October: Stop Charging Late Fees

Over the past 10 years, I’ve spoken to hundreds of school leaders.  Recently, several schools have told me they’ve dropped their tuition management provider because parents would complain that the company charged them a fee to give them a call because the company hadn’t received their payment, and they paid their tuition before the due date.  They took the process “in-house” so they could have better control over the process.  Unfortunately, doing so resulted in more work reconciling statements and preparing invoices to families, not to mention following up with families that haven’t fulfilled their payment obligations.  The schools are now also absorbing fees associated with credit card payments, and being charged NSF fees if the parent’s tuition check “bounces.”

So is there a “better way” to handle this important function of a school’s office?  After all, the school should be in the business of chasing enrollment to grow the school, and not chasing tuition.

If families are making monthly tuition payments, it means they’re not financially able to pay their tuition obligation before the school year begins.  There are some schools that have a relationship with a bank or a credit union, since the lending entity offers a low rate of interest to the parent.  While the school receives their monies before the school year begins or in one lump sum, there are four issues that are associated with such a practice:

1) The school usually guarantees the loan, so if the parent fails to repay their obligation, the school must repay the loan to the lending institution.  That puts the school in the potential predicament of needing to repay a financial obligation (as a co-signer would), rather than “writing off” the debt.

2) While the parents are charged a minimal amount of interest, the transaction is a loan, which will affect the parent’s credit score – especially if they fail to honor their payment commitment.

3) In today’s banking environment, banks are bought and sold.  If the bank your school is using changes, chances are you’ll have to migrate everyone to a new platform, which means more paperwork for you, and re-inputting parent banking information.  This is fine if it happens over the summer…but what if it happens in February?

4) Charging interest to brothers and sisters in the faith can be considered to be going against Scripture.  In Exodus (22.25) and Deuteronomy (23:19), God commands that we are not to charge our brethren a single penny in interest on a loan.

5) You’re doing all the follow up work, and making an exception for a parent’s unforeseen circumstance means more work for you!

Some schools use a bank for direct debits, will generate invoices from their financial software if parents want to pay by check, and/or will allow parents to use a credit card to pay their tuition over a series of months during the school year.  Doing adding invoicing and credit card options requires a significant amount of manual work by an employee of the school or affiliated parish or church that’s usually not realized until one starts doing it.  If parents’ accounts are direct debited, and there’s not enough in the account to cover the debit, or if they write a check that goes NSF, your school will probably get charged a fee by your bank.  Further, remembering to set up the direct debits every month, or following up with families that don’t follow through on their payment obligations takes time and effort.  If a parent can’t pay their tuition due to hardships, mounting bills, or other unexpected expenses, they expect the school to “understand their circumstances” and accommodate their needs…or they’ll leave.

That brings us to late fees.  Late fees are seen as punitive, and parents today don’t like to be punished for circumstances they believe are out of their control.  The other issue is that while some schools are comfortable charging a $10 late fee, the reality is that if a tuition payment is $350 or more, another $10 may not be that “substantial” to encourage families to pay on time.  Further, $10 on $350 is 2.8%.  If the fee a credit card company charges is 2.85%, it will cost the parent almost the same amount of money to make their payment via a credit card, so there’s no real “incentive” to pay the tuition payment on time.  Raising the fee to something substantial can make school board members and administration feel uncomfortable.

Here’s the key word to remember – “incentive.”  For most of the past 40 years, the “incentive” to pay on time was to avoid the punishment.  Interestingly, that mindset was effective with members of the Silent Generation and Baby Boomers.  However, Generation X and the Millennials are different.

According to “Generation X Work Ethics: A Study of Generations” (http://www.brighthub.com/office/career-planning/articles/80553.aspx), Kellen Kautzman states:

There is a strong independence in the mindset of Gen X’ers as pointed out in the Harvard Business Review: “Gen X’ers will want to be free agents — negotiating their own deals, seeking incentives ranging from commissions to options, and switching employers at a moment’s notice.” (Sharp, kelly. Baby Boomers & Gen X, at http://employee-management-relations.suite101.com/article.cfm/baby_boomers_gen_x_the_work_ethic_debate.)

This ability to switch companies has caused a great deal of anxiety in the corporate world, especially for the Baby Boomer who feels it is of the utmost importance to be loyal and pay dues to a single company. Gen X’ers had to watch their parents give everything to their jobs, only to be downsized at the end of their careers. They’ve seen corporations steal retirement funds from loyal employees. Gen X’ers are not about to make the same mistake. They take time off, leave early if the job is done, and work to establish strong social connections as a high priority. Generation X work ethics include being more self-reliant and willing to jump from company to company due to seeing their parents lose their savings.

What does this mean for your school?  The majority of today’s parents are members of Generation X, but those entering your school with children in grades K to 4 are Millennials, and not only want to pay at a time of the month that’s convenient for them, but also want ways to pay that are convenient for them.  Both groups would like to see an incentive for paying on time, rather than being punished for a payment that might be a day late.  After all, you might want parents to pay their tuition on the 1st of the month…but the mortgage is due on that day, as well as the car payment and the electric bill.  If there’s not enough money to cover all those bills by that time, guess which entity takes last priority.

If you’d like to see a couple of ways you can “incentivize” your school’s tuition, send an email to me by clicking or tapping this link with the words “Incentivized Tuition” in the subject line.  Include the school you’re associated with, as well as its location, in the body of the email.

© Michael V. Ziemski, SchoolAdvancement, 2014-2017