Once upon a time, in the expanding suburb of Knowledgeville, Learning Academy was considered to be one of the top K-12 independent schools in the area. The admission office had a healthy pipeline of both full pay and financial aid applicants. Learning Academy was fortunate that, despite being in a market with good independent and public school options, the school historically yielded a high percentage of their full pay and financial aid applicants.

However, over the past two admission cycles, the Learning Academy was finding that more and more financial aid students were turning down their offers of admission. In the school’s admitted student survey, the admission and financial aid team discovered that a meaningful number of financial aid families that chose to attend other independent schools had received more generous financial aid awards. While the families really liked Learning Academy, they decided to attend these other schools because they were more affordable.

Based on the feedback received from the survey, Learning Academy’s financial aid team met to review their methodology. The team quickly discovered that they had not made any modifications to their methodology in several years. After some discussion, the financial aid team identified that the cost of living in Knowledgeville had increased over the past few years, but Learning Academy had not made any methodology adjustments.

The following admission cycle, after including a cost of living adjustment in their methodology, Learning Academy saw their financial aid yield increase and fewer families were selecting other school options because of affordability. From this experience, Learning Academy realized the importance of meeting to review and revise their methodology on a yearly basis to ensure it captured the true costs families experienced living in Knowledgeville.

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Capturing a Family’s Cost of Living

The cost of living in Knowledgeville, New York City, Chicago, Phoenix, or San Francisco is not the same for families. However, a school may be treating all of these locations (and others) as having the same cost of living in their financial aid methodology. By doing so, a school is not capturing the additional costs a family experiences when living in more expensive parts of the country. Schools choose to use a Cost of Living Adjustment (COLA) to better capture the additional costs a family may experience living in their locality.

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How Does Using a COLA Impact a Family’s Ability to Pay for Tuition?

In the Clarity methodology, the default COLA value is 1.0. In parts of the country where the cost of living is less expensive than the norm, the COLA value will be below 1.0. If a school uses a COLA value below 1.0, a family’s net income will increase. In the parts of the country where the cost of living is more expensive than the norm, the COLA value will be above 1.0. If a school uses a COLA value above 1.0, a family’s net income will decrease. By using a COLA, a family’s net income will be adjusted, resulting in their ability to pay more (if the COLA is below 1.0) or less (if the COLA is above 1.0) for their child’s education.

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Where to Find Cost of Living Adjustments?

There are a few different resources that schools can use to determine what would be an appropriate COLA to use. First, Clarity provides our schools with a thorough COLA listing based on data from The Council for Community and Economic Research that is updated on a regular basis. This list contains COLA values for places such as Fairbanks, AK (1.22), Boston, MA (1.44), Dallas, TX (1.11), and many more locations. Another source for COLA is City-Data.com. Users can enter a zip code and determine the appropriate COLA value for that area. Note that City-Data.com lists the cost of living index using 100 as average, so divide by 100 to get an appropriate COLA.

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An Example of Using COLA

In Knowledgeville, the COLA is 1.20. If Learning Academy used a 1.0 COLA, a family earning $140,000 would have a net income (after taxes) of $97,723. If Learning Academy used the Knowledgeville 1.20 COLA, the same family earning $140,000 would have a COLA adjusted net income of $81,436. This difference in net income would make a meaningful difference on a family’s suggested tuition amount.

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Conclusion

The living expenses for families can vary depending on where they live in the United States. One way to account for the differences in the cost of living for families is by using a Cost of Living Adjustment (COLA) in a school’s financial aid methodology. By doing so, schools like Learning Academy can offer financial aid awards that account for the variable living expenses families have in their applicant pool.

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