Financing Schools

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Patrick F. Bassett, NAIS President/Mark Mitchell,
VP for Financial Aid Services
Financing Schools
Sarah Daignault, NBOA Executive Director
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Financing Education in the 21st CenturyHow can
we make it work?
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Goals for a Schools Financing Task Force

• Understand the current situation - inside and out
• Look at trend data Ones own school benchmark
  group customized report and NAIS StatsOnline
  10-year Trends
• Explore options for the future

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The Box
Endowment Income Annual Giving
Salaries
Small Classes
Affordable Tuitions
Facility Costs
Financial Aid
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Goals for a Schools Financing Task Force

• Understand the current situation - inside and out
• Look at trend data
• Ones own school benchmark group customized
  report
• NAIS StatsOnline 10-year Trends
• Explore options for the future

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NAIS Customized Our School vs. Benchmark
SchoolsSample Rpt Now 5 yrs Ago 10 yrs
Ago Now 5 yrs Ago 10 yrs Ago
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NAIS Customized Our School vs. Benchmark
SchoolsSample Rpt Now 5 yrs Ago 10 yrs
Ago Now 5 yrs Ago 10 yrs Ago
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NAIS Customized Our School vs. Benchmark
SchoolsSample Rpt Now 5 yrs Ago 10 yrs
Ago Now 5 yrs Ago 10 yrs Ago
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NAIS Customize Our School vs. Benchmark
SchoolsSample Rpt Now 5 yrs Ago 10
yrs Ago Now 5 yrs
Ago 10 yrs Ago
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NAIS 10-Year Data

• What the 10-Year Global Trends Tell Us

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Median NAIS tuition 2003-04, Gr 12 Day,
16,000 Boarding 30,335 Up 30 in real
dollars CPI 3. Questions Can we and should we
continue on this path? Do significant price
increases deleteriously affect demand?
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Enrollment Up 20 Inelasticity of pricingso
far, we havent hit the break point where
increased price dampens demand. Question Will
we?
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Admissions Funnel Ratios/Enrollee 8.4 3.1
1.4 (Day) 15.0 3.3 1.6 (Boarding) Increased
demand, about the same enrollment increased
selectivity. Until
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recent hiccup Pre-school 9th entry level dip.
Demographic destiny?
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Median Salaries 30,000 (Low), 42,405
(Median), 61,575 (Top) (vs. public schools,
projected for 2003-04 to be 32,500 to start and
47,500 median). Attrition 10.1 NAIS 11 US
Businesses 13.2 US Teachers 22.8 Small
Privates. NAIS starting and median salaries not
up by much over 10 years 11.1 What is driving
increased costs and tuitions if not increased
faculty salaries?
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Whats driving increased tuitions? Overall staff
up 31.8.
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StudentFaculty Ratio 9.21 Day and 7.11
Boarding Question If you add a program, what
program will you sunset?
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Overall Annual Attrition 9.2 Day and 14.9
Boarders Down, overall by 7.7 percent. Were
making better matches and providing better value.
Low vs. high attrition schools class size and
school size not the issue for our schools
students services are important.
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Substantive increase in students of color to an
average of 20.
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47 increase in FOC (to avg. of 10.0 of Total
Faculty, Admin of Color 7.4 of Admin Overall
staff 13.3) 20 of staff of color seems to
be the tipping point for schools.
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Grants up 38 but recipients up only 1.8. on
Fin Aid 14.7 day and 33.7 boarding
(overall15.6 5.5 remission 21) Total of
Students on Aid Who Are of Color (43.5),
International (3.8), White (52.7) Avg Grant
7,522 day and 12,177 boarding
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Families by Total Income SSS Filers(Actual
dollars, not inflation-adjusted)
Family Income
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Annual Giving Trends
Giving is up 3 from last year, 10 from 2 years
ago, 41 from five years ago and 48 from ten
years. Avg 1217 for all schools, 1465 for
Core Sample Schools.
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Annual Giving Cohorts
Avg Gift by Up over last yr. 5 years ago.
10 yrs ago. Parents 915 4 49 63 Trustee
s 4774 0 43 74 NB ISM IRS data
(June 2003) Avg giving to all charities gt2K (
for 75-100K income) gt4k (for gt100K income)
gt6K (for gt200K income)
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Endowment Trends
Endowment is up 6 from last year, down 1 from 2
years ago, up 10 from five years ago and 97
from ten years. Avg 29,246 for all schools,
34,656 for Core Sample Schools. (Day schools
avg. 16,686 for all schools, more than 10
times that for boarding schools)
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Summary Trend Data 1992-2002 Why Were in a Fix

• Skyrocketing tuitions
• Increased Staff
• Lower StudentTeacher ratio
• Modest gains in salary
• Increased selectivity
• More financial aid to the same number of
  students
• Higher income families requesting financial aid

Are we on track for the same patterns for the
next 10 years? If so, and we think its unwise,
what do we change?
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Tuition vs. CPI

• 1955 to 1980 tuitions went up at roughly the same
  rate as the CPI
• Since 1980 tuitions have been going up much
  faster than the CPI
• Attending our schools is becoming more expensive
  at an unsustainable rate

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Demographics 1980s

• Mid 80s
• Drop on school-age population
• Recession
• Public School reform
• Independent School response
• Lowered admission standards
• Altered mission statement

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Demographics 1990s

• Mid 90s
• School-age Population boom
• Economic boom
• Public School decline
• Response
• Soaring tuitions
• Tighter admission standards

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Opportunity Lost

• At a time when independent schools were most able
  to alter how we do business, we did not.

