Charging on the Curve

Article by Leah Thayer

This article originally appeared in the May/June 2014 Net Assets

In the 2014 – 15 school year, the per-child tuition for one family at Manhattan Country School (MCS) will decrease by $17,000. Another family’s per-child tuition will increase by $11,000. Tuition for several dozen students will hold steady at the levels they paid this year, which ranged from under $2,000 to more than $30,000. And for the families that pay “maximum tuition” at the preschool-through-8 school on Manhattan’s Upper East Side—22 to 25 percent of total enrollment—tuition will rise 5 percent or less, to $37,000 in the lower school and $39,900 for the upper grades.

No, there are no blindfolds and dart boards in the MCS business office. Instead, the school’s tuition system is carefully calibrated, highly strategic and, yes, successful (if challenging) by financial and cultural measures. In 1970, four years into the school’s existence, its leaders adopted a sliding-scale tuition model to help it better meet its goal of equality, social justice and diversity. The principle upon which the plan rests is that a family’s financial commitment should be in equitable proportion to its financial resources, whatever they may be at that time, explains Nancy Diekmann, MCS director of finance.

“I thought it was an insane system when I started here,” Diekmann says. As an independent school parent herself, she knew only the traditional model of charging tuition and offering financial aid. “I thought, ‘How can we possibly budget for this?’” Today she’s “a total convert. [The sliding scale] enables people to consider MCS who never would have done so, and it eliminates the division between financial aid and full-paying families.” True to the school’s mission, it has also created a student body with no racial majority.

Nor has charging on a sliding scale undermined MCS’s finances. Its $6 million endowment is substantial for a school with only 208 students. What’s more, the model makes MCS somewhat less vulnerable to economic volatility. “When the market crashed in 2008 and 2009, I already knew the finances of 75 percent of our families,” Diekmann says, thanks to a detailed financial worksheet completed each year by families hoping to pay less than the maximum. “There aren’t as many surprises.”

From Filling Seats to Fulfilling Missions

MCS remains an independent school outlier with its tuition approach, but it’s getting company. The sliding scale model—in many shapes and forms—is attracting interest from growing numbers of schools. Their reasons are varied, from filling seats to fulfilling missions.

“Sticker shock scares folks away, and if we can call financial aid something different that doesn't have a stigma attached to it, I think we might get more folks interested and keep them interested,” explains one business officer who expects her school to pursue the model at some point. “It keeps people in the admissions funnel longer,” confirms Russell Rabinowitz, director of finance and operations at North Carolina’s Duke School, whose three-year-old “indexed tuition” model created an independent school buzz when the New York Times wrote about it in February.

Retention might be boosted as well. One motivation for the 13-year-old indexed tuition model at Marin Country Day School (MCDS) was a new strategic plan built around the goal of boosting faculty compensation. “We knew we would see tuition increases above inflation levels over five years, and we didn’t want to lose our currently enrolled families,” explains Ann Borden, interim director of admission and outreach at the California school. Indexed tuition has been fairly consistent ever since, she adds: 17 percent of tuition revenue and 14 percent of operating budget.

As for the “stigma” of financial aid, Borden notes that “the semantic piece is definitely important. To make the model approachable, you have to talk about it in a way that people are comfortable with.”

Then there’s the case for diversity and broad affordability, cited by virtually every school that indexes its tuition in some way. “We want people paying at the level they can afford,” says Mayer Riff, formerly the business officer at MCDS and now CFO at the Center for Early Education in West Hollywood.

The Reverend Frederick Herbert Sill, who pioneered the sliding-scale practice in U.S. secondary schools, would concur with all of these motivations.

An Episcopal monk, Fr. Sill founded Kent School, in Kent, Connecticut, in 1906. At a time when most boarding schools catered to the sons of industry and high finance, he set out to create a welcoming home for students from all walks of life. So that those middle-class families—teachers, firefighters, clerics and the like—could afford it, he decided to charge each according to its ability.

Needless to say, determining each family’s ability was more art than science at the time. As headmaster, Fr. Sill “would hold a very informal chat with the father and mother,” says Fr. Richardson (Dick) Schell, who has been Kent’s headmaster for 32 years. “Sometimes he assessed their capability judging from the kind of car they were driving. And when someone came along who could demonstrably afford a great deal more, he would say, ‘In your case, I think the cost should be X. And it would be a big number.’”

Fr. Sill served as Kent’s headmaster for 35 years, and it wasn’t until later that the school abandoned its sliding scale model. To this day, however, the 570-student school commits more than $8 million to financial aid each year (the target is 25 – 28 percent of gross tuition and fees), going a long way toward helping many families afford fees that top $42,000 for day students and $54,000 for boarding students.

Yet even those figures fall short of the actual cost of educating students at Kent, which tops $70,000 for boarding, Schell says. Endowment income and fundraising—a tax-deductible way for affluent families to give more than tuition—fill the gap. Similarly, fees cover only 70 percent of expenses at Manhattan Country School. “Philanthropy is and always has been an essential part of the story; the [indexed tuition] model doesn’t work without fundraising,” says Michèle Solá, director of MCS. “The public mission and strong sense of community motivate that.”

