The debate: Using Cost of Living Average (COLA) or Keeping it at 1.0 (National Average)

Jennifer: Using COLA
The bottom line is that differing cost of living is real and readily impacts families and their ability to pay tuition. When it comes to using the COLA, there is no doubt that this is a sledgehammer of a setting. When you use a COLA as a global setting, the change impacts all families the same, regardless of family size. A full COLA for the most expensive areas of the country dramatically affects family contribution amounts and subsequently your school budget, simply because the cost of living in those areas is just that much more expensive than the national average. Areas with a smaller COLA can make that global adjustment to recognize the higher cost of living from the national average without as much of an impact – but it still is a sledgehammer. It is important to recognize cost of living expenses for families. However, there are options to consider if #1 you are a day school and the full COLA is so high for your area that it is unrealistic for your budget to handle that global setting as such; #2 you are boarding school and a global COLA does not make sense as you have families applying from all over the country; #3 you would prefer to allow for expenses for families that take into account the family size using the allowance settings; or #4 a combo approach makes much more sense for your school situation – and for that we recommend talking with your CSM!

Molly: Keeping COLA at 1.0
Differing cost of living is definitely real, but changing the COLA in your overall policy may not make sense for many schools, particularly boarding schools that draw from many different parts of the world. In my experience, the cost of housing and the cost of transportation (or food or health insurance) doesn’t increase proportionally in most areas. Housing costs in some areas can be multiples of the baseline allowance, while food or transportation might be 1.5 times the cost. By keeping the COLA at 1 as a default and changing the expense allowances by category, you can account for a sky-high cost of living in New York City, for instance, with a lower than average transportation cost, where many families don’t own cars, and if they do it’s one car at most. As Jen recommends above, your CSM will be able to help guide you to the best solution for your school! 

See the current COLA for the most expensive and least expensive cities in the US 

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About the author 

Molly Price and Jennifer Sheppard

As Clarity’s Client Success Managers, Molly Price and Jennifer Sheppard have each spent more than 10 years working in schools, in admission and financial aid offices. With this experience comes the opportunity to view the merits of different approaches to aspects of FA methodology. In this blog series, they share different perspectives around relevant topics to help you make the best decisions for your school.