Changing Your School’s Tuition Structure

A number of years ago, I adopted a motto: “Nothing is easy; nothing is free.” In Latin – “Nil facile est; nil gratuit est.” If something was easy, everyone would do it; and, as evidenced by constant concerns about CoViD, the war in Ukraine, the war in Israel, increasing international tensions, and now, the upheaval caused by our current President, every change has a price to it.

Therefore, when someone asks about converting to a need-based aid/cost-based tuition structure, the basic idea is a simple one, and the “why” makes sense. It’s the implementation – the “how” – that’s challenging, and can lead to unintended consequences.

Over the years, there have been quite a few ways that people have described this approach toward tuition: Cost-based tuition/Need-based aid, Zero-based budgeting, Value-based tuition, Growth-oriented tuition, etc.

Since the natural progression of revenue generation for any non-profit organization is to move from fundraising to development to advancement to growth to sustainability, I’m sure there are other titles that will surface as time progresses.

The one that I’m using moving forward is “Sustainability-based tuition ^TM/Need-based financial aid.”

The fact of the matter is that there are two problems with setting tuition today.

One is that number of schools use “Income-based tuition,” which is summarized this way: “How much of a tuition increase will parents accept?”

Then, after compiling student and family figures, the school sets its tuition based on their discounting model after determining the expenses for the school. Or, the school decides what their tuition increase would be, then sees what expenses they can cut. These two methods are the true reasons why schools are shrinking, merging and closing today.

The other is that a school decides to used a cost-based tuition strategy, gathers all the expenses, then divides that number by the number of students expected to enroll. That gives the cost of education, and tuition is based on that number. Erroneously, a number of schools then set a tuition that’s equal to the cost of education.

And that also leads to schools shrinking, merging and closing.

Why?

Because there are other elements involved.

The first is that the estimated enrollment will be the school enrollment. It usually never is. Something always happens that either brings several new students in, or makes students leave (like a job relocation).

The second is that the phrase is “cost-BASED,” not cost-EQUIVALENT.”

The reason I’m called this approach “Sustainability-based” is that the tuition actually needs to be HIGHER than the cost of education!

Then comes the “Financial Aid” component.

And “Financial Aid,” “Scholarship,” and “Tuition Assistance” are considered to be the same thing – and. they’re. not!

If they were, they’d all have the same name.

Financial aid is based (there’s that word again) on financial need.

Scholarship is based on qualification.

Tuition Assistance consists of programs that help parents to afford the tuition they need to pay – so financial aid, scholarship, subsidy, hardship or benefit reductions and payment plans all play a part in this process.

At the college and university level, programs like work-study fall into this category. At the K-12 level, scrip and payment plans are ways to assist parents pay the tuition they’ve agreed to pay after receiving their assistance package.

While this type of funding structure is considered a change from the typical subsidized-tuition approach, or an approach that’s revenue-based, let’s mitigate the uneasy feelings associated with change and call it a “shift.”

If a school is receiving subsidization (or “investment,” as is the popular trend) from a church or group of local parishes or churches, rather than subsidizing the cost of tuition for every student in the school (or, in the case of some Catholic schools, every Catholic student in the school) and decreasing the tuition (which parents “think” is the cost of education, since they ask, “How much does it cost to enroll my children,”) the aggregated amount (which is sometimes sizable) can be used as a financial aid pool to be distributed based on a family’s calculated need, which is best determined by an objective third-party provider.

For example, if a school’s “tuition” is $4000 per student, and 200 students are in the school, that represents an income from tuition of $800,000. However, the budget of the school may be $850,000, with $150,000 coming from the supporting church(es) or parish(es). In this respect, each student is subsidized by $750. The real cost per student, however, is $4250. In the typical cost-based tuition/need-based aid model, the per-student tuition is $4250 for every student, regardless of the faith tradition of the student, or if the student is a member of an affiliated parish or church or not. Families may also choose to pay the full $4250 if they can, or may receive a scholarship if they are a member of a supporting church (since a scholarship has a qualification component to it outside of financial need), or can receive financial aid based on their financial need as calculated by a third-party need assessment provider.

If schools do not generate revenues to fund a family’s need, they can apply a tuition reduction policy to bring tuition to a more affordable amount. Schools should make it a standard practice, however, to charge a minimum tuition (say $250 or $500 per child) to convey the principle that something of value has a price; if tuition is simply waived, it can increase a feeling of “entitlement,” when what we really want to be teaching is “responsibility.” Since parents are the customers of our schools, we need to teach them, too.

Need-based aid/cost-based tuition will work in your school if you can answer these three questions affirmatively:

1) Are there families in the school that can pay the full-cost of education (in this sample case, $4250)?