The fact that even full-pay students often aren’t truly “full” pay gets to a point noted by several business officers. “At schools that have a gap, everybody’s getting indexed tuition, in a sense,” says Rabinowitz. “We basically say, you fall in this range no matter who you are. It’s just that if you don’t apply for indexed tuition, you’re at the high end.”

Just as every independent school is unique, so is its approach to financial support, by whatever label. “Each school has to make decisions relative to what works for them,” says MCDS’s Borden.

Duke School’s indexed tuition model may be the most straightforward of those researched for this article. “It’s exactly the same” as the financial aid program it replaced, says Rabinowitz. The semantics have changed; the process has not.

True, prospective families now see “tuition ranges” when they visit the school’s “affordability” page. For next year, that range begins at $3,092 (the bottom of the preschool range) and stretches to $17,777 (the top of the range for grades five through eight). Also different: families are notified of “tuition determinations” rather than financial aid awards. But they still begin the process by completing an application through TADS, Duke School’s financial aid service provider of choice. And, families’ actual contributions are still never below 20 percent of full tuition.

Inquiries and applications spiked the year the new model was introduced and have remained high ever since.

More importantly, some key outcomes have changed at Duke School, which budgets around 12 percent of gross tuition for its indexed tuition program. First, a higher percentage of students (23 – 25 percent) pay less than full tuition than before the change (“I’m sure the economy is a major factor,” Rabinowitz notes). Secondly, inquiries and applications spiked the year the new model was introduced and have remained high ever since.

In Corte Madera, Calif., MCDS also shows a tuition range on its website; this begins at $750 at all grade levels and goes as high as $29,200 for grades six through eight. In any given year, between 22 and 25 percent of families pay below the top, Borden says. The school works with SSS by NAIS “to help us objectively assess what a family is able to contribute to education expenses.”

If $750 seems low for a family’s contribution, consider that the floor was $500 several years ago. “When we raised it to $750, someone said, ‘Oh, let’s at least raise it to $1,000,’” Borden remembers. “But we realized that it would have a relatively small impact on our budget, and it might drive some families away. Part of our mission is to help children develop different perspectives. Teachers who have particularly economically diverse classrooms say the conversation becomes deeper and richer when you have kids with different viewpoints,” says Borden.

Somewhat more labor-intensive is the sliding-scale model at Manhattan Country School.

Unlike most independent schools, MCS does not use a third-party financial aid service provider to analyze families’ finances. Instead, the school asks all families each January to complete a proprietary “family financial worksheet” with income from the previous (actual) and current (projected) years, and including funds such as trust income and support from family and friends. By multiplying the total by an income-adjusted rate, they can see whether they will be asked to pay the “maximum fee” tuition or a “contracted fee” on the sliding scale. There are separate worksheets for one child and multiple children.

Not all families complete the worksheet. To opt out, they sign a waiver promising to pay the “applicable maximum fee” not only for the current school year, but also for the duration of their child’s enrollment at the school. Families completing the forms have reported incomes ranging from under $20,000 to more than $700,000, Diekmann notes.

To arrive at contracted fees, Diekmann analyzes all worksheets and calls many families personally, to dig deeper on big financial fluctuations, among other things. “It’s a lot of work, but it accommodates life changes and variables,” she says. The process also keeps MCS more diverse than most schools could imagine, and it helps families further appreciate the value of their children’s education.

Potential Challenges

Needless to say, there are differences of opinion involving the sliding scale / indexed model. Some skeptics note the potential for the occasional family to “play games” by not reporting other examples or sources of wealth. Every independent school business officer has suspected abuse, whether by seeing high-end cars in the carpool line or hearing anecdotal stories. That’s a risk for sure, admit proponents of the model. “But there are families that are going to scam the system regardless of how you do financial support,” says Diekmann. “We decided that trust is an important part of our culture.

There are also philosophical differences. One involves whether the model is, as some suggest, primarily a way to fill seats. “I disagree with that on principle,” says Mayer Riff. “That’s like saying financial aid is a way of filling seats. If they have truly adopted the indexed tuition model, not just in name but in practice, they may very well find that it is more than that.”

Another area of difference—at least in execution—involves auxiliary expenses that are above and beyond tuition. Most schools feel compelled by budgetary constraints to only selectively correlate these expenses to the child’s effective tuition rate. “After-school is a money-making proposition for us,” notes one.

By comparison, Riff feels strongly that indexing should be comprehensive, to the degree possible. The Center for Early Education, where he now works, does not call its program indexed tuition, but in practice its families pay at the level they can afford, he says. The Center also has “inclusion awards” designed to ensure its families can fully participate in the life of the school; these include tutoring, after-school and summer programs, the annual gala, trips and uniforms, and even the book fair. The Center’s tuition is all-inclusive, Riff notes, with no additional charges for items like trips and uniforms.

At MCDS, where Riff first experienced the indexed model, Borden is on the same page. “MCDS does index tutoring that is recommended by our Student Support Services, extended-day fees, and one after-school enrichment class per child per semester at the same rate as a student’s tuition,” she says. Beyond those examples, however, the school’s tuition is inclusive. “There is no additional charge for lunch, outdoor education trips, athletic uniforms, yearbooks, graphing calculators, school dances, etc.”

Capturing a sentiment expressed repeatedly by others, she then says this: “We want all families to participate in the life of the school as fully as possible.”

Leah Thayer is vice president, communications at NBOA and editor of Net Assets.