December 21, 2022

Here’s the reality of today’s financial aid landscape: gone are the days when most applicants were households with modest salaries and no assets to speak of other than some home equity. We are now seeing an increasing number of families apply (and qualify) for tuition assistance who have relatively high salaries and diverse asset portfolios. Ensuring that both of these types of families can be accurately assessed relies upon a careful examination and thorough understanding of the methodology your financial aid software employs to determine need.

With this in mind, I’d like to explore two of the biggest challenges that financial aid professionals often grapple with when reviewing files (and this is assuming everyone submitted the correct documentation on time).

Problem #1: Why do my financial aid assessments seem wildly different for families with similar financial profiles? We all know, and have told applicant families, that there is no one answer for the age-old question of “I make $X so how much financial aid will I qualify for, if any?” because there are a host of other factors to consider. Nevertheless, it can be frustrating when reviewing files and the need assessments seem markedly different where it is not obvious that they should be. If that is happening frequently in your applicant pool, I suggest taking a look at how your system’s methodology approaches the following categories:

  1. Family size/Students in tuition-charging schools – To what degree does the family size and/or number of students in tuition-charging schools impact expense allowances or other protections?
  2. Age-based asset weighting – Do you age-weight your assets? Are you seeing correlation between differences in affordability with guardian age?
  3. Debt – Does your system automatically subtract debt from assets, or is it something that is merely noted by a family?
  4. Expense Allowances – Do they match the average costs for living in your catchment area? If you are a boarding school, are they meeting national averages or do you find yourself constantly adjusting? How does your system account for non-taxable income?

Problem #2: Is my system approaching families’ affordability in a way that I believe to be equitable, mission-aligned, and appropriate for my market? For example, if my Financial Aid Policy states that I do not think it is reasonable for a family to take out a loan against their home to pay for school, then why is my system adding in the full value of primary residence equity to a family’s total net assets? If you find yourself constantly adjusting for inconsistencies, I suggest a close examination of the values for the following categories:  

  1. Expense Allowances – How much of the average family’s expenses do you want to protect? If you are a boarding school, that question is applied on a national scale as opposed to a day school where the market is geographically much tighter. 
  2. Cost of Living Adjustment – If your market is in an area where the dollar simply does not stretch as far, you might want to consider inputting a Cost of Living Adjustment (COLA) value to recognize that reality for all applicants. 
  3. Primary Residence Equity –  Do you expect families to take out a home loan to support tuition payments? To what degree or at what point should home equity be used as an assess financial strength?
  4. Retirement Accounts – What is your belief as a school? Do your policies suggest that retirement plan assets should be included in an affordability calculation?
  5. Bank Accounts – Is self-reported liquid cash something you want to count at full value, or do you believe that families should retain an emergency fund to cover unexpected expenses?
  6. 529 Plan assetsWhat is your policy on the use of 529 funds? There are federal limits on annual usage of those funds for K-12 education, how much should 529 dollars be counted and in what manner?

Clarity’s Client Success Managers work directly with schools to help them determine methodology settings that match their mission and are appropriate for their market. By disaggregating various components of asset portfolios and allowing schools to define how the system should handle each asset category, Clarity can assess need in an equitable manner that meets the challenges of today’s financial aid landscape. 

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About the author 

Drew Cocco

Drew is the Director of Client Success at Clarity, with a focus on ensuring that school users have the training, resources, and support they need to make the most of Clarity's Financial Aid software. Drew spent the first 14 years of his career in independent schools as a teacher and enrollment professional. A spreadsheet nerd at heart, he regularly publishes and presents on enrollment and financial aid strategies. Based outside of Philadelphia with his wife and three children, he enjoys carpentry and playing music in his spare time.