New forms of competition (for-profits, charters, and virtual schools), demographic changes, and a slow economic recovery have motivated independent schools to find new ways to align their balance sheets.
Tuitions have soared in recent years as schools have hired more personnel, paid increasing health benefits, and added curricular and extracurricular programs, while keeping class sizes small. But schools are beginning to make alternate choices.
The latest numbers from NAIS's DASL (Data and Analysis for School Leadership) show that total expenses grew by 3 percent in each of the last two years. Technology, administrator salaries, and benefits were the top three growth areas.
Salaries represented 54 percent of expenses among boarding and day schools, while other expenses (instructional, athletic, auxiliary, other services, plant, provision for major repairs, administrators, debt service, and general) were 32 percent of the total, and benefits were 13 percent, according to NAIS numbers for 2012-2013.
Cutting Costs
Outsourcing is one way independent schools have worked to cut costs. The functions most frequently outsourced by schools were food services (74 percent), custodial/household (53 percent), transportation (52 percent), and security (49 percent), according to 2011-2012 data from the National Business Officers Association (NBOA). Fewer schools outsource facilities/plant (20 percent), IT staff (25 percent), or the HR director function (5 percent).
Some schools have turned to sharing services or participating in operating consortia to help cut costs. In 2006, a group of schools created the Independent School Benefits Consortium to continue providing high-quality health benefits to employees while also reducing their risks and costs. Premiums and increases are controlled based on an individual's track record from the previous year.
Another alternative is "cross-enrollment" programs. The way it works: two schools want to offer an advanced or specialized course but don't have enough interested students to justify hiring a full-time faculty member, so they decide to share one teacher's time. The faculty member serves as a part-time employee at each institution.
Technology, too, offers the opportunity to share or outsource the cost of programs and serve more students. Some independent schools have joined forces in different school models, like the Online School for Girls (and now Boys), Global Online Academy, and Bay Area BlendEd Consortium.
Raising Revenue
Meanwhile, on the revenue side, net tuition revenue continues to represent a significant part of the income at independent schools: 75 percent in 2012-2013. NAIS statistics show that schools' total income increased by 5.6 percent in 2013 and 2.1 percent in 2012, with tuition increasing almost 3 percent in 2013, after a 5.1 percent increase in 2012 (not adjusted for inflation). Schools also reported income growth in other programs, such as daycare, extended day, summer programs, and others, at 6 percent in 2013 and 8.8 percent in 2012.
In a 2008 NAIS study, the most frequently cited nontuition sources of income at independent schools were summer programs, auctions, extended day programs, facility rentals, and parent association events.
A few U.S. schools have explored satellite campuses, opening international schools, or partnering with foreign schools. Shattuck-St. Mary's School (MN) has discussed potential partnerships to open international schools in several countries. The models vary from completely new, stand-alone campuses funded by investors to school-within-a-school partnerships with existing foreign schools seeking to enhance their offerings to local students. Students will graduate with a Shattuck-St. Mary's diploma, having satisfied the school's graduation requirements. Classes will be taught by native English-speaking teachers who have been trained at Shattuck-St. Mary's, and students will be offered ESL support whenever needed. The result: a diploma and a transcript that have credibility with U.S. colleges and universities.
Rethinking Class Size
Small class size has long been a key reason parents and teachers have chosen independent schools. Supporters argue that having fewer children in a class encourages close connections between teachers and students and more individualized instruction.
Student-to-teacher ratios were 12.2:1 at private schools of all types and 16:1 at public schools, according to the U.S. Department of Education's figures from 2010. The student-teacher ratio for NAIS independent schools was 8.73:1 in the same year. In 2014, it decreased slightly to 8.67:1.
Arguments for increasing the size, or "right-sizing," independent school classrooms include the fact that small class sizes are funded by tuition increases above inflation that put many independent schools out of reach for most families. Smaller class sizes can also limit a school's ability to offer salaries that will attract and retain high-quality teachers.
A 2013 NBOA study showed that 9.9 percent of responding independent schools increased the average number of students per classroom in 2012-2013, a higher percentage compared with 2008-2009, when only 5.5 percent did so. The same survey found that another 17 percent of schools were planning to increase or were continuing to enlarge class size in 2013-2014. However, the most recent NAIS numbers show that average class size has decreased for all grade levels in the last five years.
Ongoing research, mostly focused on public schools, is inconclusive on the benefits of smaller classes. Research does show that investing in higher quality teachers produces greater returns for students and schools.
What are the cost drivers for your school? In what ways has your school restructured its budget to increase revenue and reduce expenses? Is your school considering increasing class size?
