Funding the Total Cost of Attendance

Consumer Concepts in Paying for Education

When I deliver workshops on navigating the financial aid process for parents, I serve as an advocate for schools by advancing a ridiculous notion. I ask them to imagine going into a car dealership and asking to buy a $20,000 car for $5,000 because that's all they can afford. I go on to explain that a car dealer, or any other retailer, would never go for that offer. I then explain that when they look for independent schools, financial aid exists for that very reason — to bring a $20,000 price tag to the level each family may reasonably be able to afford. Regular consumer concepts don't apply.

But, I want you to imagine a similar scenario.  You're in the car dealership and you're ready to buy.  You've done your homework and you've talked to the salesperson and you're ready to ink the deal. You've got your $20,000 all ready to hand over and then you are told that it's another $500 for delivery and prep, another $1,500 for taxes, titles, and tags, $150 for those floor mats, and so on. Next thing you know, your $20,000 isn't going to cut it. Wouldn't you prefer to know the whole price upfront? Not just "How much does the car cost?" but "How much am I going to pay for everything?" This consumer concept applies to understanding school costs as well.

But here's another consumer pricing concept that doesn't apply to school costs. When I buy anything, I realize that I'm paying more, much more, than it costs to produce, market, and sell that thing, whether it's a bookmark or a new car. And, at best, I may be concerned with paying the smallest differential I can get away with. That being the case, why is one of the hardest things to do in managing a school convincing people to pay less than it costs to educate a student?

Some answers:

1.      People have "free" options. Public education, charter schools, and even home schooling are alternatives that don't cost extra, at face value. As accountability, standards, and other public priorities on improving public education swell and as growth continues in other education arenas, paying for quality you can get at a lower cost than independent school tuition is very appealing.

2.      The education isn't directly "given" to the person paying for it. I'm more willing to eke out a car payment when I slip behind the wheel and profess my love for my new car as I zip down the highway. I don't get anything direct and tangible for a tuition payment, my child does.

3.      People don't want to pay anything for education. As recently as 2010, the Consumer Expenditure Survey of the Bureau of Labor Statistics shows that the typical U.S. household spends 1.8 percent of its after-tax income on education costs.  The top 20 percent income earners, the wealthiest slice that most might presume to be most likely to exercise private school and college options, only spent 2.0 percent of its after-tax income on education.  In fact, the typical household spent 2.3 times as much on entertainment than it did on education in 2010.

4.      More and more people are finding that times are tough. In the first decade of the 21st century, American households have endured the ripple effects of the tech stocks bubble bursting, the 9/11 terrorist attacks that led to recession, and the financial crisis of 2008 that created the worst economic climate since the Great Depression. Job loss, portfolio pounding, home values tanking, and other economic misery has forced people to rethink their notions of what they need versus what they want and identify in clearer terms what they most value.

All of these things make it tougher to advance the notion of paying tuition for education — particularly at the elementary and secondary school levels.

But it still has to happen for independent schools to thrive and survive. What are the key issues around communicating about price and costs and what do they signify about what we stand for as educators?

Democratization of Information

In his book, The Lexus and The Olive Tree, Thomas Friedman talks vividly about how the world was changed by the democratization of three critical forces: technology, information, and finance. Basically, the point is that as more and more people were able to gain access to these key forces, they were able to see and learn things previously kept from them and were able to access ways to increase their own empowerment to improve their standard of living.          

This has clear ramifications for the independent school market as well, particularly in regards to communicating about price and school costs.

The growth of the web has given people easier access to information and thus they can more easily tell how upfront you're being; they see more and more of what others are doing, and they expect that you will do things the way they want not the way you want, especially in regards to cost and pricing.  Becoming more upfront about the costs beyond tuition will become a matter of staying competitive and being responsive to the increasingly demanding parent. This doesn't mean you have to charge what they want to pay, but it does mean you have to be better at giving them the information they want in the way they want it so that they continue to pay attention to you.

Lessons from Higher Education

As it has been shown that people generally think college education is more expensive than it really is, the same might be true of their perception of independent school costs. In fact, the word "affordable" was the word Americans thought was least descriptive of independent schools, according to an NAIS public opinion poll. So, in part, changing the perception has to do with providing more information to families about the school and its cost to parents. 

To help illustrate this notion, a team of researchers in the higher education community conducted two studies to probe the effect that access to information has on the role costs play in decision-making.

In a nutshell, these studies showed that students who received more information about an institution in general felt that financial aid was less important in their school choice. The more access students had to information about the school, the less concerned about pricing they were. Convince them first of the quality of what you have. The more they know about what the school stands for and what it has to offer, the less likely they are to be hamstrung by "sticker shock." 

Providing information upfront about the school's programs, mission, and other qualities is something schools have historically been very good at doing in efforts to recruit families. Viewbooks, websites, brochures, school fairs — all work very well at getting messages out about a school's excellence. Increasingly, however, schools will feel the pressure to transform this effort into a strategy of describing and promoting the school's VALUE, signifying a shift from "Look, aren't we great," (people pretty much already believe that) to "Look, aren't we worth it?" (this is what people need to be convinced of more and more). 

And whenever you talk about value, you must talk about price. When retailers charge a lot and can't hide the price tag, they focus on value of the product and the wisdom of the investment choice among those who are able but unwilling to pay the price. Or they promote financing plans to expand their market base to include those who are willing but unable to pay. 