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Pricing and Costs
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The Car of Tuition

• No reverse gear
• No brake, except the emergency brake
• Only accelerates more than the last time

Scott Looney, Cranbrook School
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Driving The Car

• Driver Board of Trustees
• Backseat drivers
• Teachers
• Parents

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Pricing Strategies

• Short Term Tuition discounting when the school
  is under enrolled (net tuition revenue approach)
• Long Term Matching tuitions with long term
  financial strategy
• Set tuition to maximize the revenue necessary to
  run the best program to achieve the mission,
  while not setting prices beyond the means of our
  current and future customers.

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The PAVS MatrixConcepts affecting demand and
affordability

• Prestige The public perception of the quality
  of the school based on its historical reputation
  of preparing students for success
• Affordability the perception of the price of
  enrolling after considering any financial
  assistance from sources other than family. High
  affordability means a family thinks the school is
  within its meanslow affordability is out of reach

Courtesy of Marketing Independent Schools in the
21st Century, Chapter six, The Affordability
Dilemma by Mark Mitchell
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The PAVS MatrixConcepts affecting demand and
affordability

• Value the perception of what a family is
  receiving for the money it is paying, whatever
  the sum. Value results from a variety of
  factors including prestige and affordability and
  student outcomes.
• Sacrifice the degree to which a family is
  willing to forego certain things in order to
  devote a portion of its resources to school costs
  that otherwise could be used for other expenses,
  savings or investments.

Courtesy of Marketing Independent Schools in the
21st Century, Chapter six, The Affordability
Dilemma by Mark Mitchell
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Pricing Strategies

• PAVS Factors Prestige, Affordability, Value,
  Sacrifice
• Pricing Strategy Now for Most Schools, Regardless
  of PAVS Factors High price/low subsidy (our
  unique model unrelated to marketplace).
• Pricing Strategy for the Future
• Highly selective schools (fill up in March) Have
  all four factors in play. Long waiting lists. Can
  charge whatever they want. Consider high
  price/high subsidy.
• Typical schools (fill up eventually) Have some
  of the factors in play. Consider moderate
  price/moderate subsidy (e.g., more families,
  lower grants).
• Many schools (open admissions take anyone,
  anytime) Affordability the key factor. Consider
  low price/low subsidy until other PAVS factors
  come into play.

Courtesy of Marketing Independent Schools in the
21st Century, Chapter six, The Affordability
Dilemma by Mark Mitchell
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Revenue Theory of Cost

• Absence of profit motive
• Goal Educational excellence
• Few limits to the money to spend to reach the
  goal
• Ever increasing expenditures
• Cost of services is determined by changes in
  available resources
• Fundraising and tuition increases meet needs

Sorrel Paskin, Consultant
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Personal Services vs. Goods

• The prices of personal services will rise faster
  than the prices of manufactured goods.
• Price of goods reflects costs to produce
• Productivity advances in manufacturing
• Wages rise the same (Baumols Disease)

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Function Lust

• Administration should not be an end in itself
• Is the mission advanced by more of these?
• technology, plant, administration

Sorrel Paskin, Consultant
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Philanthropy

• Americans give away a lot of money
• Education is the number one recipient (after
  religious enterprises)
• Giving is dramatically different from school to
  school
• It is easier to raise money than to spend it
  well. Poor spending decisions make it harder to
  raise money down the road.

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Endowments

• The big endowments have been built by
• People dying (bequests)
• Effective investments prudence genius
• Sale of real estate

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Borrowing

• Debt to Endowment Ratio Closing in on 11 (or
  worse) for even some of the most established
  schools.
• Moodys Investment Report Although the demand
  for private education continues to be strong,
  growing concern over affordability may limit the
  revenue growth for less selective institutions
  and institutions serving a geographically
  concentrated and/or economically limited
  population. Private schools also remain
  vulnerable to sustained economic volatility
  nationwide.

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Goals for a Schools Financing Task Force

• Understand the current situation - inside and out
• Look at trend data NAIS StatsOnline 10-year
  Trends and ones own school benchmark group
• Explore options for the future

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What options do we have?
Some ideas Not a definitive list
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Choices Revenue

• Revenue enhancements - must be sustainable in the
  long run to preserve budgetary balance
• Increase enrollment (Net tuition revenue
  approach)
• Capitalize upon intellectual property (Calvert
  School model Foxfire-10M copies from oral
  history project in GA school class web
  authoring Kids Battle the Grown-ups-trivia game
  co-authored by 6th graders)
• Fuller utilization of facility property (LFA
  model adult ed in evening classes and sports
  clubs during class time weekends urban air
  rights CA water rights etc. See Reading,
  Writing, Revenue, Independent School-Fall
  2003)

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Choices Revenue

• Revenue enhancements - must be sustainable in the
  long run to preserve budgetary balance
• Franchising (Hyde School Learning Unlimited
  models. See Spare Change, Independent
  School-Fall 2003)
• Enhance fundraising (Serious deferred giving
  program)

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Choices Cost Containment

• Cost containment
• Increase productivity (via student/teacher
  ratios case load-- students or class
  meetings--vs. course load approaches)
• Mediate the arms race for new facilities
• Sunset a program every time you add one
• Temper acquisition of technology

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Choices Cost Containment

• Cost containment
• Watch growth of financial aid
• Charge for additional services counseling, ESL,
  LD tutoring
• Benchmark compensation packages
• Seek efficiencies via outsourcing and consortia
  purchasing

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Choices Create Alternative Financial Scenarios

• Project three possible future paths, using the
  NAIS Online Financing Schools Calculator

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Lets get to work!
The End!