NAIS - How Independent Schools Can Handle Rising Costs and Competition

Editor’s note: This is the first blog in a series on strategic planning for financial sustainability in independent schools. Read the full series here:

Independent schools have long provided students with a wide range of educational options, but today the cost of independent education and the rise of less expensive alternatives are greatly reducing the applicant pool for most independent schools. These pressures are putting the very future of independent schooling at risk.

In this series of blog posts, Marguerite Roza, director of Edunomics Lab, and I explore the causes and potential solutions to the economic difficulties facing many independent schools today as well as how this analysis might help schools move to more sustainable financial ground. The Edunomics Lab, a research center based at Georgetown University, explores financial and structural tradeoffs to help school leaders improve outcomes for students without increasing spending.

This post lays out the causes and consequences of the financial challenges that many independent schools face. Taking a page from the Edunomics Lab research, I advocate the importance of having a firm grasp of the per-pupil costs of school operations — and looking at how per-pupil cost comparisons can be used to identify savings. The next post will detail how to analyze per-pupil costs. As the series progresses, we welcome feedback of school leaders who have already begun this process at their schools, and hope to learn from your experiences.

Pressure from Three Sides

When operating costs rise, independent schools typically reduce offerings, charge higher tuition, or expand development efforts. For most school leaders, paring down programs is the least palatable option, because it makes it harder to attract students. But substantial tuition increases are putting independent education out of reach for more and more families. NAIS member schools’ tuition has grown twice as fast as mean family income since 1981.

In a recent Independent Ideas post, Mark Mitchell, vice president of School and Student Services by NAIS, discusses the resulting tension between “enrolling the students we want or the money we need.” Most independent schools already rely on fund-raising as a structural component of their budgets, and it's unlikely that many schools will be able to generate substantially higher levels of giving to close the growing gap between what schools charge and what families can afford. At best, fund-raising is a stop-gap solution to the structural challenges independent schools face.

Meanwhile, the emergence of magnet schools, charter schools, and a wide range of online options has given parents far more public-sector schooling choices, making it easier for them to find the right fit for their children at no cost. The charter sector even provides single-sex and boarding options, long the purview of independent education.

Galvanized by this new competition, many public school districts have launched magnet programs, modernized buildings, and, in some places, increased spending to make themselves more attractive. At the same time, “open enrollment” programs in public school systems in growing numbers of cities allow parents to select any public school beyond their neighborhood. Increasingly, as a result, urban families no longer feel compelled to move to suburbs or select independent schooling in pursuit of rigorous, tailored models of education.

What's more, a growing number of competitors are using technology to deliver the sorts of personalized instruction that has long been a hallmark of independent education — and at a much lower marginal cost than independent schools. Online schools make it easy for families to homeschool. Brick-and-mortar schools use online modules to deliver instruction so students can progress at their own pace. And a flurry of investment in personalized schools from the tech sector, such as AltSchool and Ad Astra, promises more innovations to come.

Partly as a result of these trends, independent schools face a challenging financial future.

But this doesn’t mean that the economic challenges facing independent schools are insurmountable. To the contrary, many of the cost-saving strategies the Edunomics Lab has developed for public sector educators could be applied successfully in independent schools.

Getting a Grip on Escalating Costs

The cornerstone of sound financial planning is better understanding the per-student cost of different aspects of school operations. This permits schools to see clearly the relationship between their spending habits and strategic priorities. It's also the first step in identifying effective cost-savings strategies.

Consider one eastern school district the Edunomics Lab worked with to reduce a budget shortfall. The leaders started with a per-student cost analysis to help inform their thinking. Together with the Lab, they added up the labor, materials, and fees for each offering and divided those sums by the number of students in each course. Not surprisingly, they found that smaller classes taught by senior teachers cost the most per pupil. In particular, AP courses averaged $1,660 per student, in comparison with core courses, which cost $739 per student. The calculations revealed that the district leaders might need to rethink the smallest classes with high-priced teachers and check whether these courses were anchor courses of most value to their students or fringe courses of lesser overall importance.

In a western school district, the analysis started with the extracurricular offerings. Extracurricular programs typically cost less per student than their academic counterparts. But the school that the Lab worked with found some surprising per-student breakdowns — and savings opportunities — in their non-academic offerings. The most prominent was that cheerleading cost $1,348 per student. Exploring alternatives, they learned that they could offer cheerleading in a more cost-effective way by paying a stipend to the coach rather than finding a salaried teacher to run the program. By changing the cost structure of an unusually high per-pupil cost, school leaders were able to maintain a cheerleading program but do so in a way that demanded fewer resources. Analyzing per-student costs helped them identify the best place to save.

Some independent schools have found that changing the way services are provided can change the cost structure. A large Catholic school in Seattle pays the fees for its female students to play on a local club lacrosse team. Another Seattle independent school outsources its rowing program to a rowing club nearby. A third school contracts with a local artisan to teach pottery classes. In some cases, the quality of instruction is higher in outsourced programs because the providers are specialists. For some, the outsourcing strategy allows then to maintain a larger range of offerings for its students without driving up the per-student costs.

These and other strategies can help schools keep escalating costs in check and ensure that their financial models remain viable in the future. In the next post, I’ll explore per-pupil analysis in more detail to help schools implement saving strategies detailed in the following posts.

Some NAIS Resources on School Finance and Budget Matters

The 2014-2015 NAIS Trendbook chapter “The Budget Outlook” written by NAIS Vice President for Studies, Insights, and Research Amada Torres. The chapter includes additional examples on shared services and outsourcing.
Torres’s post in January 2015 based on her 2014-2015 NAIS Trendbook chapter “The Budget Outlook.”
An NAIS TrendTalk webinar on school budgets given by Torres. This expands on her Trendbook chapter by including several slides on expenses per student ratios: administrator salaries, teacher salaries, benefits, technology, etc., all of them calculated as per-student ratios.
The 2015-2016 NAIS Trendbook chapter “The Budget Outlook” written by NAIS President John Chubb and NAIS Data Analyst Constance Clark.

Lucretia Witte is a research affiliate with the Edunomics Lab at Georgetown University. She is currently pursuing her MPP at Georgetown and hopes to found an independent school with a strong focus on travel and work experiences. Witte has taught in two independent schools and is a graduate of Phillips Academy (Massachusetts).