Serving schools in two cities affected by the tech bust eight years ago, I saw the effect that a tight economy has on parents’ decisions about private school.
First, it becomes evident very quickly that private school tuition falls into the discretionary spending category for most families. Tuition doesn’t compete with groceries and the mortgage, but it does compete with vacations, college savings, and charitable giving. Families who can still afford private school, but whose income prognosis is uncertain, may instinctively want to redirect tuition money to savings.
Second, as incomes go down and the cost of necessities goes up, many parents expect that tuition should not go up, too—at least not as much as other things they buy everyday. As everything that contributes to the expense of running a school goes up, parents might actually expect the cost to themselves to go down.
Third, whether they truly can afford tuition or not, many parents in a tight economy will feel as if they can’t—that private school is a luxury they are nobly providing for their children’s futures and the school’s benefit. One result is that during tough times, parents expect greater value in proportion to the feeling that they are sacrificing more to pay tuition than they used to.
So, how do we respond to the psychological and economic realities of a downturn while still strengthening the school’s financial base? Our financial management policies should communicate two things to our families: 1) we are confident in our school’s ability to weather a financial storm, and 2) we understand how stressed our families feel about their finances.
1. Avoid lowering or freezing tuition. Lowering tuition reinforces the assumption that the school’s finances are immune to regular economic forces. Schools are labor-intensive services that cannot create cost-saving efficiencies as effectively as other industry sectors.
The result is that our costs increase about 2% a year more than the average rate of inflation. So, if inflation this year is 4%, then our costs will rise 6%. A tuition increase of less than 6% leaves fewer dollars per student in our operating budget than the previous year.
2. Keep current families by temporarily increasing tuition assistance budgets. If your middle income families lose jobs
or take a short-term income hit, you can build long-term loyalty and protect enrollment by holding them in place with strategic emergency assistance. This is best accomplished by targeting tuition increases on the potential short term needs of families. Let’s say that you currently budget 5% of expenses for need-based tuition assistance on a $2 million budget. An 8% tuition/revenue increase, combined with a 3% increase in tuition assistance funding will provide 24 students with $3,000 in additional tuition assistance. Not only is this a wise use of tuition revenue, but it communicates that your school is serious about addressing the critical accessibility issue and that you have the ability to respond to the needs of your community.
3. Continue to appeal to the mission for gifts. With bad economic news, it can be tempting to curb appeals for donations or to seek gifts indirectly through sales and event gimmicks. But keep a couple of things in mind. The needs that gifts meet did not disappear because investors lost money. We also do not know the financial situations of our families, and many people still need to give for tax purposes. Even though people feel jittery, the mission of the school is still relevant to parents, grandparents and other friends of the school, and it is your most compelling case for generosity.
4. Focus on smaller gifts. Many major gifts (mid five- figure to seven-figure, e.g.) are made possible by individuals’ investments. With the markets down forty percent over the past year, the original capital of many investments is in jeopardy. Annual funds or mini-capital campaigns typically appeal for smaller cash donations, and as donors protect and rebuild their portfolios, cash may be all they have available. These campaigns also can strengthen the sense of community among our families and friends by focusing on short-term projects and goals that are accomplished through a high degree of participation. Again, we do not know who will give, so it is important to provide strategically important giving opportunities. 5. Invest in value. If enrollment decreases or short-sighted pricing policies shrink your budget, continue to spend on programs or initiatives that increase the value to parents. Perhaps you had planned to add a full-time maintenance supervisor and two part-time teaching aides. Even though the aides will make life easier for teachers, you might consider postponing those hires in favor of a cleaner, more orderly campus. When we find ourselves making tough choices about spending, it never hurts to ask ourselves which investments will make parents more confident that they are making the right educational choice for their children.