For example, I was in a Bang and Olufsen store a few weeks ago. B&O is a high-end stereo, TV, and video retailer. I go there to marvel at all the things I can't have, like a $19,000 entertainment system with 6-DVD/CD changer, flat screen high definition television, and slimline speakers producing the ultimate surround sound experience. Not everybody can drop $19,000 on at-home entertainment. So, they start by convincing you of the uniqueness, why it's worth it. Okay, I agree it's worth it but I don't have the money. Then they convince you that you do have the money, even if not right now but over 90 days or 60 months. In either case, they're aware of their cost and can't hide it upfront.  But they know they have work to do to sell the value and to sell the options that let people know how they can afford it.

I'm not comparing providing schooling to selling stereos, but, one of the things independent schools, as a whole, have not been good at historically, is sharing upfront information about pricing and costs. This may be very purposeful and for good, well-thought reasons. On one hand, schools are wary of frightening away potential applicants with sticker shock. However, the Hossler and Schmitt studies also show that, for college students, the more access to information received about financial aid, the lesser degree pricing influenced attendance decisions. As they become convinced that the school will partner with them as much as possible to make an opportunity a reality, and as they better understand who else is paying the cost (e.g., endowment, donors, etc), their sensitivity to cost and price may be reduced. 

We have to do better at getting messages and information to people in upfront ways.  It's not easy to find school websites that list tuition (or at least where the tuition information is) or that speak in detail about financial aid and even harder to find it in viewbooks.  Furthermore, it's even more difficult to find a discussion of costs other than tuition. Viewbooks are understandable because they tend to be expensive pieces that are designed for multi-year shelf life, and listing tuition and costs would mean yearly outlay of time and money to produce new editions. 

But websites have the advantage of constant flexibility and adaptability. And when school websites do mention tuition and/or financial aid, it's usually found in the section on admissions, as if the subject of costs is only germane to recruitment, not retention. Consider pulling that information onto the homepage. Move that "Affording DC Prep" section of the website from a link found in the general admissions pages to a more prominent position on the homepage, particularly if you have information on a program you're proud of.

Supplying information, therefore, is not just a good idea in terms of meeting family demand for information but also because it may prove to reduce the concerns parents have about school costs, lessening the degree to which that perception inappropriately influences their decision-making. 

The bottom line is that as people become more entrenched in their belief that independent schools are not affordable (especially given the current context of uncertainty we're in), the more important it becomes for schools to share the information about costs differently — in direct, upfront ways. This is happening more and more as schools create financial aid-specific brochures to get focused information to families in creative and effective ways.

Study and Fund "Extra" Expenses

As assistant director of financial aid at Northwestern University, I conducted a project periodically to assess typical costs for students. Based on questions asked on our school-specific application, we could get a general sense for how much students normally spent on things like rent, food, books, clothing, entertainment, etc. These figures would help us construct a typical expenses budget and build it into our total cost of attendance, upon which financial aid eligibility was determined.  I strongly recommend that independent schools undertake a project like this.

  • Consider polling parents every few years about how much they spend for lunch, transportation, sports equipment, tutoring, music lessons, etc. Ask them whether or not they expected those costs and if those costs have an impact on their decision to keep the child enrolled. 
  • Consider polling teachers and administrators about how much required school trips, lab equipment, calculators, personal digital assistants, sports gear, and computer hardware and software might cost.  Ask them whether or not having these things or sharing these experiences have an impact on student success.

Of course, different grade levels and different courses will have different specifics.  But the idea is to get at what's typical for a first grade parent, an eighth grade parent, a twelfth grade parent, etc., and let them know what those costs will be.  Not only will this effort provide valuable information to families, you'll also gain insight on the impact these co-curriculars have on families and the school.

This is important because it's one thing to identify and estimate those costs.  It's another thing, a more difficult thing, to decide to help people pay those costs. On one hand, you've increased the family's understanding that the $12,000 tuition will be just part of what they'll spend. There's another $3,000 for trips and hockey skates and a flute and so on. That's valuable information for a parent to have. But on the other hand, if someone is getting financial aid to offset the $12,000, should they also get financial aid to offset the $3,000? 

In the SSS methodology, the principle is that a family only has so much to spend on EDUCATION, not so much to spend on tuition. If you're asking for a $5,000 family contribution and not including the co-curricular expenses, you're asking them to actually pay $8,000. Is that feasible? Will that affect the student's ability to finish the year? How about enrolling for next year?  Does that create ill-will and a sense of "bait and switch" within the parent community? 

To avoid difficulty in dealing with those questions, consider developing a policy that bases financial aid eligibility on the total cost of education (COE), not just tuition.  If that's too expensive, consider alternatives that might gradually lead to COE budgeting, and be aware that families will have to pay more than they've been led to believe, unless you've been upfront all along.

 

Unfettered Inclusivity

I'd argue that the goal of all of this is to attain unfettered inclusivity as much as possible. If a child is accepted to and enrolls in the school, he or she should have the chance to be successful. Realize that success — like every other goal a school has — comes with a price tag.  Take active steps to determine how much extra funding needs to be in place to build a climate and culture that is supportive of the child and the family in every way. This is critical to aiding success. Building self-esteem, safeguarding the sense of belonging, and eliminating barriers, stigmas, and stereotypes are a few other benefits of a school-wide commitment to fund the total cost of attendance. 

By supporting the costs of co-curricular activities, events, and equipment, you can move from merely expanding the socioeconomic breadth of your student body (you worked hard to create that diversity!) to allowing students at all income levels to take advantage of the opportunities that might otherwise be restricted to only the wealthier students.

It is the broadening of opportunity that makes any financial aid program measurably effective. And it's not just helping people get in.  Success must be measured by whether they stay, whether they thrive, and whether they succeed. That's really what all this is about.

Source:  www.nais.org ·This piece was adapted from an address delivered to the Association of Independent Schools of Greater Washington's fall admission directors meeting, October 2001 and updated in August 2012 · ©2012 National Association of Independent Schools