrect, incomplete, or unnecessary applications in the pool. Now is the time to examine how to increase the amount of time dedicated to the process as the job will prove to become more, not less, overwhelming as affordability issues continue to push edges on the applicant pool profile and demand posture.
- Here are some of the characteristics/qualities that exemplify Gen Xers (the bulk of your aid applicants). As aid applications increase from the Generation X crowd, how might these kinds of qualities, behaviors, and characteristics influence the conversations and expectations of the new financial aid applicants? Opportunity for small group discussions: If you can divide into six groups, get each group to tackle one of these bullet points. List 3-4 actions or policies in the aid office that they might have to engage in order to respond to these characteristics of the new aid applicant. For example, since they have higher education levels, a school might see an uptick in the desire for a parent to acquire advanced degrees (student loan debt, suspension of work, etc). A school would have to have a good policy on how to handle those situations where a parent isn’t working or claiming large debt because of their desire to seek more education. Give 10 minutes to discuss and generate a list; allow each group to report out
- We saw that the new financial aid family is likely to be more educated than before. Take advantage of their thirst for knowledge and educate them on your aid process and realities. An open and honest education campaign helps align expectations and the outreach creates a sense of cooperation and goodwill that should make for better financial aid applications and conversations in the end. A Gallup study in 2011 showed that only 6% of upper income people (earning over 250K) felt their taxes were too low. But 30% of them agreed that upper income people didn’t pay enough taxes. They didn’t realize they were talking about themselves…they didn’t see themselves as upper income. Your financial aid is likely full of people from all over the income spectrum, with the higher-income “new aid family” potentially not seeing themselves as being high-income. Illuminating for them the reality of demand and relative wealth/need within your entire applicant pool is important. Through education and sharing data on who applies for, and receives aid (and how much), you can send key messages about what high income people should and shouldn’t expect. Use your website and brochures to offer profiles, charts, or tables that put income realities and the realities of the pressure on your aid budget in the right perspective. Be ready to teach people the factors that influence eligibility in general and them in particular. Don’t shy away from frank and open discussion about that…the new financial aid family is less inclined to take no for an answer without understanding the rationale that drives it.