Sunday, July 09, 2006

The Economics of Financial Aid for Catholic Schools

Many Catholic schools miss an opportunity to raise revenue because they don’t give enough financial aid to their families.

At first glance, that appears to be an oxymoronic statement: How can giving MORE aid INCREASE revenue? Simple, really. If there are empty seats available in a classroom, it’s better to fill them with families paying ½ tuition (or ¼, etc) than to leave them empty. It’s the same principle airlines use to discount prices: if a plane can carry 200 passengers but currently only has 150 booked for a flight, it’s in the airline’s interest to create financial incentives to fill those remaining 50 seats, since the plane is flying to its destination regardless.

Financial aid programs for Catholic schools can work the same way, provided two things are in place:

1) First, there are empty seats available in the school. If a school has waiting lists, there is an economic argument for giving out less aid. For this reason, I believe it’s prudent to process financial aid requests in June, rather than in the early spring, as many schools are apt to do. By then, it is clearer what the numbers are for each class, and the amount of aid can vary accordingly.

I anticipate this objection: Am I saying that the family’s ability to pay is a factor in the admissions process? Isn’t this contrary to the mission of our schools? It could be, but I’d argue if done correctly, that’s not the case. Admissions decisions should be made without reference to ability to pay, and ideally, by an entirely different person or committee than the person deciding upon financial aid. One cannot apply for financial aid unless one has already met the admission requirements and has been accepted. However, accepting a family doesn’t obligate us to provide for 100% of their financial needs! Some families, because Catholic education is a priority, may choose to scrimp and save to pay the rest, while others aren’t willing to do so. That’s their choice. Furthermore, it is entirely legitimate for us to be more generous, for example, to Catholic families, since our primary mission is to serve these families. Without knowing enrollment numbers, it is harder for us to make these kind of prudential decisions.

2) The second key to a successful financial aid process is there should be a truly objective third party to help determine the level of financial need. Three years ago, before I required this third party assessment, I would award need based entirely on a family’s own estimate of how much they needed. Some families, I observed, would really sacrifice, whereas others on significant aid would buy their 16-year old sons brand new cars! That convinced me we needed an objective process. At minimum, this process should involve scrutiny of income tax forms from the prior year to confirm income and analysis of current debts. Our school implemented a two-step process three years ago, requiring the family to send off forms for analysis by a third party vendor, and at the same time, to send us a separate application for financial aid. On the application sent directly to us, we ask “In your own estimate, how much aid will you need next year?” I then compare their own estimate with the estimate from the third party vendor to determine how “far apart” the two are. Surprisingly, a family’s own assessment of their need is often less than the 3rd party judges it to be.

Other Benefits:

I believe that with these two pieces in place, a healthy financial aid program can really be an asset to the school. It helps fill empty seats. It can be used as an incentive to attract highly desirable families to the school (colleges clearly understand this by offering generous “need-based” scholarships to these families). It allows the school to raise tuitions more substantially because it provides the means for its poorer families to pay. And ironically, by charging higher tuition rates, the school creates the perception of “value” in the community. Being the “lowest cost school in town” is not necessarily good for the school—-people wonder, WHY is it so cheap? I liken this to going to a doctor who charges FAR less than the other doctors in town. Does this make the patient feel better about the quality of his care?

A Concluding Comment:

Catholic educators often become uneasy about such coldly calculating measures to raise revenues. But at the same time, our programs are becoming less competitive with area private schools because we don’t have the revenue they have. Our teachers and staff are typically underpaid, not just in terms of salaries, but also often in terms of retirement and health insurance benefits. We must be shrewd stewards of our limited resources if Catholic schools are to remain a place where God’s grace continues to touch our students and families.

No comments: