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Controlling the Cost of Private Education

August 26, 2016

Kevin T. White, CPA,
Partner

What can schools do to curb tuition increases while continuing to invest in on-campus improvements.

It’s no secret that the cost of education in the United States is on the rise. Student loan debt and rapidly rising tuition prices are the subject of countless news stories. The subject of these reports and news stories are typically American colleges and universities, which—considering Americans owe more than $1.3 trillion in debt related to higher education—comes as no surprise.

But college students aren’t the only group facing tuition spikes.

The cost of private education at an independent school (school) in New England has never been higher. According to recent data from the National Association of Independent Schools (NAIS) and Association of Independent Schools in New England (AISNE), the average tuition bill for just one year at a private high school in New England comes out to more than $36,000 ($54,000 for boarding school).

What happened?

Schools set their tuition rates based on a series of economic factors, perhaps the most important being competition in the marketplace. Just as retail chains or professional service firms compete with one another for customers and clients, private schools are competing for students.

Over the years, schools have tried to stay competitive and set themselves apart by investing in on-campus improvements which have become very expensive due to rising curriculum projects and construction costs. They hire new teachers and support staff so that they can offer students individualized, unique academic programs. They have built state-of-the-art athletic facilities, science laboratories, or music halls by raising contributions. These improvements are very attractive to new students, but they also put pressure on the schools’ operating budgets due to increasing maintenance of the facilities.

Put simply: Schools are becoming more expensive to attend because the schools themselves are becoming more expensive to run.

How can schools control their rising tuition costs—and why should they?

It’s easy to assume schools benefit from high tuition costs; after all, charging higher tuitions means schools are bringing in more money. However, when tuition becomes too expensive for the target demographic to afford, schools run the risk of losing potential students to similar, but more affordable, competitors.

That’s why school leaders and board members actually feel enormous pressure to control tuition costs, while finding ways to continue increasing faculty salaries; investing in on-campus improvements; and offering competitive financial aid packages.

Schools can control the tuition cost of private education by taking a hard look at their budgeting process. During this process, schools should:

  1. Employ Zero-Based Budgeting

    Zero-based budgeting is a “method of budgeting in which all expenses must be justified for each new period.” In other words, this process forces budget planning committees and board members to work with a clean slate at the beginning of each and every fiscal year, rather than appropriating funds based on where they went in the previous year.

    This can help schools avoid unnecessary “blanket increases,” and forces budget planners to think strategically about the best ways to spend and save money in the current year.
     
  2. Focus on seeking out savings rather than staying under budget

    Several years ago, the economy was in great shape and demand for schools was as high as ever. Many schools across the country had the luxury of focusing on growth rather than actively seeking out ways to save on overhead.

    Then the recession hit, and budgeting processes changed. Schools were forced to cut expenses and make tough decisions. Even though the economy is certainly recovering, schools can curb their tuition rates by continuing to find new, innovative ways to cut costs with a similar mindset as during the recession years when they were forced to do it.
     
  3. Find new sources of income other than tuition

    The majority of schools’ operating budgets are funded by tuition, but there are several other ways schools can generate additional income.

    Many schools generate additional income through comprehensive fundraising events, creating and growing endowments, providing ancillary programs, and renting out their facilities (athletic fields and gymnasiums, summer camps, theaters, etc...) to third-parties.

It’s important to start thinking about tuition rates now

Tuition rates at schools in New England are more expensive than anywhere else in the country because competition is higher here than anywhere else. Local families who are interested in sending their children to independent schools have plenty of options—and tuition rates is playing a much larger role in their decision.

By analyzing their budgeting process and controlling operations costs, schools can make themselves more attractive to potential students, and set themselves up for long-term future success.

How BlumShapiro Can Help

At BlumShapiro, we’re dedicated to helping educational institutions with our complete range of audit, tax and consulting services. Not only are we experts in these areas, but we also have a keen understanding of the entire educational industry as well as its financial and business operations. This gives your institution the unique benefit of having a highly specialized team on your side. Learn more >>

 

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