Financial Aid and Your School’s Tuition Model

Tuition.  Most schools don’t like to talk about it, and most parents don’t like to hear it.  “What does it cost,” asks the parent who calls the local Catholic school. The school gives a yearly figure. “Well, our tuition is $4,000 per student, but that doesn’t include…” <click><buzzzzzzz>

The conversation stops there because the interested parent has just hung up the phone. The bewildered school official is upset that she didn’t get a chance to tell the parent that if there is more than one child, there is a second child discount of $1,000, except that if the child is non-Catholic, then the tuition is $4,500 for the first student, and there is also a discount for the second child.

“Discount?”  What if the first child is Catholic, and second one isn’t (you know – today’s “blended family”)?   Schools then say, “We’ll it’s really not if the students are Catholic…it’s if the parents are Catholic.”  Or is the tuition based on which parent is paying tuition?  If mom is Catholic and dad is Baptist, is each parent responsible for half of the tuition amount and charged accordingly?  What if the parent isn’t the person paying tuition, and grandma and grandpa are?  What if the parents are of another faith, but the grandparents are paying the tuition and they’re members of the parish?  Are we engaging in discriminatory practices?  This kind of talk is important especially today, with government monies or vouchers helping to fund private school tuition expenses, because, you know, with government monies come government strings.

I’m a firm believer that the problem isn’t the tuition – it’s all the other “stuff” that goes with it – just like all the disclaimers that come at the end of a car commercial that advertises a great payment yet assumes $3,995 cash or trade down and excludes taxes, registration and delivery charges, or the drug commercials that warn that the side effects of taking the drug could be worse than the condition the drug is trying to alleviate.

Even though faith-based schools charge tuition, parishes and churches associated with the schools still considered them to be a ministry.  Often, they “subsidize” the cost of education in order to keep tuition at a minimum – or as minimal as possible. Until recently, the usual formula that a Catholic school would utilize was that a parish provided half the cost of education and tuition covered the rest, which was fine – until parish attendance at Mass and the parishioner base started declining.  In some parishes, half the cost of education can be 75% of the parish income. Some Dioceses have put rules of percentages in place, mandating that parishes can contribute no more than X% of a school’s operating cost – and the rest must be made through tuition and “fund raising” income, whether through fundraisers or via development programs and revenue.

Some churches and schools today have changed the word “subsidize” to “invest.”  Personally, I believe that word is also an incorrect one to use when talking about tuition.  “Invest” infers that those who are investing will receive a return on investment.  It’s not an investment, it’s a “gift,” since everything we have is a gift from God, and gifts are to be given freely…not coerced nor have strings attached.  Remember the Chinese proverb – “The beginning of wisdom is to call things by their right names.”  The same goes for “discount.”  The only companies that give discounts are when they want to get rid of merchandise to make way for the new inventory.  If businesses offer a coupon, that’s because they want you to come back…not next year, but next week.  Or tomorrow.  That’s not what school tuition is built upon.  Instead, “incentives” should be offered.  Same effect, totally different mindset.

Fundraisers used to be a way to raise money quickly – as in, “We’re going to fall $3,000 short this month, so lets raise some money by selling some candy!” Now, parents are selling stuff all the time, and fundraising has become a way of life in the school.  To be honest, fundraising has its place, but not to raise “reliable” revenues. But that’s another conversation for another day.  The sad thing is that some organizations I’m familiar with have “Fundraisers of the Month” and those that have been in place for years – like selling magazine subscriptions – are still carried out today with lower and lower revenue generation totals.  Further, it may not be the safest thing in the world for kids to go door to door to sell fundraising items, and, as for magazines, they’d better be digital subscriptions.

Then there are the dreaded fees – technology fee, uniform fee, supplies and materials fee, book fee, development fee (if you don’t want to participate in fundraising), graduation fee, and of course, the application fee.

It’s important to realize that if you have a fee to ensure a child’s seat in the classroom, you should not call it a registration fee anymore. Registration implies unconditional acceptance. If, as a Catholic, Christian, Hebrew Day or Independent school, you are not equipped to handle the needs of a child, and you accept that child in your school through registration, you are obligated to provide whatever accommodations are needed for that child to achieve to his/her fullest potential. Using the words “application fee” means that there is some type of screening that must occur before a student is accepted.

