I’ll bet you’ve said, “He’s lost his mind.  We can’t raise our tuition 10%!  There’s so much financial instability today, and people won’t be able to afford that!”

Before you jump to that conclusion, the first word of the sentence is the most important one – “Consider.”  Sometimes, we have to go WAY outside the box before we can make some incremental adjustments to address concerns.

Here are some reasons why I suggest “considering” this approach.

A few short years ago, when our country was experiencing the Great Recession, I visited a school that actually had a waiting list.  Can you guess which one it was?  No, it wasn’t the one with the lowest tuition.  It had the highest per student tuition!  Today’s consumers see a low regular price and associate it with low value.

Further, more and more families are applying for financial aid, and more and more schools are saying they don’t have financial aid to give.  Their budgeting practices are as tight as they can get – especially with paying for benefits today!  The tuition that’s published is the result of work that takes months to accomplish.

Unfortunately, consumers today don’t appreciate all the work you’ve done to keep costs low and quality high.  They want to know what they’re going to pay as an individual customer, and, more pointedly, “What’s in it for them?”  So, what do they appreciate?

Incentives.

This approach touches all those things.  Here’s how it works:

First, let me be clear – don’t just increase your tuition.  Calculate what your per student tuition will be as you’ve always done, and only then increase it by 10% + $40.  Let’s say after all the number crunching and budget cutting, your tuition will be $4,000 per student.  Applying the formula increases it to $4,440 per student.  Also, be sure to take this extra amount “out” of the need-based financial aid calculation.

Why is this important?  I’m sure you’ve rolled fees into your tuition before.  Unfortunately, when you calculate financial aid based on the total tuition with fees included, you’ve just flushed most of the work you’ve done down the drain.  Awarding financial aid on a tuition amount that includes fees reduces the fees by the amount of financial aid you’ve awarded!

In other words, if tuition is $4000, and the child has a financial need of $1000, that means the family can afford to pay $3000.  Therefore, even if the tuition is now $4440, the family can still only afford to pay $3000.  The child’s financial need is now $1440, and all that debating that your board did about rolling fees into the tuition is now moot.

So what’s the extra $440 for?

Let’s split that into 2 sections, and take the $40 out for now.  Split the 400 into two amounts – $280 (70%) and $120 (30%)

$280 per student will go into a fund to create a pool of financial aid.  If you have 200 students in the school, you’ve just created a budgeted amount of  $56,000 in additional financial aid funds.  The $120 is a “cushion” so that your school can offer parents the ability to use credit cards to pay tuition.  If you use FACTS as your tuition management provider, the merchant fee is 2.75%.  Parents can pay the tuition and receive points for airline tickets or hotel rooms.  This makes those conversations that center around “Pay tuition” or “Take the Disney trip” a little easier to deal with since you’re offering parents options.

If parents choose to pay through auto-debit or via check in an upfront one-time payment, you can offer them a 2% “incentive” to do so.  Why not offer this to monthly payers?  Because they might choose auto-debit one month and credit card for the next.

Now you’re saying, “Wait a minute…why only give them 2%?”  There are two reasons.  First, it’s a good practice not to tie the credit card cost to the incentive you’ll offer, so a difference in percentage rates accomplishes that.  Second, you’re offering the percentage “incentive” on the total $4,440.

Here’s how math works out.

Your new tuition is going to be $4,440.  If a parent pays by credit card, there will be a charge of 2.75% for the credit card company, and that equals $122.10 so you’ll be left with $4,317.90.  Deducting the $280 for the financial aid fund brings that amount to $4,037.90, which a little higher than your original $4,000 per student tuition.

If they don’t pay by credit card in one payment, they’ll get a 2% tuition reduction, or $88.80, leaving $4,351.20.  Deducting the $280 for the financial aid fund brings that amount to $4,071.20, which is still above your original $4,000 per student tuition.

So what’s that additional $40 for if the $400 goes for creating financial aid and covering credit card costs?  You can use some of the surplus funds generated ($37.90 in the first example and $71.20 in the second) to cover the cost for families to enroll in a FACTS payment plan to serve all (yes, all) families.  By doing this, your school has covered the cost of FACTS at your school.  Also, since FACTS has no additional cost for follow-up, if you choose to set a late fee, that’s can be the start of a new revenue stream for your school!

But what if a family is receiving financial aid?

Let’s take another look at that example of the child with $1000 of financial need.

That child’s tuition would be $3,000 + $440 to amount to $3,440.  $280 still goes to the financial aid fund, leaving $3,160 of revenue from that child.  2.75% of 3,440 = $94.60, leaving you with $3065.40.  As long as that figure is above $3000, you have the funds to pay for a family’s payment plan on FACTS.

Will these changes sit well with your current parents?  If you tell them tuition is going up so that you can provide financial aid or pay for a billing program, then the answer to that question is “No.”  However, if parents see enhancements in the school curriculum which can come from development resources, see improvements in the condition of the school, or see some structural realiging regarding leadership, then cost decisions can be justified.

Notice each of those phrases contain the word, “see.”  Just like an open house, a tour, or photos on your Web site, parents today need to “see” improvements to enhance and already positive experience at your school.