2) Are there enough school-age children in your area whose parents desire a Catholic/Christian/faith-based/private school education for their children? and

3) Are you actively seeking outside sources for additional funding (from alumni, the community and local businesses who realize the value of your school)?

Of course, even if you did answer yes, and if I was asking these questions in a face-to-face consultative setting, I’d dive further into each of them, for instance:

1) How do you know there are families in the school community that can pay the full cost of education? Are there families that are currently contributing major gifts of sizable sums in addition to paying tuition, or are you assuming that there are, because they drive a nice car and live in an affluent neighborhood?

2) How do you know that there are a sufficient number of families that desire the educational environment your school offers for their children? Do you have access to the parish’s baptismal records or the church’s membership roster? Have you looked at the local public school district’s statistics relative to the number of children in each grade, or have you surveyed all the Catholic and Christian churches within a ten-mile radius of your school to determine the potential number of students in your area of dominant influence?

3) Do you have an advancement director who is active outside the school, developing relationships with businesses, community members and other professional organizations to engage the community in the activities of your school? Or is this something else that’s on your plate as the school administrator that you really don’t have time for, or something extra you ask a teacher to do, when most of their time is spent inside the school?

Unfortunately, I’ve discovered something in the past few years. While many faith-based schools are growing since the pandemic, others are still struggling?

Why?

Two reasons:

They want to get “back to normal,” and that means doing things the way they did them. And that just doesn’t work anymore.
There are schools that don’t have a clue about how much a family needs in financial aid to make the education in a particular school possible, not just affordable. This is because they don’t use a third=party provider to determine financial need, and just “hope” parents can pay what the school is asking. There may be a financial aid form that a parent completes, and is accompanied by tax documentation for proof of income, but if it’s simplistic, or the company the school uses stops processing applications after a certain date, there’s no way to determine what a family really needs or what they qualify for.

It’s easy to say “We’re going to have a tuition increase of only $100 per student next year. We hope that if we get more students, and we can cut back a little on our expenses, then we’ll be able to break even next year by the end of the school year.”

Unfortunately, the “if” in that statement doesn’t inspire hope in most parents, and the $100 increase could be enough to make a number of your school’s community of parents who are already strapped for income not return – and not even tell you that they’re leaving. Keep in mind that while “hope” is indeed one of the three things that last, it is not a strategy for success.

The REAL difficulties of a shift like this are these:

– Telling parents that have been active in your school for six years who can pay full the full cost of education that their tuition will increase $750 for each of their children next year, and that they may be paying the same amount for their children as a non-Catholic family would. Be prepared to battle an “entitlementality,” as well as offer a gradual solution. That doesn’t mean that you’ll “grandfather” those families in to their current tuition structure, since doing so could make the tuition for new families unaffordable. Because the school is a community, and community members need to know they’re supporting each other, tuition needs to be incrementally increased to accommodate a family’s circumstances. Of course, those increments would need to be supported by additional revenue from another source. And that “another source” is VERY important – and is proof why systems thinking is necessary!

– Encouraging families to enroll in the school when you’ve just increased the tuition while simultaneously attempting to convince them that if they have “need” that they will be awarded financial aid;

– Convincing local businesses, parishioners and alumni to support your school with their time, talent and treasure. (Wait a minute – did he say “alumni?” I lead an elementary school, and I have no lists of alumni from our school.) If you just thought what your just read, you have no accessible lists of alumni of your school, and you have no advancement or development director, then it’s time to make room on your plate for more stuff to do, or plan on budgeting for two extra staff member of your school. Why two? Send an email to [email protected] with the words “Why two extra staff members” in the subject line.

An excellent plan of implementation, a comprehensive communication campaign, and putting the proper tools in place to allow this process to take place are essential. These are things to work on during the summer. It’s not something you can decide to do at this point (in March) for the new school year which is only 4 months away. If you’re open to exploring the potential of this strategy as a long-term process to ensure your school’s financial viability, I have great news for you…you’ve just started thinking further than the next year!

Continue that line of thought, and develop a long-term vision for the next 3 to 5 years!!

By the way, if you’re wondering where you’re going to get that financial aid from, start by budgeting for it. That $4250 cost of education per student just became $4500. Your tuition is then “based” on the cost of education, and not created by “What kind of a price increase do we think parents will accept?” mindset. When the pandemic set in in 2020, I heard of a school leader who was relentlessly trying to have a conversation with their pastor regarding the cost of tuition for the upcoming school year and to discuss the school budget. The response? “Oh, just increase tuition $100 a student.” That’s not going to help the family that has 3 kids in the school that was just notified that dad will be losing his job. However, increasing the tuition AND creating additional financial aid from families that can afford an $250 per student creates some additional need-based financial aid.

If you still need a compelling rationale, the principle is based 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

Of course, there will be some “unintended consequences.” What are they? We’ll look at those next week.

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