But back to the tuition.  If you’re giving a “multi-child incentive” on your tuition in a subsidy model, please note that your parents are not only receiving the equivalent of financial aid for their first child (because tuition is never higher than the cost of education), but that they’re also receiving more financial aid for the second child whether they need it or not. The danger in having parents complete an application for financial aid is that they will then be receiving even more financial aid that will be applied to the tuition cost that they pay out-of-pocket.  The big question is, ‘Do they really need it?”

Knowing today’s economic climate, I’ll bet your first response is, “Of course they do!”

Well…perhaps not.

Let’s examine this scenario:

Cost of education at school = $5,000 per child.  Take your school’s operating budget (expenses), and divide it by the number of children in your school.  Many schools are afraid to do this simple yet effective exercise.  Remember Jim Collins’ first step in his acclaimed book, “Good to Great:”  Confront the Brutal Facts (Yet Never Lose Hope).

Even though the cost of education is $5,000 per child, here’s the school’s tuition structure as advertised on their Web site, which, by the way, is also a mistake today.  If you advertise your tuition and all the breakdowns thereof on your Web site, you may be turning away more families than you realize.  They take one look at the tuition, think, “We can’t afford that,” and don’t even call to check out the school or ask what the tuition is.  But for now, let’s examine one of those models:

Family with two children – tuition for first child = $2500; tuition for two children = $4000.

This means that the tuition for the second child is $1500. The family then says they cannot afford $4000, so the school finance committee considers their letter, takes pity on them and offers them $400, a 10% reduction. The resultant amount is $3600, and the family pays it on a monthly basis at $360 per month over 10 months.

From the family’s perspective, that’s the equivalent of their car payment.

The problem – this family may not need the extra 10% – but they asked and they received. Or, this family might need a lot more than the $400, but the school doesn’t have anymore to give. The family then becomes a candidate for disenrollment, especially since the $360 a month doesn’t include the fees for field trips, technology, supplies and other items, like lunch, uniforms and after-school care.  If the fees are $100 for band, $50 for the field trips, $200 for technology, $50 for supplies and $300 for development. That’s an extra $700, which has to be paid before the school year begins and cannot be spread over 10 months. That family must REALLY love your school, and their experience has to be an incredible one in order for you to retain them throughout all the grades your school offers.  If they don’t disenroll, they might be the family you end up “chasing” to pay their tuition when they stop making payments.

In reality, the cost of educating these two children is $10,700 (2 x cost of education plus the $700 in fees). The family is receiving $2,500 in financial aid for the first child, and $3,500 in financial aid for the second child, and an additional $400 from the financial committee, for a total of $6,400 in financial aid, making the tuition $4,300 for both children, or $2,150 for each child.

Does the family need $6,400 in financial aid? If you don’t have a financial aid assessment tool, then you really don’t know what they need. They might need more! They might not need anything, and receive because they ask.

There are two more problems with “subsidizing” tuition today.  Such a practice was great when the only students in a parish’s Catholic school were from that parish, or the Christian school accepted students only from the affiliated Christian church or churches…and that’s not the way it is today.  In fact, most schools across the country are “regional” ones.  The “parochial” school is quickly disappearing because there are either children of various faiths enrolled and/or there are children of the same faith from other faith communities enrolled.

The third problem with subsidization is that it makes a pastor shudder when the principal reports an enrollment increase. If the pastor is subsidizing the school at the 50% level, exciting news to the school (such as 20 additional students for the coming year) leaves the pastor wondering where he’s going to get the extra $50,000 that will be consumed from his parish income if tuition is only $2,500 per child, and the cost of education is $5,000.

