A few days ago, I was consulting to an independent school on income streams and of course, one of the things we discussed was tuition income and fees. Serendipity being what it is, this story then appeared "in my feed", as the youg`uns say, and raises several issues, one of which I would like to discuss.
Those who know about these things like to discuss "net tuition revenue" when budgeting rather than "tuition revenue", and this distinction is important. Net revenue means what the school actually receives. While the school may budget 100 students at $10,000 or $1,000,000, they may actually receive only $700.000. The difference? Discounts and non-real financial aid.
Schools often offer discounts to siblings, for early enrolment or re-enrollment, for payment in full in cash, to the children of staff and alumni and so on. So in a perfect scenario, the school would include in the budget an amount or a percentage for these discounts, based perhaps on projections or on historical data. Sometimes this is an expense, sometimes a negative-income line. Surprisingly, many of the schools I have been advising do not know this and so do not know how much any individual discount "costs", or in other words, how it affects income. All they know is that classes are full and that at the same time they lack some of the funds they had anticipated. Discounts are generally a bad thing for a school in budget-terms because they are in and of themselves unmanageable and unpredictable.
The second cost or negative-income item is what is prompted by the aforementioned article, that of non-real financial aid. As a quick primer, schools have three kinds of financial aid. The first is where they have real money, for example from an endowment or a grant, and financial aid is awarded from this fund. In this case, aid means real money to the school and has no negative effect on the budget. This is the ideal situation, and in one of the schools where I was Director was represented by a state tax credit scholarship. The limitation here are the usual enrollment limitations such as class size, academic requirements etc.
The second is where the school has budgeted a fund, which functions as above, and the school awards financial aid from this fund. On the income side, this appears as real money while on the expense side it appears as a real expense. As long as the school does not go over-budget, this too has no effect on the budget and can be an effective tool in enrollment management, for example by targeting Grade Three or recruiting for the Choir or the Chess team.
The third is the problematic area, and which is indirectly raised by the piece, because in many schools, financial aid is awarded willy nilly, without limitations (see point two above) other than of course qualifications such as family income. The reason that this is problematic is that this type of financial aid is nothing more than a discount and discounts can be, and often are, a bad thing. The only way around this is to say full-fee applications have priority, which would be a PR disaster, or that later full-fee applicants can kick early-enrolled discounted applicants off the bus which would be even worse.
This is of course why the institutions mentioned are choosing full-fee students over discounted, either group two or three above since these discounts do not represent real money. Financial aid is not black and white.
**Please leave your comments and questions below*
Further reading
No comments :
Post a Comment