By Charles Cohen and Daniel Perla
Introduction: What is “iCap”?
In 2011, Solomon Schechter Day School of Boston (SSDS) board members saw a surprising anomaly in their school’s financial aid data: More two-children families were applying for aid than families with three or more children. This suggested that there were few larger families enrolling their children in the school. Some SSDS leadership believed that these larger families were not even applying because they were put off by the total aggregate cost of enrolling multiple children. Board president Andria Weil cited this as the fundamental problem with SSDS’s (and indeed, many other schools’) financial aid process: Regardless of income, families with more children were required to pay significantly more in tuition. This challenge also made recruiting more difficult: It is much easier to convince a family to enroll another child if they already have one in the school than to identify and attract an entirely new family.
SSDS leadership began looking for alternatives to their existing scholarship process that would directly address the dearth of larger families applying for financial assistance. They considered the issue from a family’s perspective, examining the income range of families applying for financial aid, paying particular attention to multi-children families. Leadership concluded that their standard financial aid process was meeting the needs of its lower-income families, but it did not account for the needs of SSDS’s so-called “middle-income” families with multiple children—those earning $200,000 to $400,000.1
The board’s solution was iCap: a program that would cap a family’s total tuition expense at 15% of its adjusted gross income (AGI), regardless of number of children enrolled in the schools. The 15% cap was set after consulting local independent schools that had considered a similar model for serving their respective middle-income families.
Financial aid programs that cap tuition at a percentage of family income have become a popular discussion topic in the Jewish day school field.2 While there is no set guideline about what percentage of AGI should be allocated to tuition, heads of school and independent-school experts interviewed for this article suggested that, for middle-income families, a range of 12%-18% of AGI was customary.
In a letter to parents, SSDS laid out iCap’s goal: “To enable current and prospective families to anticipate their maximum future tuition obligations and confidently enroll their children at Schechter year after year, regardless of the number of children in each family.” In its first year of implementation, 10 families with 28 students at SSDS are participating in the program. In addition, the overall number of multi-children families enrolling students in the school has increased from 27 to 34.
How has iCap affected SSDS’ bottom line?
Assuming those 10 families, by paying more than 15% of their AGI, would have paid full tuition for all 28 students, the program has cost SSDS about $180,000. Head of School Arnie Zar-Kessler says that the cost has been covered by a larger-than-usual across-the-board tuition increase and higher enrollment stemming from an aggressive recruitment effort.
The cost to the school has been limited by iCap’s eligibility guidelines: Only those multi-children families earning up to $400,000 can access the program. Despite that ceiling, no full-paying family has left the school.
Because the program is so new, it is unclear whether it is a long-term solution. Enrollment and tuition increases may not be sufficient in subsequent years to cover the cost of many more families using iCap. SSDS is evaluating the program as it is implemented to ensure that it remains a sound financial aid model. Based on the early results — attracting new families, and retaining every full-paying family — SSDS leadership has been pleased with the program’s success.
Should my school implement an AGI-based tuition cap?
What is your goal?
If your goals are similar to SSDS’s—attracting and retaining middle-income multi-children families, and giving families reliable tuition information on which to predict their own budgets for the next several years—then an AGI-based tuition cap makes a lot of sense.
Be sure that an AGI tuition cap addresses the actual challenge, not merely a symptom. Collecting the right data will allow you to determine whether an AGI cap is the right strategy. That may include information about how your school pays for and allocates financial aid, or how their tuition burden affects your school’s families. The relevant information will help you choose the right program for your school and your parents.
What is the right cap for my school?
While two Jewish day schools have implemented a hard AGI tuition cap (SSDS and Hillel Academy of Pittsburgh), other schools use a percentage of AGI as a useful guideline in financial aid. One school uses 10%-12% as a reasonable range; another tries to limit tuition to just 10% of AGI.3 To help schools understand the impact of their tuition on middle-income families, the National Association of Independent Schools (NAIS) laid out the cost to full-paying families as a percentage of their AGI, as seen in this chart:4
|Tuition||Full Pay Incomes||Tuition as a % of Income|
Assumptions: Family of four, two parents, two children, one in a tuition-charging school, parents age 45, both work, one earns $25K, COLA = 1.000
It may be helpful to work backwards from your current tuition; what percentage is your tuition of the average family’s salary? If you do not collect financial information from all of your families, it may be worth a quick survey to determine the general AGI range in your parent body. Otherwise you can try to use the financial aid data you already have, and add what you know generally about your school’s families, to create a broad range from which to set an AGI limit. The more information you have about your parent body, the better your program will fit their needs. The possibility of paying less tuition may be enough to convince your families to share more personal financial data.
Who should be eligible for the program?
Is your program meant to help middle-income families? Or do you want to include your entire parent body? While the extent of the program should conform to your goals, it may also be constrained by the estimated cost. SSDS more than covered iCap’s cost by attracting more students and raising tuition. However, it will take more than one year to determine whether the program is meeting its long-term objectives of sustained enrollment growth and improved retention.
Hillel Academy of Pittsburgh wanted to improve its entire financial aid process. Its AGI tuition cap is part of a sliding scale tuition model. There is a minimum tuition threshold, and families pay up to a maximum of 18% of their AGI (when the program began in 2004, the limit was 13%). As a result, the program actually yielded more annual tuition income in the first couple of years because school leadership could more accurately determine what each family should pay. Once the new baseline was set, though, the program did not yield any excess tuition income.
If your financial aid is not calibrated to what parents can actually afford, you are not collecting as much as you can from some parents and may be overburdening others. An AGI tuition cap may have the dual benefit of making the financial aid process easier for your parents and increasing tuition income. Just as knowing more about your families and your school will help you determine the right level for your AGI percentage, this information will help you understand how comprehensive you can make the program.
In its first year iCap has attracted multi-children families to SSDS and given families more information about their future tuition costs. If you want to implement a similar program in your school, consider these important steps:
- Be clear about the challenge you are trying to address.
- Collect the right data from your parents and your school budget.
- Set an AGI cap that fits your families’ needs.
- Eligibility should be defined as much by your families’ needs as your school’s budget.
1 See the Affordability Knowledge Center’s White Paper on middle-income strategies for an in-depth analysis of “middle-income.”
2 Klapper, “The Moral Costs of Jewish Day School,” Jewish Ideas Daily (May 2012); Mendelsohn, “Day School Tuition Should be Income-Based,” The Forward (November 2011).
3 Schools requested anonymity because they used AGI percentages as guidelines rather than formal boundaries for financial aid considerations. As a result, some families may pay a higher percentage of their income than the school’s targeted AGI.
4 Gruber & Hammond, “Admission & Financial Aid Trends: What Every School Leader Should Know,” NAIS (2012).