Middle Income Day School Affordability: A Case Study
By: Dan Perla
The Solomon Schechter Day School (SSDS) of Greater Boston observed an interesting financial anomaly among the 28 families sending three children to the school (there were no families with more than three children): only one was middle class. By middle class, the school meant families with adjusted gross incomes (AGI) of $200,000-$400,000. The school reached this conclusion through an analysis of its financial aid data and its knowledge of the finances of its full payers. Where were these “middle income” families? The leadership of the school came to the conclusion that there was a dearth of such large, middle income families due to concerns about cost. With an average gross tuition in excess of $21,000 per child, cost seemed to be an inhibiting factor in the ability of a three child, middle income family to send all of their children to the school.
SSDS of Greater Boston responded to this dilemma by creating a program that provides these middle income families with greater long term predictability on the tuition that they pay. The new program guarantees that they will never pay more than 15% of their AGI in tuition, regardless of family size. Lower income families continue to receive traditional financial aid. With this middle income tuition guarantee, the school expects to improve its retention of middle income families and, over a period of time, grow enrollment.
How much does this program cost and how will SSDS of Greater Boston fund it? The program is estimated to cost no more than $250,000 in the upcoming school year. The school anticipates that they will raise in excess of this amount as a result of a nearly 9% tuition increase among full payers. Taking from the rich and giving to the middle class? No, not really. A careful analysis of the school’s tuition structure revealed that the school was actually subsidizing its full-paying families. The analysis revealed that the true cost to educate a child at the school was about $26,000. Full tuition averaged about $21,000. So the school raised its tuition to $23,000 for the 2012/13 school year. They will consider raising tuition even further toward the goal of ensuring that wealthier families cover the cost of their own child’s education. By the way, even at the higher full tuition rates, a three child family with an AGI of $400,000 or more will never pay more than 17% of their AGI in tuition.
It is interesting to note that the 15% income cap closely mirrors what the school believes it would have charged these families under a traditional financial aid model had the families applied for such aid. They simply weren’t applying. A large, middle income family now knows that they can send all their children to SSDS of Greater Boston for a cost that is the lesser of $23,000 per child (full tuition for the upcoming year) or 15% of their AGI. This provides a middle income family with long term tuition visibility and will allow them to send all of their children to the school. By way of example, a family with a pre-tax income of $300,000 pays about $45,000 in tuition whether they have two children or three children. Looked at from a different perspective, their third child attends the school for free.
Since the program was announced, the school has already seen the number of 3-child families increase by four. Regardless of whether or not the increase was a direct result of the program, foundations like AVI CHAI need to monitor and possibly replicate programs like this for the benefit of middle income families in other day schools and communities. Is your day school underpricing the cost of full tuition? In other words, if every student paid full tuition, would the school cover its budget? Are there large families in your school sending some of their children to free or lower cost schools? Would an income cap program work in your school? If so, what is the right percentage of AGI?
This post is part of a monthly series on day school affordability and sustainability by Dan Perla, AVI CHAI’s program officer for day school finance.