Independent School Financial Sustainability:

Past, Present and Future

Independent Education Trustee Workshop

Washington, DC September 30, 2014 NBOA

Today’s Speakers

Jeffrey Shields, FASAE, CAE President and CEO Genevieve Madigan, Vice President, Professional Development and Research

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Program Goals

• Discuss the financial climate for independent schools leading up to, and including, the economic downturn in 2009 • Explore current data specific to the Washington, DC, region from the most recent NBOA Business Office Survey, in addition to other sources • Share insights on future challenges facing independent schools NBOA

Before the Economic Climate Changed…(circa 2008)

• Tuitions up 30% (real dollars) over 10 years • Overall staff up 32% over 10 years • Student: teacher ratios getting smaller • Financial aid grant dollars up 38% • Enrollment up 20% NBOA

Different Ideas “New Normal”

• Charge only what people can pay • Design your program to that revenue number

“Full Steam Ahead”

• Charge what it costs • CPI + 2 or more when needed NBOA

NAIS: The New Normal

 Increase enrollment without increasing staff  “Sunset” an old program for every new one  Right size: re-think class size, workload, # of teacher specialists, assistants, school size  Devote 1/3 rd of each fundraising dollar raised to endowment NBOA

ISM: 21

st

Century Model

 Decide whether you are a price , product , or process school (you can’t be all 3!)  Acknowledge that the 20 th century “factory” model of education will not prepare students for the 21 st century  Design a 21 st century school that individualizes learning using technology  Dedicate 2% of your budget to faculty professional development NBOA

2013 NBOA Business Officer Survey:

In response to the economic decline, what strategies did you implement?

average class size • but only 11.7 % did.

Increase average

to decrease • planned salary

Increase teaching

32.3% did •

Increase employee contributions for benefits

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Strategic Reactions

‘ Increase Number of Students Per Classroom 10 Survey Planned 26.4% Implemented 11.7% ‘11 Survey ‘12 Survey ‘13 Survey 19.9% 16.2% 17.9% 10.7% 11.6% 9.9%

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Strategic Reactions

Increase Teaching Load ‘10 Survey Planned 26.6% Implemented 12.8% ‘11 Survey ‘12 Survey ‘13 Survey 18.4% 14.2% 14.8% 10.9% 8.1% 9.1%

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Strategic Reactions

Increase Employee Contribution for Benefits ‘10 Survey Planned 17.5% Implemented 11.7% ‘11 Survey 20.7% 12.7% ‘12 Survey ‘13 Survey 13.5% 18.1% 13.2% 8.3%

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Strategic Reactions

Same goes for:

•

Reduce Faculty FTE

•

Reduce Staff / Admin FTE

•

Decrease Planned Salary Increases

•

Reduce Salaries

•

Reduce Benefits Source: NBOA Business Office Survey 2009-12

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13 Years of Tuition or…?

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There is NO Silver Bullet

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The Future…?

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Average yearly CPI increase for the past 12 years is 1.96%. Has your school had a tuition increase in any given year that was less than 2%?

It’s not just about affordability, but about managing expectations.

Tuition Increases: CPI versus Reality

$50 000 $45 000 $40 000 $35 000 $30 000 $25 000 $20 000 $15 000 $10 000 $5 000 $ Day Boarding 2002 $14 000 $27 400 2013 (CPI Only) $17 700 $34 575 Source: NAIS and US Bureau of Labor Statistics 2013 Actual $22 700 $46 800 NBOA

Increase in FTEs

Total School Employees 100 90 40 30 20 10 0

US Schools Mid Atlantic

80 70 60 50

2008 84 2009 80 2010 85 2011 83 Source: NBOA Business Office Surveys 2008-12 2012 86 69 2013 83 75,7 2014 84 77,5 NBOA

Independent School Revenue Streams

In general, all operating revenues fall into one of four buckets, and you only have direct control over one of them- tuition.

1.

Tuition 2.

Fund Raising 3.

Endowment 4.

Auxiliary Services

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Independent School Expenses

Greatest % of your budget, in descending order (typical school) 1.

2.

3.

4.

5.

Compensation and Benefits Facilities Financial Aid (actually a revenue offset, but for our purposes we will discuss it here) Technology Equipment and Supplies

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AN OVERVIEW OF DATA FOR YOUR SCHOOLS

• • • •

Demographics Tuition Enrollment Financial Aid

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Demographics- An example

What are the trends in terms of students for your market?

“Kindergarten bust or Middle School explosion?”

What are the income levels for your market? Where are the families who are most likely to attend your school?

