Addressing Affordability Barriers
We are hearing that more families previously classified as “full pay” are now applying for financial aid, creating a challenge for schools. Several factors contribute to this trend, including increasing debt, higher interest rates and borrowing for inflation costs, which have led to compounded balances and higher monthly payments. According to the United States Census Bureau’s 2022 report, the median household income remained at $70,784, failing to keep up with rising expenses. TransUnion’s summer industry report highlights a 14.4% increase in the average credit card balance to $5,733, and a 26.3% increase in the average personal loan to $11,281 compared to 2022. Student loan payments are also set to resume for many families this October, with an average borrower owing $35,000. In terms of basic household expenses, many areas of the country are still seeing much higher rent increases year-over-year, and the average national monthly rent is $2,054.
These financial pressures have led families to evaluate their short and long-term savings goals against private school attendance. Financial aid offices adapting to the “new normal,” must set clear, short- and long-term aid strategies and align all aspects of the business office. Demonstrating the value of the school’s community to families is essential for securing their long-term investment.
Financial aid leaders should also be aware of shifting regulations regarding private school vouchers that help families and independent schools address affordability barriers. We believe it’s important to note Iowa’s Students First Act, signed on January 24, 2023, which provides universal funding for K-12 students choosing private schools. Funds estimated at $7,598 per student in 2023-2024, are directed to education savings accounts (ESAs) for tuition and other expenses. At least eight states have put new school choice policies on the books in the first five months of 2023, with some of them expanding to all K-12 students.
Rachael Cramond, Senior Client Services Manager, Financial Aid, Community Brands
A Growing Gap
Change has been the only constant in financial aid, even before the COVID-19 pandemic. We’ve seen a paradigm shift in the way that schools utilize financial aid to achieve institutional goals, and the pandemic generally accelerated that shift. The pandemic enrollment boost also showed us that when independent schools can demonstrate significant ROI, demand will increase.
However, even with inflation calming down, significant markers of socioeconomic instability remain, and the gap between tuition revenue and operating expenses continues to grow nationally. Financial aid is a key tool that many schools will continue to rely on in order to narrow that gap where possible, so schools should spend some time thinking about how their approach to discounting of all types (need-based, merit, remission, etc.) can be leveraged strategically to meet both their enrollment and fiscal goals this year and as part of a long-term approach to sustainability in a post-COVID landscape.
Drew Cocco, Director of Client Success, Clarity Tuition