In 2005, a colleague of mine published a book that spoke about the difficulties Catholic schools were facing. I was intrigued, since I had a couple of years of doing development work for schools under my belt. But while this author’s perspective dealt with the forces of society and its impact on parents, how they educate their children or abdicate their responsibility, and calls for more adult religious education, I started to see the financial stress being placed upon schools resulting from a business model which was unlike any other business in existence.
In every business today, there is a cost of production or service, and then a higher cost for which that product or service is sold. The amount between the cost and the higher cost is called a “margin.” In the business world, it’s called a “profit;” in the non-profit world, however, maintaining “margin” is mistakenly considered to be something that should be avoided. In the minds of many, “non profit” means “no profit.”
Unfortunately, too much “no profit” spells disaster for the organization.
More correctly, that “margin” can be called “surplus” in the non-profit world, and can allow for an unforeseen downturn in the amount of revenue the organization realizes through its programmatic and advancement efforts. It can also be used to provide updated facilities, additional personnel or other infrastructure enhancements to allow the organization to grow.
But in many instances today, schools which charge tuition reverse the terms. The cost of education is higher than the tuition that’s charged. Note once again how in business, the “cost” is actually lower than the amount at which the service is offered, which is commonly known as the school’s tuition.
But there are five processes a school’s administration can consider to help place the school on a solid financial foundation:
– Cost-Based Tuition/Need-Based Aid (but it needs a new name and description. Therefore I’ve developed the term, “Sustainability-Based Tuition”);
– Financial Aid As a Budget Line
– Budget For Credit Card Fees;
– Budget for Fewer Students; and
– Make Your First Student Tuition Applicable to the Youngest Student.
Cost-Based Tuition/Need-Based Aid was a radical approach when proposed in the late 1990’s, but once explained, it made great sense. Rather than basing the budget of a school on what a school thought a parent would agree to as a tuition increase, and then building the budget of the school on that increase extrapolated to a projected enrollment, the costs associated with educating student was looked at first. To say it another way, budgeting went from income-based to expense-based. Adding up all the costs of the educational program at the school, and then dividing that number by the number of students in the school provided a cost of education per student figure.
And that shocked a lot of people.
There was good news, however, as described in the second part of the phrase, which is Need-Based Aid. Financial Aid was made available and was awarded based on a student’s financial need as a part of their family. Theoretically, the more financial need one has, the more funding the student would receive. It’s how colleges and universities create their budgets. The discouraging part of this portion of the phrase was that it sounded like Financial Aid would only be awarded on the basis of financial need, and parents wanted to know how they could qualify for help if they didn’t have financial need? This is where scholarships come in…but they must be included as part of the school’s policy handbook.
Then the third question comes along – where does the school get the financial aid from? More about that in a moment, but note how these three questions form a system within a system. Rather than calling it “Cost-Based Tuition/Need-Based Aid,” it’s really “Growth-based Budgeting.” Why? Because using these constructs, the more students are enrolled in the school, the more the potential of lowering tuition can become a reality. And that needs to happen if your school is doing to move from fundraising to development to advancement to growth to sustainability.
Therefore, the name, “Sustainability-Based Tuition.”
So where does that financial aid come from? It can certainly come from outside sources, such as advancement initiatives, and other charitable foundations and major gifts from benefactors, but a school can also consider –
Financial Aid As a Budget Line. If your school’s tuition is $4,000, consider adding 5% to that figure, or an extra $200. If you have a 200 students, you’ve just created $40,000 in financial aid.
Budget for Credit Card Fees, and allow your school’s parents to use credit cards to pay tuition. While using FACTS allows schools to have parents pay the credit card fee, there are some states where this is not permitted. Consider, then, increasing tuition another 3% to cover credit card fees. Then, if parents pay in full and via a check or direct debit, you can offer them a 3% incentive to do so. Remember to NOT include this fee when applying financial aid awards!
Budget for Fewer Students so that you can be realistic in your enrollment projections. If, for instances, you have 200 students in your school, but your enrollment has been trending downward, it’s better to realistically budget for 190 students than “hope” you can increase your enrollment to 210 if you don’t have someone who “owns” and is responsible for the enrollment process, such as an enrollment and/or advancement director. Further, if you budget for 190 students whose parents fulfill their tuition payment responsibilities, you can theoretically offer 10 full-scholarships to those families that may have no ability to pay.
Make Your First Student Tuition Applicable to the Youngest Student so that parents with multiple students will perceive they’re getting a tuition break by enrolling additional children in the school. Most schools which have second and third child discounts have the oldest student in the school as the one who is charged the highest tuition. A bit of a tuition break is provided to the next youngest child, while the youngest gets an increased incentive. Flip that around, so that the “first” child tuition actually applies to the “last” child in the school. This way, the older student’s tuition decreases when additional students from a family are enrolled in the school.
Are these different approaches? I’m sure you’ll say they are. In the words attributed to Albert Einstein, “We can’t solve the problems of today with the same kind of thinking that created them.”
Or, as Jesus said to Peter in the TV series, “The Chosen,” “Get used to different.”