The school year has ended, the weather has gotten warmer, and I am sure everyone has some well-deserved vacation time on the horizon! Financial aid might not be at the top of everybody’s mind during the summer months. However, it's good to spend some time on your financial aid processes during the summer to prepare for the 2025–26 processing season. Think of it as something that, if completed, will make for a smoother transition into the fall for you and your team.

Let's review allowances. For schools that have completed most or all of their financial aid awarding for the 2024–25 academic year, the summer is a good time to review the allowances your school used in your methodology. Allowances are the amounts allocated for various living expenses such as housing, food/clothing, transportation, and health care. These allowances help to standardize the assessment of families' financial needs by providing a consistent baseline for living costs. Ensuring these amounts accurately reflect real expenses is crucial for fair and effective financial aid distribution.

Review Your Own Data

The first resource you can use is to export your 2024–25 data and review what your parent entries are for housing, food/clothing, transportation, and health care. Export the data and include categories like “Expense Information” and “Family Size.” Once the export is complete, it may be easier to analyze the data in a spreadsheet.

The next step is to sort the data by family size and review the family of four data (the default family size in the platform for these categories) for all four categories. Then determine the average and the median for each expense category. You may ask, “Which value is the better one to use, average (mean) or median?” While I am no math expert, I would advise that the average is best to use when the data set does not have outlier data (values that are incredibly high or low), while the median is best to use when a data set has outliers.

Now that you have the average and median values for housing, food/clothing, transportation, and health care, take a moment to review your allowances to ensure that the baseline expenses you define accurately reflect the reasonable living costs of your families. If your allowances are set too low, the financial aid awarded may fall short of covering tuition, thereby creating a financial barrier for families who might otherwise afford and choose your school. By diligently reviewing and updating these figures, you can provide more effective and equitable financial aid, ensuring that your support truly meets the needs of your applicants and helps them to comfortably manage both their living expenses and tuition payments. Below are a couple of techniques that can help you in your review.

Use COLA

Schools typically use the Cost of Living Adjustment (COLA) to adjust a family’s net income. However, COLA can also be used to determine appropriate allowance values. COLA indexes, such as those reported by the Council for Community and Economic Research, can provide a benchmark for various living expenses. For example, in the Boston market, the COLA for the 2024–25 processing year was 1.445. By multiplying this COLA by standard allowances (e.g., $26,400 for housing), you can adjust your allowances to better reflect local living costs.

Harvard’s State of the Nation’s Housing Report

Before we proceed, I want to share one more resource schools can use to help determine an appropriate housing allowance. During one of my check-in calls with Matt Kessler, Director of Enrollment at Park School, he shared an interesting resource with me: Harvard’s State of the Nation’s Housing Report, which is published every June.  You can calculate a more accurate housing allowance by focusing on data like Table W-15, which shares metro-area monthly costs of medium-priced homes. For instance, Chicago’s monthly owner cost for 2023 Q1 is $2,668. Multiply this by 12 to get a yearly housing allowance of $32,016. Compare this with your current allowance figure to see if adjustments are necessary.

Next Steps

After reviewing and potentially updating your allowances based on your data, COLA, and external resources like the Harvard report, test these new values. Take a test case family of four, consider your revised allowance values, and investigate what your suggested tuition amount is with these new values. Try this exercise with each data set and compare the results. This process can spark important discussions with your financial aid team and help refine your methodology.

Even if you do not change your allowances, this exercise can provide valuable insights and lead to meaningful conversations with your financial aid committee. Enjoy your summer and the benefits of a well-prepared financial aid process!