You may be able to consider moving your school to a cost-based tuition model. In this model, all expenses – fees, costs of administration, staff, curriculum, cleaning supplies – every expense is put into a column, tabulated and then divided by the number of students in the school to come up with a cost per student figure. Don’t forget to include savings for capital expenditures to your school, as well funds to budget additional funds for financial aid and expenses like credit card fees.  This way, families that are paying “full tuition” are helping to fund those that cannot pay the full amount.  Yes, budgeted financial aid!  And no, it’s not “unfair,” either.  In fact, this practice has its basis in Scripture:

“Our desire is not that others might be relieved while you are hard pressed, but that there may be equality. At the present time, your plenty will supply what they need, so that in turn their plenty will supply what you need. Then there will be equality, as it is written: “He who gathered much did not have too much, and he who gathered little did not have too little.”” – 2 Corinthians 8:13-15

The amount that the parish or church provides to the school, as well as non-designated funds from development, are then used to provide financial aid to families based on a third-party’s assessment of the family’s financial need. Some families might be expected to pay the full $5,000 for their daughter to attend your school, but others may not even be able to pay $500 a year for their son to attend. The only way you’ll know is with a Grant and Aid Assessment evaluation tool.

Such an approach does two things:

1) It demonstrates transparency and fiscal responsibility to parents, as well as community constituents – including donors. Donors will give to your school if you have a quality program where quality is demonstrable, you have a handle on your costs and can provide a report that demonstrates outstanding stewardship of the resources which have been entrusted to you.

2) It allows you to fill every desk. If there is an empty desk in a classroom, it doesn’t cost you anything more to fill it after the school year has started. So fill it! The parent is then pulled into the financial aid application process for the following year. What happens is quite magical!  In a cost-based tuition model, as enrollment goes up, the cost of education can go down. Once that happens, and people find out tuition is declining, waiting lists start to be created.   When tuition decreases under a cost-based model, time can be spent discussing enrollment strategies rather than worrying about how much of a tuition increase “we can live with” for the next year.

Here’s the real problem:  a “tuition by subsidy” mindset does not allow for long-range planning and the compelling vision necessary to present to your school’s parent community relative to the kind of educational experience their child will have. A cost-based tuition/need-based aid approach does.

Oh – almost forgot. Engage a third-party to collect your tuition. You are not in the business of bill collection.  If you just invoice the family, your invoice receives the lowest priority from the family because they have other bills to pay that have consequences if they miss a payment.  Their mindset is that since you’re a faith-based school, you’ll have to understand their inability to pay!  They need to understand your inability to remain open and viable without them accepting the responsibility to pay their tuition obligation for their children.  Consider FACTS, since FACTS allows your school to control the process, as well as provide flexible payment options, convenience, and payment security.  The last thing you want to have in your school is cash and checks from tuition payments.  Cash is, of course, a source of temptation (and you know what Scripture says about leading one there), but checks have the payer’s routing and account numbers on them.  Great care must be taken today to protect personally identifiable information (PII), and a name, address, signature and an account number are present on checks.  PII is usually spoken of in terms of using technology today, but PII is a legal concept, and not a technological one.

Asset Management affects Development, Enrollment, Retention and Marketing. Your tuition has to be marketable, and your school office needs to know how to communicate tuition costs to your prospective families. What would you rather hear if you were a parent:

– “Our tuition? It’s 4995 per child…yes, I know it’s steep, but we need to pay our teachers.”  I would even venture to say that as soon as you said, “$4,995,” you’d hear that fatal click and dial tone buzz as stated at the start of this article.

Or

– “Our tuition? Most of our families apply for and receive financial aid, with the average award being around $2100. That means our average tuition is about $2900 per child with all fees included. Higher amounts of financial aid are awarded since our aid process takes multiple children into consideration. Of course, if you’ve been blessed to the point that you can afford the full tuition of $4,995 per child, that would be a great blessing to share with the school.”

Note that the tuition is NOT the cost of education.  The tuition is a marketable one.  The tuition is based on the cost of education (hence the name, cost-based tuition), not on how much of an increase from the previous year school administration assumes a family will accept.  That type of approach starts with revenue, and then makes expense cuts to balance the budget.  Not utilizing a new way of budgeting, talking about tuition and being keenly cognizant of the mindset of your target market is why some schools continue to perpetuate the “shrink, merge, shrink, close” process so prevalent today.

© Michael V. Ziemski, SchoolAdvancement, 2006-2017