Feature: How to Set Tuition

As day school leaders know, tuition is always the largest component of a school's budget. Therein lies a dilemma: set tuition too low, and you won't be able to deliver a quality education, thereby losing students. Set it too high--or so the fear goes--and enrollment may also suffer.

Yet experts at Independent School Management (ISM) say that schools should aim to cover 100% of their expenses through 'bankable funds'--federation allocations, endowment interest, and of course tuition. The annual fund, according to ISM, should be used for enhancements and not to cover expenses. While the average independent school covers 80% of its budget through net tuition, most day schools need to increase the ratio of expenses covered by tuition in order to attain financial stability.

Step One in setting tuition is to look at costs and charging accordingly. Set tuition as close to true costs as possible. And when analyzing your expenses keep the following in mind:

• Be conservative about the number of incoming students.
• Figure out the likely percentage of students paying full vs. reduced tuition to determine net tuition, factoring in gross tuition, fees, financial aid, etc.
• Determine additional sources of funding, such as endowment and federation allocations.
• Determine the possibility of extra income through non-tuition related activities, such as renting facilities or running a summer camp.
• Typically, 'bankable' funds including net tuition do not cover all day school expenses. Can annual fundraising fill in the budget hole? Use your prior history of fundraising to answer this question.
• Don't forget to allocate funds for facility upkeep.

Step Two is to look at what your competition does (both Jewish day schools and non-Jewish private schools). But don't forget to ask yourself the following:

• How does your education compare to that of your competitors? How does your tuition compare to theirs?
• Do your competitors add in fees to their tuition price? Do you? Make certain you aren't comparing apples and oranges.
• Do your competitors have endowments to help lower the cost of tuition?

Finally, make certain that your school gets in the habit of projecting revenue and expenses three to five years out. This type of strategic financial plan greatly facilitates the process of annual tuition increases and ensures the school has a long-term strategy. (See sidebar: Tuition Setting Timeline).

Tuition Setting Timeline

Ideally, says PEJE Coach and admission expert Rheua Stakely, day schools will set their tuition according to the following timeline:

October/November

Board begins discussion of tuition for the next year.

December

Board sets tuition for next year.

March

Send out acceptance letters/enrollment contracts with tuition amounts. (Full tuition amounts and tentative reduced tuition pending receipt of new IRS 1040 for those on financial aid).

Q&A with Terry Moore, Director of Consultants, ISM

How do we communicate to parents our annual tuition increases?
Providing a high quality education requires you to increase tuition 2% above the national annual cost of living adjustment (COLA). For example, if the COLA is 3%, the tuition should increase to 5%, and so on, to keep pace with inflation. This sort of increase should be routine, and can be communicated using a standard letter. However, these letters should be well written and emphasize the following items:

• The real costs of educating a child.
• The excellent education your school provides.
• The comprehensive process that led to the tuition increase.
• The commitment of your school to remain affordable and accessible via financial aid.

What if we must raise tuition more than the COLA plus 2%?
Schools that have not raised tuition sufficiently in recent years or ones that encounter major cost increases may be required to increase tuition more than COLA plus 2%. Understandably, this can come as a shock to parents if not handled properly. In this situation, consider the following:

• Convene small group meetings (perhaps by grade level) to share the reasons behind the significant tuition increase. Parent opposition is easier to handle in smaller groups.
• Conduct these meetings in the late fall, before your school makes tuition increases official.
• Discuss the increase in broad terms so as not to tie yourself down to specific amounts.
• Select the school's best public speaker to run these meetings.
• Always include a faculty member at these meetings, as this makes it harder for parents to complain about overpaid teachers.

In the Next Issue: Financial Aid

The next Spotlight: Financial Management will discuss the ins and outs of financial aid. Stay tuned as we explore Day School Peer Yardstick data that suggests schools should 1) do their best to tailor aid awards to individual families' needs yet 2) attract as many full payers as possible, in order to cross-subsidize those in need.

Further Resources

Setting Tuition & Delivering Financial Assistance (PEJE) addresses issues of school affordability. Researched and written by Rachel Segaloff.

Financial Resource Development & Management in Tough Times (PEJE) is compiled by Stephane Acel and Devra Goldberg, and edited by Suzanne Kling.

Tuition Setting and Implementation (ISM) is part of ISM's Compendia Series and includes reports culled from articles first published in Ideas and Perspectives and To The Point. Available for purchase on the ISM website.