Financial Aid and The Recession

April 8, 2010

NPEA Conference, Baltimore

Mark J. Mitchell, Vice Presidentmitchell@nais.org

“Truth and justice make their best way in the world when they appear in bold and

simple majesty.”

--Elizabeth Heyrick, 19th-Century English abolitionist

“There is no guarantee that this recession will be like the last…But the past can give us a perspective on the future…And recessions, even long and deep ones, do eventually end.”

--Gregory Acs, “Unemployment and Income in A Recession,” Urban Institute, December, 2008

Learning from the Past?

Economic Trends and Financial Aid

22-Yr Avg Ann Chg in Aid Granted: 7.61%

02-03: Avg Aid up 13.1%Avg Apps up 6.5%

91-92: Avg Aid up 13.3%

Increased Fin Aid1-year change 2008-09 to 2009-10

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

-3.95%

17.44%

15.79%

0.60%

13.94%

What Just Happened?

Same pattern as previous two major recessionary periods– It’s what has helped schools weather the storm in the past– Median fin aid budgets up 17.4%, serving 15.8% more students– Spent slightly more on financial aid dollars per student, but to a

wider base of families (largely returning, former full-pays)

It’s a natural consequence of downturn that more people will need more help

Questions: What does the near-future hold? What’s the impact on high-need families? Is this “new normal?”

Will This Last…Three Forecasts

Unemployment rates not expected to decrease any time soon– Different impact on families based on educ level

Most major housing markets will continue to see decline in home values– Consumer confidence remains weak or slow to rebound

Mean income growth very slow, sluggish at all levels…below inflation

Unemployment Rate Projection

Source: The Financial Forecast Center, www.forecasts.org

Unemployment Rates, January by Educational Attainment

2000 2005 2010 Change Factor(2000 to 2010)

All 4.0 5.3 9.7 2.425

LT High School 6.4 7.7 15.2 2.375

High School Grad, No College

3.4 4.7 10.1 2.975

Some College 2.6 4.1 8.5 3.269

College Grad 1.8 2.4 4.9 2.722

Source: Bureau of Labor Statistics, Labor Force Statistics from Current Population Survey

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Housing Market Projections

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-15

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-5

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Pct Chg in Projected Home ValuesSelected Major Markets

Source: Housing Predictor website, www.housingpredictor.com

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Income ChangeMean Income by Quintiles, Family Households

CPI-adjusted to 2008 Dollars

2000 2005 2008

Lowest(2008: $27,800 and lower)

$17,657 $16,286 $15,906

Second($27,801 – $49,325)

$40,371 $38,752 $38,125

Third($49,326 - $75,000)

$63,449 $62,012 $61,582

Fourth($75,001 - $113,205)

$93,511 $92,748 $92,160

Highest($113,206 and higher)

$196,195 $194,432 $190,400

Top 5 Percent($200,00 and up)

$347,661 $340,393 $326,928

Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements

Trends Within Schools

Families less able to keep pace with recent rates of tuition change– Check local economy, demography…income change lag inflation?– Higher-income, current full-payers more likely to be aid-eligible– Lower-income, more expensive students less attractive, less affordable

Shifting from aid for “access” to aid for “affordability”– Increased budget but competing priorities for dollars– Seeking to meet new, unforeseen need of higher-income families– Recession fall-out will exacerbate the prime “either/or” scenario:

Fund either one $25,000 grant OR five $5,000 grants

Mission Risk: Those who need aid most increasingly unlikely to get it

Other Pressures Mounting…

Funding for K-12 grants from agencies, other organizations tighter or disappearing– Federal, state support waning– Fundraising more difficult to sustain

Voucher programs as a funding priority being called into question (e.g., Washington DC)

Financial Aid and Family Issues Job and Income Loss

– Work to get a projected income statement and documentation– Use “provisional” or semester-based awards– Follow up regularly for updated job status

Personal debt– View carefully case-by-case– Allow more leeway if credit cards used to pay normal expenses due to income

loss– Count annualized monthly payments as unusual expenses

Decreasing Net Worth– Remind families that the application seeks a “snapshot in time” of current

situation– Lowered values will be considered in assessments if they complete the

application correctly

Effects On Financial Aid Processes

As more people continue to watch dollars, curb spending where feasible, and seek assistance for ‘must haves’…

Meeting deadlines, completeness of applications more important than ever

Funds for new students, particularly high-need prospects, may be reallocated to a growing, unanticipated degree

Potentially, wiggle room for appeals and reconsideration of school’s first award offer is tightening

Affordability Differential:Tuition Change Rate/Income Change Rate (2000-2005)

Full-day K 3rd Grade 6th Grade 12th Grade

1st Quintile 6.96 6.87 6.87 6.26

2nd Quintile 3.61 3.56 3.56 3.24

3rd Quintile 2.94 2.91 2.91 2.65

4th Quintile 2.56 2.52 2.52 2.30

5th Quintile 2.58 2.54 2.54 2.32

Top 5 Percent 2.89 2.86 2.86 2.60

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Grants awarded within each income quintile Source: Wash DC-Area Day School, US Census Bureau

National

Quintile

Family Income Range ($)

Number of Grants Awarded

Average Grant ($)

Lowest 0 - 24,780 5 22,898

Second 24,781 – 43,399 5 21,125

Third 43,400 – 65,827 21 16,817

Fourth 65,828 – 99,999 31 16,829

Fifth > 100,000 41 11,899

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