“In a Cost-Based Tuition Model, is it Better to Keep Increasing Tuition, or Add Fees?”

“We use a cost-based tuition/need-based aid model in our school.  Originally, the tuition was supposed to be based on the cost of education without any additional fees.  From a marketing standpoint, is it better to increase the tuition, or keep the tuition steady and add a development fee or service fee?”

If you calculate the full cost of educational services a school offers, then divide it by the number of children in the school, you get a cost per student figure.  In an ideal world, that is what to charge for tuition.  However, the calculation may not take into consideration possible capital expenditures which must be amortized over a period of years, significant building maintenance and renovation or necessary improvements to incorporate technology into the curriculum, not to mention financial aid.

As for adding an “additional” fee, parents can resent the fact that you’re keeping tuition steady while being “fee-ed” to death.  Yes, other businesses do it – colleges and universities especially – but that doesn’t mean your school should.

Further, many schools have adopted the practice of adding a “Development Fee” since many parents don’t participate in all the fundraising activities that the school embarks on.

I’d like you to consider changing your mindset on fundraisers – in the long term, they’re NOT a part of your revenue stream; they’re a part of your RETENTION efforts, since fundraisers present the opportunity for people to work together.  The other reason to start to think this way is that laws that govern non-profits are changing.  In the past, you might have been able to charge a Development Fee of $300, and then parents can either choose to pay it (sometimes at $30 a month over 10 months), or could “work it off” by selling wrapping paper, cookie dough or candy.  But that practice is coming under scrutiny – if a parent is “earning” funds to satisfy an obligation, then it can be considered “taxable income.”  So before you impose a Development Fee, think about this – what would your parents do if you gave them an IRS 1099 at the end of the year for earning $605?

To answer the question – tuition is tuition.  It is a best practice to provide “financial aid” or “scholarship” to bring the cost down.  Registration fees are one thing – they ensure that materials are provided for the student, and allow the school to have an accurate assessment of how many students they can expect to fill their desks in the fall.  Book fees, activity fees and transportation fees can also be assessed individually since there are defined costs associated with them.  However, development fees aren’t a good idea.

While we’re talking about tuition, let’s go a little further.  Tuition should not include just the cost of education.  In the book, “Marketing Christian Schools: The Definitive Guide,” Dan Krause and Bob Rogalski advocate explaining to parents that the full tuition cost includes an extra amount above the cost per student in order to carry out the mission that our faith calls us to.  We’re not just about education – we’re about ministry, and helping those that need help.  That extra amount provides financial aid to those who are in need of it.  What good is it to say you employ a “cost-based tuition/need-based aid” program when you have no financial aid to award?

Employing a “break-even” full-cost budget strategy works if you underestimate enrollment.  If you over-estimate enrollment in a full-cost model, debt can spiral out of control faster than in a traditional funding model.  If you utilize a “market-based” strategy, you are aware of your “market” – your costs, what you need to put aside for capital improvements and expenditures, and an extra amount for financial aid.  You are also aware of “what your market will bear” when it comes to announcing that tuition figure.  The school must then be marketed as an “excellent value;” indeed, even “an invaluable educational experience” for the child.  We cannot “sell” schools on “price.”  “Value” must be perceived by the parent.  If it is not, then any tuition figure is too high.  The “Quality Program” offered by the school must be attended to before a full-cost model will have a significant effect on changing the way in which parents choose among the educational options for their children.  Marketing efforts need to get parents into the school where parents can experience them.  Once they value that experience, then the monetary objection starts to go away, and discussions begin on how parents can afford to give this valuable gift to their child.

In elementary schools today, tuitions may be in the $2000 to $4000 range, but the cost of education is in the $4000 to $6000 range.  Many parents believe that the costs “can’t possibly be that much,” and wonder where all the money is going.  In this day and age, schools are marketing to young parents that are members of Generation X, and transparency is of supreme importance.  Therefore, show them where the money is going.  If there are 13 full-time teachers, administrator and support staff in a PreK through 8 school, and we’re talking about an average of $35,000 (in salary and benefits total) per year in personnel expenses, it’s relatively easy to justify $600,000 budget.  However, if there are only 100 students in the school, that’s a cost per student of $6,000 per child.  No one is making significant sums, yet parents can’t believe how much it costs.  It’s simple math.

Put 200 students in the school and you have an average of 20 student per class (PreK through 8), and the cost per child drops to $3,000 per student.  Put 25 in each class, and the cost drops to $2400 per child.  Charge a tuition of $2995 and offer financial aid.  With some good development practices in place, you’ll have $50,000 (or more) in additional aid, allowing for about $100,000 in total financial aid and about $100,000 for capital expenses or endowment.

Here’s some additional simple math.  If your tuition is $5000, presenting that figure to a parent can be daunting.  But break it down – 180 days of school x 5.5 hours per day = 990 instructional hours.  $5000/990 = a little more than $5 an hour…the local babysitter makes more than that today.

Now, what’s truly remarkable about your school that makes it THE choice for parents concerned about their children’s future?

How can parishes help?  You’ll note that in the above example, there was no mention of parish or church investment.  A parish or supporting church can make the choice of contributing to the school, or perhaps offering to maintain the physical plant of the school, while the parents pay for the educational program that happens within its walls.  Some parishes and churches have thought that closing their schools would save them money, and have found that the opposite is true.  Because the school building still must be used for parish or church functions from time to time, it still must have light and heat.  And if there’s a leak in the roof or a boiler that breaks, such things must be repaired or replaced.  When the parish includes its entire physical plant in its budget, then parents of children in the school become responsible for carrying on the mission, preparing their children for when they go out into the world to spread the Good News – not only about their school, but by putting their faith into action.