Last week, NBOA celebrated 25 years of serving schools at its Annual Meeting in Los Angeles. With dozens of vendors and hundreds of attendees, the energy at the JW Marriott was positively electric. Four of us from Clarity staffed our booth and were thrilled to speak with many CFOs and business officers from schools across the country during Monday’s business solutions showcase. I attended multiple professional development sessions on Tuesday and Wednesday while my colleagues headed to NAIS in Las Vegas. Although I spent nearly 15 years in schools and collaborated closely with the business office at each school in my work as an enrollment professional, I had never before attended NBOA. The opportunity to learn from business officers about their top concerns within the independent school industry was both fruitful and fascinating. In this post I’d like to summarize my top three takeaways from NBOA specifically related to Financial Aid.
- Financial Aid and Enrollment are the top stability concerns across the industry
The NBOA State of the Industry report indicated that enrollment continues to be the top reported risk factor for business officers as it is the primary revenue source for most schools. Every year since 2013, enrollment and affordability have been cited as the top concerns for Heads and Boards, with 68% indicating this year. And, according to data collected for DASL, Financial Aid per student is up by 11.8% and the median gap (difference between tuition charged and actual cost to educate) per student is up by 15.7%. When enrollment and/or tuition revenue drops, that deficit needs to be addressed in the form of endowment drawdowns, program cutbacks, deferred maintenance, wage stagnation, or even staffing reductions. Each one of these solutions presents a serious liability to the health of the school and can often lead to spiraling consequences as they diminish relative value which makes it that much more challenging to attract and enroll students to achieve the tuition revenue needed to get back on track. Taking a strategic approach towards net tuition revenue while the school is healthy will go a long way to managing the inherent risk factor posed by deriving the majority of the school’s operating revenue from a single source: tuition. - Tuition Pricing is becoming increasingly complex
Business officers and Heads are finding themselves grappling with determining what the “right price” is for their school and tuition increase frequency. Of course, the process of determining tuition rates for the following school year is a completely normal annual task, but the days of applying a simple 3-5% annual increase to tuition are waning for many schools and pricing is becoming a strategy unto itself, especially post-pandemic. Do we freeze tuition? Can we afford to do an incremental raise? Do we need to do a large increase in order to catch up on CapEx or salaries? How would we communicate that? What are our competitors charging? What are their discounting strategies? Where do we fall in our market? These questions, and more, complicate what was once a pretty straightforward task of tuition-setting. To quote Nishant Mehta, CEO and Founder of MehtaCognition, “tuition setting needs to balance the ability to pay and willingness to pay.” This is far more complex than, say CPI +2 for instance. It also requires that a school understand its market and position within that market and so collaboration between the business and enrollment offices becomes increasingly critical. But how do you evaluate your market’s willingness to pay? In short – take a look at the data. Graph your average NTR per student (at each price break point) against your full tuition price over a period of 5 years. How do they stack up? If your NTR is increasing with tuition, your perceived value is still healthy but if your NTR is flattening out, that could be the market telling you that you’ve reached the peak of your perceived value. The enrollment office should have their finger on the pulse of the market and the business office should be able to articulate fiscal realities. Bringing both sets of insights together will help answer the complicated questions that now surround tuition setting and ensure that affordability is still achievable for families interested in your school. - Macroeconomic trends and birthrates are generating pressure
The macroeconomic picture in the US is uncertain at best and the trend indicators are not painting a particularly rosy picture as we try to peek around the corner. Right now the Consumer Confidence Index is dropping, which means that families are feeling less able to pay tuition even if their bank accounts are relatively healthy. With most economists now predicting a recession in the near term, people are naturally going to be more conscious of hanging onto their money. This means they will tend to pull back from spending on luxuries and extras (and let’s face it, independent school is a luxury) so we are likely to see more families apply for financial aid, appeal awards, and look for ways to get the maximum value for their dollar. This is compounded by the fact that Millennials (people ages 27-42) are becoming the primary generation with school-age children. As a generation, millennials found themselves entering the workforce with more debt and a tighter job market as compared to previous generations. This is a major contributing factor to delayed home ownership, lower net worth, and the lowest birth rate in the US since the 1970s. While it’s important to keep these macro trends in mind, it’s equally important to track the micro trends of your local area or region (and if you’re a boarding school – the trends of the key feeder regions) by conducting zip code analysis, trends in the employment sector, housing development, and public schools and allow those trends to inform strategic planning.
Business officers are “wearing many hats” as we often like to say in the independent school world; they are responsible for the fiscal sustainability of the institution, they manage vendor contracts, evaluate bids for capital improvement and physical plant maintenance, serve as the primary HR representative, manage audits and taxes, and work with the Board, Head of School, and (hopefully) Director of Enrollment Management to set tuition rates each year. At most schools, the number one source of revenue that sustains all of the above is indeed tuition revenue. This is why it is crucial for business offices and enrollment/financial aid offices to work together to develop shared goals and strategies to achieve the enrollment and revenue goals that will not simply sustain the institution, but allow it to thrive even in a landscape of uncertainty.