Connecticut New Jersey New York Families with one or more children aged 14-17 and income over 2012 $350,000

projected 2017

6,407 10,330 15,094 23,290 25,180 38,415 Source: NAIS Demographic Center NBOA

Tuitions Continue to Rise

NAIS National Averages

• NAIS Average Median Boarding tuition, 12 th grade: $46,775

IE 2013 Averages

• Median Boarding Tuition, 12 th Grade: $48,825 • Median Day Tuition, 9 th and 12 th grade median: $22,700 • Median Day Tuition, 9 th and 12 th grade median: $33,128 NBOA

Source: NAIS Facts at a Glance

Tuition Reliance: National Perspective

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Tuition Reliance: Washington, DC, Metro Area

Annual Giving Other Earned 7% Revenue 8% Funds from Endowment 4% Funds from Interest and Surplus/Rese rves 1% Tuition Revenue 80% NBOA

Trend is going in the right direction, but…..

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The total number of students in independent schools remains unchanged.

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Financial Aid US Schools

•35.9% Remained the same •47.3% Increase •9.1% Decrease NBOA

Financial Aid: How has the 2013/14 financial aid allocation ratio changed compared with prior years?

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Financial Aid: Mid Atlantic Region

National Source: NAIS Facts at a Glance NBOA

Do you offer Full Financial Aid Awards?

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Highest Value of Partial Award

(if full awards are not provided)

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Merit Based Financial Aid

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Tuition Remission

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Remission: The Details

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Financial Aid: Allocation

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DEBATE THE PROPOSITIONS

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Debatable Propositions

• Purposely Controversial • Can take a stand: for or against • Spark new thinking around both long-held beliefs or revolutionary concepts • Eradicate “cherished theories”: things you believe, but have no evidence to support NBOA

For example…

1. The value of the smaller class experience is not as great as the cost.

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or…

2. Financial aid should only be used in service of mission, not to increase enrollment

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and…

3. Online learning can replace the personal connection between teacher and student in the traditional classroom.

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how about…

4. Fund raising activities should be strictly for capital improvements only – not to close the gap between operating revenues and expenses.

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HOT TOPICS

IMPACTING INDEPENDENT SCHOOL FINANCIAL OPS • • •

Value Added Costs Role of the Board Full-Pay International Students

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Added Value Costs

How do we add value without adding expense?

Read More About It: The value question for independent schools

by Terry Armstrong

www.claytonchristenseninstitute.org

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Role of the Board

• What is the role of Trustees in enrollment management?

Read More About It:

Boards and Enrollment Management In Schools: Interview with Dr. William Mott

by Rick Newberry

enrollmentcatalyst.com

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Full Pay International Student Enrollment

• Implications from mounting pressure to enroll more full-pay international students?

Read More About It:

What China Means to American Boarding Schools

by Trip Darrin

admissionsquest.com

Net Assets Magazine

May/June 2012 NBOA

Is your school tracking these FIVE financial indicators?

•

The gap:

• the cost to educate a student at your school and net tuition as well as Gross Tuition vs. Net Tuition (NBOA Financial Position Survey) •

Financial Aid and Tuition Remission as a % of gross tuition revenue

(NBOA Business Office Survey, Financial Position Survey and school’s own data) •

Expendable Financial Resources:

the “reserve” which a school has on hand to cope with a short-term financial shock. Expendable financial resources provide a way for a school to invest in new programs or facilities. (NBOA Financial Position Survey) •

Market Demographics

(NBOA and NAIS) •

FTE / Student Ratio

(NBOA and NAIS) NBOA

Who Is…

• Over 1,150 US member schools – and growing!

+ Canadian schools + For-profit companies + Other non-profit groups + Retirees • Headquartered in Washington, DC • 13 FTE (distributed staff model) • www.nboa.org

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Tuesday, October 7, 2014 – 8:30am – 3:00pm Holton-Arms School, Bethesda, MD Register at: www.nboa.org/events/business-office-now/ NBOA

Business Office NOW from NBOA Tuesday, October 7, 2014 – 8:30am – 3:00pm Holton-Arms School, Bethesda, MD Register at: www.nboa.org/events/business-office-now/ In ONE DAY your business operations staff will have the answers to the following questions for your school:

• How can my school develop a more sustainable financial future?

• • What will our school’s financials look like in 10 years?

How do our investments in IT compare with other schools with the same budget size and enrollment?

• • How can we recoup more of our costs from our facilities rentals?

• What are the most pressing legal issues that my school should be aware of in human resources?

What is the future of online learning for independent schools?

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