An excerpt from The 2013-2014 NAIS Trendbook
by Mark J. Mitchell
The growth in financial aid
spending in the past decade has raised alarms within many independent
schools about sustainability. While budgets for financial aid spending —
along with the number and percentage of students receiving aid — have
increased dramatically in recent years, the impact on schools’ overall
budgets has been minimal due to shifts in which families are requesting
aid and how the aid dollars are ultimately distributed. These trends
suggest that higher income families, who need smaller grants to enroll,
are continuing to apply for and receive a larger portion of the
financial aid budget than they did in the past. This shift creates
challenges for shaping financial aid policy, developing communications,
and forecasting budgets that schools must address for the best, and most
strategic, financial aid outcomes.
Independent schools’ median aid budgets have grown by 152 percent since 2002–2003. Not surprisingly, two of the biggest spikes in total aid spending occurred in 2009–2010 and 2010–2011 in response to the 2008 recession.
While the 10-year average annual change in median financial aid budgets was 9.7 percent, in 2010–2011 financial aid grew 15.8 percent over the previous year. Just two years later, however, 2012–2013 yielded the second-lowest annual increase in financial aid spending at just 6.1 percent (see Figures 1 and 2).
Whether the return to more normalized rates of increase is due to schools’ decisions to allocate funds differ¬ently or to the economic recovery (or some combination of the two) remains to be seen, as future trends unfold to round out the picture.
Growth in Median Grant
Even though the median total aid spending per school increased by 152 percent since 2002–2003, the median grant per recipient grew by only 52.8 percent (not adjusted for inflation). And that growth has slowed in the most recent five years (14.2 percent), compared with 33.8 percent in the first five years of the decade. This suggests that most of the growth in the aid budget has been driven by increases in the size of the recipient pool, not increases in the neediness of the pool. From a fiscal sustainability standpoint, this slowdown represents a positive direction for schools.
Tuition Growth Slows
At face value, though, the slowdown in financial aid budget growth may indicate a retreat from affordability for families if changes in aid are not keeping up with changes in tuition (see Figure 3). It is notable that, between 2003–2004 and 2007–2008, the average annual rate of change in median day school tuition was 6.0 percent, and overall tuition growth in that five-year period was 33.7 percent (not adjusted for inflation). The 2008 recession seemed to provide an opportunity for schools to rethink their expense models, which may have contributed to slower annual tuition increases in the five years since 2008. Between 2007–2008 and 2012–2013, the average annual change rate in median day tuition slowed to 4.1 percent, growing in those five years by just 22.4 percent overall. This trend toward more moderate tuition change has helped improve the affordability posture of independent schools for families that are able to pay all or most of the sticker price. Indeed, NAIS data show that these slower rates of tuition growth correspond to slower rates of growth in the median financial aid budget, the median number of students receiving financial aid, and the median average financial aid grant over the last five years.
Discount Rate Dropping Slightly
When viewed in a vacuum, this trend in aggregated spending on financial aid can paint a picture of how investment in financial aid programs has skyrocketed, but this can be misleading. An important variable to examine is the “discount rate” against tuition that such spending provides. The discount rate is the percentage by which the tuition is reduced for the financial aid recipient’s family — the lower the discount rate, the greater the share of tuition the family must pay.
In 2002–2003, the median financial aid grant for day students was 59.9 per¬cent of the median day tuition. In 2012–2013, the discount rate dropped to 56.5 percent (see Figure 4). Financial aid recipients today are paying a greater share of the published tuition price than 10 years ago, even though the overall need-based aid budget for day schools grew more than three times in the same time span. This suggests that much of the increasing aid budget is funding additional families in the pool, not offsetting a larger portion of the costs for the same relative proportion of students. In fact, the median number of financial aid recipients in that time frame (2003–2013) grew, now representing 20.3 percent of all students enrolled in day schools, compared with 13.7 percent in 2002–2003.
Not surprisingly, there was a large jump in students receiving financial aid from 2008–2009 to 2009–2010, going from 16.5 to 19.2 percent of students enrolled in day schools. This jump has proved to be a one-time spike. Since then, the percentage has stayed between 19.7 percent and 20.3 percent. The percentage of families needing aid hasn’t returned to pre-2009 levels, but the slow economic recovery (combined with slower tuition increases) has kept that percentage from climbing even higher.
Mark J. Mitchell is Vice President, School Information Services, SSS by NAIS.
The 2013-2014 NAIS Trendbook is available in the NAIS bookstore at a discounted rate for SSS subscribers. Each chapter in the Trendbook also includes action steps and lists of resources for more information. NAIS StatsOnline provides dynamic charts to help you see your school’s data in relation to national trends.