Calculating tuition payments? There may be more to consider than you think!
Financial aid specialists around the country are gleaning financial aid files for three traditional values: system calculated contribution, parent offer and historical pay. With this information in hand returning families are finalized quickly, providing there are minimal changes in their financial situation.
A fourth value for consideration is 10% of family gross income. For many years I have made reference to 10% of gross income as interesting but a “running around with scissors value” for some obvious reasons. Most significant is the pressure that 10% contribution has on a family earning $120,000 compared to one earning $500,000. Additionally, financial aid systems add back income from excessive assets and/or imputed income, creating a larger “gross” contribution than income alone. This contribution compared to 1040 gross income will appear as a higher percentage of income.
Even though 10% of gross income has some challenges, through data study, we can see schools are still averaging near to 10% of family gross income. For the most part we see averages running between 9% and 13%. There are exceptions. One example school in the DC area has all families paying less than 10% of gross income. On the other hand, a prominent school in the southeast has all families paying more than 10% of gross income and averages 23%. When asked about the high percent they reason, “we’re the school everyone wants their student to attend!” The acceptable high percentage is a response to perceived high value.
Families who experience an asset return and/or imputed income will expect to pay on average a greater portion of their gross income for tuition unless they actually do use their assets to offset education expenses or actually earn the imputed income.
Families with more than one child (usually two) at a tuition charging school are on average asked to pay a percent of gross income in the upper teens to low twenties.
In conclusion, the percent of gross income used for educational expenses brings another reference point that when compared to Clarity tuition, parent offer and historical pay, can be quite helpful. As an example, if a system outcome shows contribution at 35% of gross income we can be sure assets are playing a large role and we should, at the very least, review the file with the aforementioned understanding.